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HomeMy WebLinkAboutORD 04-058 ORGAIN , BELL & TUCKER , L. L. P. ATTORNEYS AT LAW P. O. BOX 1 75 1 LANCE FOX OTHER OFFICES PARTNER BEAU MONT, TEXAS 77704- 1 75 I HOUSTON - THE WOODLANDS EXTENSION 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: 1cf @Obt.com TELEPHONE (409) 838-64 1 2 SILSBEE FAX (409) 838-6959 www.obt.com October 5, 2004 VIA HAND DELIVERY Kandy Daniel City Treasurer Beaumont City Hall 801 Main Street Beaumont, Texas 77701 RE: Closing Transcript $17,000,000 City of Beaumont, Texas Waterworks and Sewer System Revenue Bonds, Series 2004 Dear Kandy: Enclosed is your copy of the closing transcript of documents for the above referenced transaction. I will be sending you later this week our firm's invoice for services as bond counsel in this transaction. Please contact me if you have any questions about this matter. We very much appreciate the opportunity to serve the City of Beaumont. Yours truly, Orga' , ell &T er, L.L.P. Lance Fox THE CITY OF BEAUMONT,TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 $17,000,000 DOCUMENT LIST Document No. Opinion of Bond Counsel 1 General Certificate of the City 2 Certified Copy of Ordinance Authorizing Bonds 3 Official Notice of Sale 4 Official Bid of Underwriter 5 Paying Agent/Registrar's Agreement 6 Signature Identification and No-Litigation Certificate 7 Attorney General's Opinion and Comptroller's Registration Certificate 8 Form 8038-G 9 Official Statement Certificate of the City 10 No-Default Certificate of the City 11 Closing Opinion of City Attorney 12 Closing Opinion of Bond Counsel 13 Surety Policy for Reserve Fund 14 Federal Tax Certificate 15 Municipal Bond Insurance Policy 16 Reliance Letter to Insurance Company 17 Reliance Letter to Underwriter 18 Section 1 ORGAIN , BELL & TUCKER , L. L. P. ATTORNEYS AT LAW P. O. BOX 1 75 1 LANCE FOX OTHER OFFICES PARTNER BEAUMONT, TEXAS 77704- 1 75 1 HOUSTON - THE WOODLANDS EXTENSION 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: lcf@obt.com TELEPHONE (409) 838-641 2 SILSBEE FAX (409) 838-6959 www.obt.com No. 1 September 16, 2004 WE HAVE ACTED as bond counsel for The City of Beaumont,Texas(the "City"),in connection with an issue of revenue bonds (the "Bonds")described as follows: THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS,SERIES 2004,in the total authorized aggregate amount of$17,000,000, dated September 1, 2004. The Bonds mature,bear interest,and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the City on August 17, 2004, authorizing their issuance (the "Ordinance"). The Bonds are being issued for the purpose of financing improvements to the City's waterworks and sewer system, as more fully described in the Ordinance. WE HAVE ACTED as bond counsel for the purpose of rendering an opinion with respect to the legality and validity of the Bonds and the Ordinance under the Constitution and laws of the State of Texas,under which the City is acting as a home-rule city of the State of Texas and also for the purpose of rendering an opinion with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. In such capacity we have examined relevant provisions of the Constitution and laws of the State of Texas, applicable provisions of the Internal Revenue Code of 1986,as amended(the"Code"),court decisions,Treasury Regulations and published rulings of the Internal Revenue Service as we have deemed relevant, a transcript of certified proceedings of the City Council of the City pertaining to the issuance of the Bonds,and other material facts within the knowledge or control of the City,upon which we rely;and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds, including an executed Bond. The transcript contains certified copies of certain proceedings of the City Council of the City;representatives of the City and other public officials; and other certified showings relating to the authorization and issuance of the Bonds. We have not investigated or verified original proceedings, records, data or other material. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Bonds. BASED ON SUCH EXAMINATION,IT IS OUR OPINION that: (1) The Ordinance and the Bonds constitute valid and legally binding obligations of the City in accordance with the terms and conditions thereof,except to the extent such enforcement may be limited by laws relating to bankruptcy, insolvency, reorganization, or moratorium or other similar laws affecting the rights of creditors,or the exercise of judicial discretion in accordance with the general principles of equity;and (2) The Bonds and all outstanding water and sewer system revenue bonds heretofore or hereafter issued on a parity therewith are payable from and are secured by a first lien on the"Net Revenues"received and collected by the City from the operation and ownership of the "System", as defined and provided in the Ordinance. Page 2 THE CITY HAS RESERVED THE RIGHT TO ISSUE additional parity bonds and subordinated lien revenue obligations, subject to the restrictions contained in the Ordinance,which may be secured by a lien on a parity with,or subordinate and inferior to,the lien on the Net Revenues securing the Bonds. IT IS FURTHER OUR OPINION that: (1) Interest on the Bonds is excludable from gross income for federal income tax purposes under existing law;and (2) The Bonds are not"private activity bonds"within the meaning of the Code,and interest on the Bonds is not subject to the alternative minimum tax on individuals or corporations, except that interest on the Bonds will be included in the"adjusted current earnings"of a corporation(other than any S corporation,regulated investment company,RETT,REMIC or FASIT)for purposes of computing its alternative minimum tax liability. In providing such opinions,we have relied on representations of the City with respect to matters solely within the knowledge of the City which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance and the Bonds pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or if the City fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery,regardless of the date on which the event causing such inclusion occurs. Except as stated above,we express no opinion as to any federal,state or local tax consequences resulting from the ownership of,receipt of interest on,or disposition of the Bonds. Holders of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits,and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. In addition,certain foreign corporations doing business in the United States may be subject to the new "branch profits tax" on their effectively-connected earnings and profits(including tax-exempt interest such as interest on the Bonds). For these reasons, holders of the Bonds should consult their own tax advisors as to the consequences of investing in the Bonds. The opinions set forth above 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 these opinions to reflect any facts of circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Yours truly, Orgain,Bell&Tucker,L.L.P. Section 2 No.2 GENERAL CERTIFICATE THE STATE OF TEXAS § COUNTY OF JEFFERSON § THE CITY OF BEAUMONT § We, the undersigned Mayor and City Clerk of The City of Beaumont, Texas, do hereby make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"),now in the process of issuance. We certify as follows: 1. That the City was incorporated pursuant to the general laws of the State of Texas, and is operating under the general laws relating to Home-Rule Cities and the Home-Rule Charter of the City; and that said Home-Rule Charter was adopted at an election held within the City on the 6th day of December, 1947; and that said Charter has in no way been amended,repealed, changed or altered since said Charter was amended by virtue of the elections held within the City on December 6, 1947, January 25, 1972, August 13, 1983, and April 5, 1986, May 2, 1998, and September 16, 2003, respectively. 2. That the following named persons now constitute the City Council of the City, to-wit: Evelyn M.Lord Mayor Becky Ames Mayor Pro Tern and Councilmember at Large Andrew P. Cokinos Councilmember at Large Lulu L. Smith,M.D. Councilmember Ward 1 Nancy A. Beaulieu Councilmember Ward 2 Audwin Samuel Councilmember Ward 3 Bobbie J. Patterson Councilmember Ward 4 3. That Rose Ann Jones is the City Clerk of the City. 4. That the Bonds are being issued to finance the expansion, repair,renovation and related improvements to the City's waterworks and sewer system. 5. That the Gross Revenues, Maintenance and Operation Expenses, and Net Revenues of the City's Waterworks and Sewer System (the "System") were in the amounts shown for the periods indicated below: Fiscal Gross M&O Net Year Revenues Expenses Revenues 9-30-99 $19,273,995 $13,803,513 $5,470,482 9-30-00 $21,452,671 $14,177,959 $7,274,712 9-30-01 $26,222,501 $14,436,517 $11,785,984 9-30-02 $26,391,991 $15,676,636 $10,715,355 9-30-03 $26,890,035 $15,647,611 $11,242,424 6. That neither the revenues nor the properties of the System are in any way pledged or hypothecated except as the Net Revenues of the System are pledged to the payment of the City's outstanding (i) Waterworks and Sewer System Revenue and Refunding Bonds, Series 1998, (ii) Waterworks and Sewer System Revenue and Refunding Bonds, Series 1999, (iii) Waterworks and Sewer System Revenue Bonds, Series 2000, (iv) Waterworks and Sewer System Adjustable Rate Revenue Bonds, Series 2002; (v) Combination Tax and Revenue Certificates of Obligation, Series 1995, which pledge of revenues is limited to $10,000 in the aggregate and constitutes a junior lien pledge of the Net Revenues, (vi)Combination Tax and Revenue Certificates of Obligation, Series 1996, which pledge of revenues is limited to $10,000 in the aggregate and constitutes a junior lien pledge of the Net Revenues, (vii) Combination Tax and Revenue Certificates of Obligation, Series 1998, which pledge of revenues is limited to $10,000 in the aggregate and constitutes a junior lien pledge of the Net Revenues; (viii) Certificates of Obligation, Series 1999, which pledge of revenues is limited to $10,000 in the aggregate and constitutes a junior lien pledge of the Net Revenues; (ix)Certificates of Obligation, Series 2001, which pledge of revenues is limited to $10,000 in the aggregate and constitutes a junior lien pledge of the Net Revenues; (x) Certificates of Obligation, Series 2003, which pledge of revenues is limited to $10,000 in the aggregate and constitutes a junior lien pledge of the Net Revenues and (xi) -2- the Bonds now in process of issuance; and that the City is not in default as to any covenant,condition or obligation on any prior bonds or certificates payable from the Net Revenues of the System. 7. Attached hereto as Exhibit "A" and incorporated herein by reference is a schedule setting forth the currently monthly rates charged by the City for water service furnished to customers within and outside the corporate limits of the City, which rates were approved and adopted by the City by Ordinance No. 04-042 passed and adopted on the 22nd day of June, 2004. 8. That the City is in full compliance with all covenants and undertakings in connection with all outstanding bonds heretofore issued by the City. 9. That the City is a home-rule municipality that: (i) adopted its charter under Section 5, Article Xl,Texas Constitution; (ii)has a population of more than 50,000 and (iii)has outstanding long- term indebtedness that is rated by a nationaly recognized rating agency for municipal securities in one of the four highest rating categories for a long-term obligation. 10. Kyle Hayes is the City Manager of the City and Max Duplant is the Finance Officer of the City and the following are the true and genuine signatures of Kyle Hayes and Max Duplant 1 1 �-- Kyle Hayes Max Duplant [The remainder of this page has intentionally been left blank.] -3- WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY OF BEAUMONT, TEXAS, this 17th day of August, 2004. Mayor, bfY OF BEAUMONT,TEXAS City Clerk, CITY OF BEAUMONT,TEXAS (SEAL) Um of. acnan -4- EXHIBIT"A" See attached. -5- /2004 11: 02 4098803113 CASH MANAGEMENT PAGE 08 ORDINANCE NO, 04-442 ENTITLED AN ORDINANCE AMENDING CHAPTER 28, SECTIONS 28-50 and 28,51. OF THE CODE OF ORDINANCES TO INCREASE WATER AND WASTEWATER -RATES .EFFECTIVE. JULY 1 IN THE YEARS 2004, 2005, -AND 2008; PROVIDING FOR SEVERABILITY; PROVIDING FOR REPEAL; AND PROVIDING A PENALTY- BE IT ORDAINED BY THE CITY OF BEAUMONT- That Chapter 28, Section 2850 of the Code of Ordinances of the City of Bow.mont :be and the same-is hereby amended to read as follows: 28.50. Water Service-Rates. O Eftdive My 1 in each year as shown below, the following rates per more shad be;the rates:charged for water service furnished to customers within.and outside of '• .. the'borporae limits of the City exoept as provided in paragraph (b) of this section. : WATERRIASTEWATER RATE 111140RFASES A4NE 16.21X14 MINIMUM MONTHLY RATES NVATER M6w 4tiidQ City Oub"o Guy a 67-22 $7-51 $7.81 $10.02 $1128 611.71 1 T.96 8.30 8.84 11.98 72.48 185 1 3Ti 4.76 910 9.47 13.13 1386 14.20 2 410-98 11.37 11.82 1340 17.05 17.74 :3 22.22 28.11 24.03 33.33 34.66 38:015 4 20.92 2901 20.13 4040 4201 43.09 /2004 11: 02 4098803113 CASH MANAGEMENT PAGE 09 oub"D city $ 46.54 50.48 non 7280 75.71 78.74 14 91.88 O&SB 88.38 137.92 44333 148.07 12 114.54 119.13 moo 171.92 179.65 996.84 LW"Rays First R,000. UWawn Wkdmum Minimeun UhMnum Nb*nu n hodrniun GaBons C3ver 1.000' . • GONG a S per 1000 52__44 32,54 52.64 $366 $&81 $3.98 A4B0[19 ' (b)The rate for senior citizens who comply with subsea ion (G) below will be at a discounted rate equivalent to the note per one thousand (1,000)gallons of*Vter. (c) Eligible senior citizens shall mean c ustomems residing in a single-ftrnil. residence inside-the city who are over the age of sixty4ne (86) years. To obtain the monthly mir durum charge deduction, persons eligible must file a svmm application on.a farm provided therefor, with Water Customer Services. Upon approval of the application the .senior citizen's monthly minimum charge shall be applicable for the life of -ft applicant. Section Z That Chapter 28, Section 2"1 of the Code of Ordinanoes of the City of Beaumont be and the same'is hereby amended to read as follows: 28.51. Wazw*ster Service Rates (a) Effective July 1 in each year as shown below, the following rates per month ' @G m ^� t4 oz 0 CL C4 � co CD m C'4 fo =�=,� '- --^- cv 412004 11: 02 4098803113 CASH MANAGEMENT PAGE 11 ''• :s r' :;_, "sip ,:!, •: •� .� i '• s .e1i'ie�sA� r§ t: S'al �•s:ii'SI•.: (b 'The-raid for:senior citizens who comply with subsection (c) below:�l ill E At :i 4.isobun�i�l rate equivalent•to the rata per one thousand (1,Q00) gallons af' '�� .�.:;� :;;;'�`:•::,., 1 1 7; :,rf'• �.:iii , e (c).� ligible senicrclkwns shall mean customers residing in a single-ftmlhy..vesi e ; M obtain the nth miirn ti'tei $the'city who;ar�e Over-the age Of suctyrfive(65)years.T o me ;.' � ha ge d"duotion j. pefagns 8 le sworn application on a fom`t eligible must file a primed' it _ "' ;:;o-.;i,�,'•� r` or ,:.. - ith'Weser customer Services. Upon approval of the application,the j ftze fsOOMly miniMum Charge shell be applicable for the life of the al:splicei t. 'j (d jt4) Flestclential $ewer catarges shall be based on the average of°:#he.•p r on ly water usage of the preceding months of November December j4p.ua� .. ti's •'��.f• S •lFeb. a - oh p0osded the months billod. �; )ibe rhonthly individual residential sewer volume charge shall riot 4W(a Od 4110. ; tver rge of the actual McWred water volume usage for the previous monft of loVr .b ry-• Where no preceding November through February rt''tontf* aiF , .3;�� •�<` •;��; Yolufr a is',.avaltable from reeords,the Water Customer Services shall establish-tin airy �, # . ontt based n the average monthly usage ly bluritie o erage y ge of all residential usof ift• at i;i s:.�. parts lar 'Oydb row for the winter monthe set out above. ! ' :,;;. 71 (e)P nd r Industrial sewer usage charges shall be based on onil u.n.d 00)=per0ent'of the metered water usage. Section ai ;r ia.t .cif°1�� 2 if seCtiOn subs pn i; � �Y � action, sentence, clause or( . rasa•of this ot�lin�,ro birtt�i�� •:i;':3 -��:.;;' � slpplidatioh of siame to a particular set of persons or circumstances should for my m.".a,i; `": ' dig hid be invalid such invalidity shall not affect the remains S;•, ;:: >. ng ports hs of this' j gi'dir , nc e�� and to such and -the various portions and provisions of this ordin ano:106. t/2004 11: 02 4098803113 CASH MANAGEMENT PAGE 12 dedored•to be severable. ectio All ordinances or part of ordinances In conflict herewith are repealed to.this extent df the conflict only: , e ` iQa 5. Thet any person who violates any provision of this ordinance shall, upon conActi 0I be punished as provided in Section 1-8 of the Code of Ordinances of the City of:Beaumon ;. rte. PASSED BY THE CITY COUNCIL of the City of Beaumont this the 22nd day of June;;2004. w r - ProTem Bedw-Ames Section 3 No. 3 CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS § COUNTY OF JEFFERSON § We, the undersigned officers of the City Council of The City of Beaumont, Texas, hereby certify as follows: 1. The City Council of The City of Beaumont, Texas, convened in regular meeting on the 17th day of August, 2004, at the regular meeting place thereof, within said City, and the roll was called of the duly constituted officers and members of said City Council and the City Clerk, to wit: Evelyn Lord Mayor Becky Ames Mayor Pro Tern and Councilmember at Large Andrew P. Cokinos Councilmember at Large Lulu L. Smith Councilmember Ward 1 Nancy A. Beaulieu Councilmember Ward 2 Audwin Samuel Councilmember Ward 3 Bobbie J. Patterson Councilmember Ward 4 Rose Ann Jones City Clerk and all of said persons were present, except the following absentees: NONE, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE OF THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004; AND CONTAINING OTHER MATTERS RELATED THERETO was duly introduced for the consideration of said City Council and read in full. It was then duly moved and seconded that said ordinance be adopted; and, after due discussion, said motion, carrying with it the adoption of said ordinance., vicv--il a and carried by the following vote: AYES: 7 NOES: 0 -1- a 2. That a true, full and correct copy of the aforesaid ordinance adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that said ordinance has been duly recorded in said City Council's minutes of said meeting pertaining to the adoption of said ordinance; that the above and foregoing paragraph is a true, full and correct excerpt from said City Council's minutes of said meeting; that the above and foregoing paragraph is a true, full and correct excerpt from said City Council's minutes as indicated therein; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of said City Council as indicated therein; that each of the officers and members of said City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and purpose of the aforesaid meeting, and that said ordinance would be introduced and considered for adoption at said meeting, and each of said officers and members consented, in advance, to the holding of said meeting for such purpose; that said meeting was open to the public as required by law; and the public as required by law; and that public notice of the date, hour, place and subject of said meeting was given as required by Chapter 551 of the Texas Government Code Annotated, Vernon's 1994, as amended. SIGNED AND SEALED this&0__day of September, 2004. CITY CLERK MAYOR(,j (S E AJL�nx,� Ar f>. _n L —2— No.3 ORDINANCE NO. 04068 ORDINANCE AUTHORIZING THE ISSUANCE OF THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004; AND CONTAINING OTHER MATTERS RELATED THERETO THE STATE OF TEXAS § COUNTY OF JEFFERSON § THE CITY OF BEAUMONT § WHEREAS, The City of Beaumont, Texas (herein referred to as the "City" or the "Issuer") is authorized, pursuant to Chapter 1502, Texas Government Code, as amended, to issue bonds payable from the net revenues of its waterworks and sewer system to provide money for acquisitions, extensions, construction, improvement or repair of such system; and WHEREAS, the City now desires to issue bonds in order to provide funds to finance the expansion, repair, renovation and related improvements to the City's waterworks and sewer system; Now, Therefore BE IT ORDAINED BY THE CITY OF BEAUMONT, TEXAS: 1. Findings and Determinations. It is hereby found and determined that the matters and facts contained in the preamble to this Ordinance are hereby found to be true and correct. 2. Definitions. Throughout this ordinance the following terms and expressions as used herein shall have the meanings set forth below: The term"Act" shall mean Chapter 1502, Texas Government Code, as amended. The term "Additional Parity Bonds" shall mean the additional parity revenue bonds permitted to be issued by the City pursuant to Section 20 of this Ordinance. The term "Blanket Issuer Letter of Representations" means the Blanket Issuer Letter of Representations between the City, the Registrar and DTC. The term "Bond Insurance Policy" shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal and interest on the Bonds. The term "Bond Insurer" shall mean Financial Guaranty Insurance Company, 1 a New York stock insurance company, or any successor thereto or assignee thereof The term 'Bond Register" shall mean the books of registration kept by the Registrar in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. The term 'Bonds" shall mean the $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 authorized in this Ordinance, unless the context clearly indicates otherwise. The term "Business Day" shall mean any day which is not a Saturday, Sunday, a day on which banking institutions in the city where the principal corporate trust office of the Registrar is located are authorized by law or executive order to close, or a legal holiday. The term "City" shall mean The City of Beaumont, Texas. The term "Closing Date"means the date of the initial delivery of and payment for the Bonds. The term"Code"means the Internal Revenue Code of 1986, as amended. The term "Comptroller"means the Comptroller of Public Accounts of the State of Texas. The term"DTC"means The Depository Trust Company of New York,New York, or any successor securities depository. The term "DTC Participant' means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. The term "Gross Revenues" shall mean all revenues, income and receipts of every nature derived or received by the City from the operation and ownership of the System (but excluding any utility deposits) and the interest income from the investment or deposit of money in the Revenue Fund, the Interest and Sinking Fund, and the Reserve Fund. The term "Interest Payment Date"; when used in connection with any Bond, shall mean March 1, 2005, and each March 1 and September 1 thereafter until maturity or earlier redemption of such Bond. The term "Maintenance and Operation Expenses" shall mean the reasonable and necessary expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service, and all payments under contracts now or hereafter defined as operating expenses by the Legislature of the State of Texas. Depreciation shall never be considered as a Maintenance and Operation Expense. 2 The term"MSRB" shall mean the Municipal Securities Rulemaking Board. The term "Net Revenues" shall mean all Gross Revenues remaining after deducting the Maintenance and Operation Expenses. The term "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. The term "Ordinance" as used herein and in the Bonds shall mean this ordinance authorizing the Bonds and all amendments and supplements hereto. The term "Owner" shall mean any person who shall be the registered owner of any outstanding Bonds. The term "Parity Bonds" shall mean the Bonds, the City's outstanding Waterworks and Sewer System Revenue Refunding Bonds, Series 1998, and the City's outstanding Waterworks and Sewer System Revenue Refunding Bonds, Series 1999, and the City's outstanding Waterworks and Sewer System Revenue Bonds, Series 2000, and the City's outstanding Waterworks and Sewer System Adjustable Rate Revenue Bonds, Series 2002, and each series of Additional Parity Bonds from time to time hereafter issued, but only to the extent such Parity Bonds remain outstanding within the meaning of this Ordinance. The term "Paying Agent" shall mean the Registrar. The term"Record Date" shall mean, for any Interest Payment Date, the fifteenth (15th) calendar day of the month next preceding each Interest Payment Date. The term "Registrar" shall mean Wells Fargo Bank, N.A., Houston, Texas, and its successors in that capacity. The term "Reserve Fund Requirement" shall mean an amount equal to the average annual principal and interest requirement on the Parity Bonds, which may be determined and redetermined each year by the City but in no event less frequently than upon the issuance of each series of Parity Bonds. The term"Rule" shall mean SEC Rule 15c-12, as amended from time to tome. The term "SEC" shall mean the United States Securities and Exchange Commission. The term "SID" shall mean the Municipal Advisory Council of Texas, which has been designated by the State of Texas as, and determined by the SEC staff to be, a state information depository within the meaning of the Rule. The term "Special Project" shall mean, to the extent permitted by law, any property, improvement or facility declared by the City not to be part of the System and 3 substantially all of the costs of the acquisition, construction and installation of which is paid from proceeds of a financing transaction other than the issuance of bonds payable from ad valorem taxes or Net Revenues of the System, and for which all maintenance and operation expenses are payable from sources other than revenues of the System, but only to the extent that and for so long as all or any part of the revenues or proceeds of which are or will be pledged to secure the payment or repayment of such costs of acquisition, construction and installation under such financing transaction. The term "System" shall mean all properties, facilities, improvements, equipment, interests and rights constituting the waterworks and sewer system of the City, including all future extensions, replacements, betterments, additions, improvements, enlargements, acquisitions, purchases and repairs to the System, but excluding all Special Projects. The term "Underwriter" shall mean RBC Dain Rauscher, Inc. 3. Authorization. The Bonds shall be issued in fully registered form in the total authorized aggregate amount of SEVENTEEN MILLION DOLLARS ($17,000,000) for the purpose of providing funds to (i) finance the expansion, repair, renovation and related improvements to the City's waterworks and sewer system, and (ii)paying all costs of issuance of the Bonds (the"Project"). 4. Designation, Date, and Interest Payment Dates. The Bonds shall be designated as "THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004" and shall be dated September 1, 2004. The Bonds shall bear interest at the rates set forth in Section 5 below from the later of September 1, 2004, or the most recent Interest Payment Date to which such interest has been paid or duly provided for, calculated on the basis of a 360 day year of twelve 30 day months, payable on March 1, 2005, and semiannually thereafter on September 1 and March 1 of each year until maturity or prior redemption. 5. Initial Bonds; Numbers and Denominations. The Bonds shall be initially issued bearing the numbers, in the principal amounts, and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Bonds shall mature, in accordance with this Ordinance, on September 1 in each of the years and in the amounts set out in such schedule. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered (with appropriate prefix) in order of their authentication by the Registrar, shall be in the denomination of$5,000 or integral multiples thereof, and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Bond Principal Interest Number Year Amount Rate R-1 2007 $ 200,000 6.250% R-2 2008 $ 205,000 6.250% R-3 2009 $ 210,000 6.250% R-4 2010 $ 215,000 6.250% R-5 2011 $ 220,000 6.250% R-6 2012 $ 225,000 6.250% 4 R-7 2013 $ 230,000 6.250% R-8 2014 $ 240,000 6.250% R-9 2015 $ 250,000 6.250% R-10 2016 $ 255,000 6.000% R-11 2017 $ 260,000 6.000% R-12 2018 $ 270,000 5.000% R-13 2019 $ 275,000 4.500% R-14 2020 $ 280,000 4.500% R-15 2021 $ 285,000 4.500% R-16 2022 $ 290,000 4.500% R-17 2023 $ 300,000 4.625% R-18 2024 $2,315,000 4.700% R-19 2026 $4,990,000* 4.750% R-20 2027 $2,680,000 4.750% R-21 2028 $2,805,000 4.750% *Denotes a Term Bond. 6. Execution of Bonds; Seal. The Bonds shall be signed by the Mayor and countersigned by the City Clerk or Deputy City Clerk, by their manual, lithographed, or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds,such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. 7. Approval by Attorney General; Registration byCom trp oller. The Bonds to be initially issued shall be delivered to the Attorney General of Texas for approval and shall be registered by the Comptroller of Public Accounts of the State of Texas. The manually executed registration certificate of the Comptroller of Public Accounts substantially in the form provided in Section 18 of this Ordinance shall be attached or affixed to the Bonds to be initially issued. 8. Authentication. Except for the Bonds to be initially issued, which need not be authenticated by the Registrar, only such Bonds which bear thereon a certificate of authentication, substantially in the form provided in Section 18 of this Ordinance, manually executed by an authorized representative of the Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Bonds so authenticated were delivered by the Registrar hereunder. 9. Payment of Principal and Interest. The Registrar is hereby appointed as the paying agent for the Bonds. The principal of and premium, if any, on the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United 5 States of America which, on the date of payment, is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable, whether at maturity or by prior redemption, at the principal corporate trust office of the Registrar. The interest on each Bond shall be payable by check on the Interest Payment Date,mailed by the Registrar on or before each Interest Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Bond Register. Any accrued interest payable at maturity on a Bond shall be paid upon presentation and surrender of such Bond at the principal corporate trust office of the Registrar. If the date for payment of the principal of or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and,effect as if made on the original date such payment was due. 10. Successor Registrars. The City covenants that at all times while any Bonds are outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Registrar for the Bonds. The City reserves the right to change the Registrar for the Bonds on not less than 60-days written notice to the Registrar, so long as any such notice is effective not less than 60 days prior'to the next succeeding principal or interest payment date on the Bonds. Promptly upon the appointment of any successor Registrar, the previous Registrar shall deliver the Bond Register or copies thereof to the new Registrar, and the new Registrar shall notify each Owner, by United States mail, first class postage prepaid, of such change and of the address of the new Registrar. Each Registrar hereunder, by acting in that capacity, Shall be deemed to have agreed to the provisions of this Section. 11. Special Record Date. If interest on any Bond is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special. Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Owner of record as of the close of business on the day prior to the mailing of such notice. 12. Ownership; Unclaimed Principal and Interest. The City, the Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of principal of and premium, if any, or interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the City nor the Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the owner of any Bond in accordance with this Section 12 shall be valid and effectual and shall discharge the liability of the City and the Registrar upon such Bond to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the 6 Bonds 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 Registrar in accordance with the applicable provisions of Texas law, including Title 6 of the Texas Property Code, as amended. 13. Registration, Transfer, and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Bond Register at its principal corporate trust office and, subject to such reasonable regulations as it may prescribe, the Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Ordinance. If the Registrar does not maintain its principal offices in the State of Texas, the City agrees to keep a Bond Register at its offices which is identical to the Bond Register maintained by the Registrar and the Registrar will notify the City as to any changes in the Bond Register within 1 business day. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Registrar. Upon due presentation of any Bond in proper form for transfer, the Registrar shall authenticate and deliver in exchange therefor, within 72 hours after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Registrar for a Bond or Bonds of the same type, maturity and interest rate and in any authorized denomination, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section 13. Each Bond delivered in accordance with this Section 13 shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The City or the Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Registrar for such transfer or exchange shall be paid by the City. 14. Mutilated, Lost, or Stolen Bonds. Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. If any Bond is lost, apparently destroyed, or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall execute and the Registrar shall authenticate and deliver a replacement Bond of like maturity, interest rate and principal amount or Maturity Amount, bearing a number not contemporaneously outstanding. The City or the Registrar may require the Owner of a mutilated Bond to pay a 7 sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Registrar. The City or the Registrar may require the Owner of a lost, apparently destroyed or wrongfully taken Bond, before any replacement Bond is issued, to: (1) furnish to the City and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) furnish such security or indemnity as may be required by the Registrar and the City to save them harmless; (3) pay all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Registrar and any tax or other governmental charge that may be imposed; and (4) meet any other reasonable requirements of the City and the Registrar. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section 14 shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. 15. Cancellation of Bonds. All Bonds paid in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be cancelled and destroyed upon the making of proper records regarding such payment. The Registrar shall furnish the City with appropriate certificates of destruction of such Bonds. 16. Book-Enty System. (a) Notwithstanding any other provision hereof, upon initial issuance of the Bonds but at the sole election of the Underwriter,the ownership of the Bonds shall be registered in the name of Cede & Co., as nominee of DTC, and except as otherwise provided in this Section, all of the outstanding Bonds shall be registered in the name of Cede & Co., as nominee of DTC. The definitive Bonds shall be initially issued in the form of a single separate certificate for each of the maturities thereof. If the Underwriter 8 shall elect to invoke the provisions of this Section, then the following provisions shall take effect with respect to the Bonds. (b) With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the City and the Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence,the City and the Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner of a Bond, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or(iii) the payment to any DTC Participant or any other person, other than an Owner of a Bond, as shown in the Register, of any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, the City and the Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute Owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on the Bonds, for the purpose of all matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. The Registrar shall pay all principal of, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the Register as provided in this Order, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner as shown in the Register, shall receive a Bond certificate evidencing the obligation of the District to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the word "Cede&Co." in this Order shall refer to such new nominee of DTC. (c) In the event that the City in its sole discretion determines that the beneficial owners of the Bonds be able to obtain certificated Bonds, or in the event DTC discontinues the services described herein, the City shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, and notify DTC and DTC Participants, as identified by DTC, of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants, as identified by DTC, of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC , as identified by DTC. In such event,the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. 9 (d) The execution and delivery of the Blanket Letter of Representations is hereby approved with such changes as may be approved by the Mayor or City Manager of the City and the Mayor is hereby authorized and directed to execute such Blanket Letter of Representations. (e) Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds, and all notices with respect to such Bonds, shall be made and given, respectively, in the manner provided in the Blanket Letter of Representations. 17. Optional Redemption and Mandatory Redem tp ion. The City reserves the right, at its option, to redeem Bonds having stated maturities on and after September 1, 2015, in whole or in part, on September 1, 2014, or any date thereafter, at a price of par plus accrued interest to the date fixed for redemption. If less than all of the Bonds are to be redeemed,the City shall determine the Bonds, or portions thereof,to be redeemed. Bonds maturing in the year 2026 (the "Term Bonds") are also subject to,mandatory redemption prior to scheduled maturity, in the amount, on the date, and on the terms set out in the form of Current Interest Bonds in this Order, at a price of par plus accrued interest to the date fixed for redemption. Bonds may be redeemed only in integral multiples of$5,000. If a Bond subject to redemption is in a denomination larger that $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. Upon surrender of any Bond for redemption in part, the Registrar, in accordance with Section 13 hereof, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. Not less than thirty(30)days prior to a redemption date for the Bonds,the City shall cause a notice of redemption to be sent by United States mail, first class,postage prepaid,to each Owner of each Bond to be redeemed in whole or in part, at the address of the Owner appearing on the Register at the close of business on the Business Day next preceding the date of the mailing of such notice. Such notice shall state the redemption date, the redemption price, the place at which Bonds are to be surrendered for payment and, if less than all the Bonds are to be redeemed, the numbers of the Bonds or portions thereof to be redeemed. Any notice of redemption so mailed shall be conclusively presumed to have been duly given whether or not the Owner receives such notice. By the date fixed for redemption, due provision shall be made with the Registrar for payment of the redemption price of the Bonds or portions thereof to be redeemed. When Bonds have been called for redemption in whole or in part and due provision made to redeem the same as herein provided, the Bonds or portions thereof so redeemed shall no longer be regarded as outstanding except for the purpose of being paid solely from the funds so provided for redemption, and the rights of the Owners to collect interest which would otherwise accrue 10 after the redemption date on any Bond or portion thereof called for redemption shall terminate on the date fixed for redemption. 18. Form. The form of the Bonds, including the form of the Registrar's Authentication Certificate, the form of Assignment, the form of Statement of Insurance, and the form of Registration Certificate of the Comptroller of Public Accounts of the State of Texas which shall be attached or affixed to the Bonds initially issued shall be, respectively, substantially as follows, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Ordinance: FORM OF BOND United States of America State of Texas NUMBER DENOMINATION R- $ REGISTERED REGISTERED THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 INTEREST RATE: MATURITY DATE: DATED DATE: CUSIP: September 1, 2004 REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS The City of Beaumont, Texas (the "City")promises to pay,but solely from certain Net Revenues as hereinafter provided, to the Registered Owner identified above, or registered assigns, on the maturity date specified above, upon presentation and surrender of this bond at the principal corporate trust office of Wells Fargo Bank, N.A., Houston, Texas (the "Registrar"), the principal amount identified above, payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay, solely from such Net Revenues, interest thereon at the rate shown above, calculated on the basis of a 360 day year of twelve 30 day months, from the later of September 1, 2004, or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this bond is payable by check on March 1 and September 1, beginning on March 1, 2005, mailed to the registered owner of record as shown on the books of registration kept by the Registrar as of the fifteenth day of the month next preceding each interest payment date. Any accrued interest due at maturity shall be paid upon presentation and surrender of this Bond at the principal corporate trust office of the 11 Registrar. THIS BOND is one of a duly authorized issue of Bonds, aggregating $17,000,000 (the "Bonds"), issued for the purpose of providing funds to (i) finance the expansion, repair, renovation and related improvements to the City's waterworks and sewer system, and(ii) paying all costs of issuance of the Bonds, pursuant to an ordinance adopted by the City Council on August 17, 2004 (the "Ordinance"), and in accordance with the authority of Chapter 1502, Texas Government Code, as amended, and all other applicable law. THIS BOND AND ALL OF THE BONDS -OF THIS SERIES are special obligations of the City, and together with the City's outstanding Waterworks and Sewer System Revenue Refunding Bonds, Series 1998, the City's outstanding Waterworks and Sewer System Revenue Refunding Bonds, Series 1999, the City's outstanding Waterworks and Sewer System Revenue Bonds, Series 2000, and the City's outstanding Waterworks and Sewer System Adjustable Rate Revenue Bonds, Series 2002, are equally and ratably payable from and secured by a first lien on the "Net Revenues" collected and received by the City from the operation and ownership of those properties, facilities, improvements, equipment, interests, rights and powers constituting the waterworks and sewer system of the City which are defined in the Ordinance as the "System", which Net Revenues are required to be set aside for and pledged to the payment of this series of bonds, the outstanding bonds and all additional bonds issued on a parity therewith, in the Interest and Sinking Fund and the Reserve Fund required to be maintained for the payment of all such bonds, all as more fully described and provided for in and subject to the restrictions and limitations imposed by the Ordinance. This Bond and the series of which it is a part, together with the interest thereon, are payable solely from such.Net Revenues and do not constitute an indebtedness or general obligation of the City. THE HOLDER OF THIS OBLIGATION IS NOT ENTITLED TO DEMAND PAYMENT OF THIS OBLIGATION OUT OF ANY MONEY RAISED BY TAXATION. THE CITY HAS RESERVED THE RIGHT TO ISSUE ADDITIONAL PARITY REVENUE BONDS, subject to the restrictions and limitations contained in the Ordinance, which shall be equally and ratably payable from, and secured by a first lien on and pledge of, the aforesaid Net Revenues in the same manner and to the same extent as this Bond and the series of which it is a part. THE CITY RESERVES THE RIGHT, at its option, to redeem the Bonds having stated maturities on or after September 1, 2015, in whole or in part, on September 1, 2014, or any date thereafter, in integral multiples of$5,000, at a price of par plus accrued interest to the date fixed for redemption. Reference is made to the Ordinance for complete details concerning the manner of redeeming the Bonds. BONDS maturing in the year 2026 (the "Term Bonds") are also subject to mandatory redemption prior to maturity in the amounts and on the dates set out below, at a price equal to the principal amount to be redeemed plus accrued interest to the redemption date: 12 TERM BONDS DUE September 1, 2026 Date Amount September 1, 2025 $2,435,000 September 1, 2026 (Maturity) $2,555,000 The Paying Agent shall select for redemption by lot, or by any other customary method that results in random selection, a principal amount of Term Bonds equal to the aggregate principal amount of such Term Bonds to be redeemed, shall call such Term Bonds for redemption on the scheduled mandatory redemption date, and shall give notice of such redemption in accordance with the Bond Order. The principal amount of Term Bonds required to be mandatorily redeemed shall be reduced by the principal amount of Term Bonds which, at least 45 days prior to the mandatory redemption date, shall have been delivered to the Registrar for cancellation or shall have been optionally redeemed and not previously credited against a mandatory redemption requirement. NOTICE OF ANY REDEMPTION shall be given at least thirty (30) days prior to the date fixed for redemption by first class mail, addressed to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Registrar. When Bonds or portions thereof have been called for redemption and due provision has been made to redeem the same, the principal amounts so redeemed shall be payable solely from the funds provided for redemption and interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Ordinance. THE BONDS ARE EXCHANGEABLE at the principal corporate trust office of the Registrar for bonds in the principal amount of$5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond either(i) is registered by the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto or (ii) is authenticated by the Registrar by due execution of the authentication certificate endorsed hereon. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. THE CITY has covenanted in the Ordinance that it will at all times provide a legally qualified registrar for the Bonds and will cause notice of any change of registrar to 13 be mailed to each registered owner. IT IS HEREBY certified, recited and covenanted that this Bond has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, to exist and to be done precedent to or in the issuance and delivery of this Bond have been performed, exist and have been done in accordance with law; that the bonds of this series do not exceed any statutory limitation; and that provision has been made for the payment of principal and interest on this bond and all of the bonds of this series by the aforesaid lien on and pledge of the Net Revenues of the System. IN WITNESS WHEREOF, this bond has been signed with the manual or facsimile signature of the Mayor and countersigned -with the manual or facsimile signature of the City Clerk, and the official seal of the City has been duly impressed, or placed in facsimile, on this bond. (AUTHENTICATION CERTIFICATE) THE CITY OF BEAUMONT, TEXAS (SEAL) Mayor City Clerk Form of Registration Certificate of Comptroller of Public Accounts COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. 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 that this bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this Comptroller of Public Accounts (SEAL) of the State of Texas 14 Form of Registrar's Authentication Certificate AUTHENTICATION CERTIFICATE It is hereby certified that this bond has been delivered pursuant to the Bond Ordinance described in the text of this Bond. Wells Fargo Bank,N.A. By: Authorized Signature Date of Authentication: Form of Assignment ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said bond on the books kept for registration thereof, with full power of substitution in the premises. DATED Signature Guaranteed: Registered Owner NOTICE: The signature above must correspond to the name of the registered owner as shown NOTICE: Signature must be on the face of this bond in guaranteed by a member firm every particular, without of the New York Stock any alteration, enlargement Exchange or a commercial or change whatsoever. bank or trust company. 15 STATEMENT OF INSURANCE Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to The City of Beaumont (Jefferson County), Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), such policy being on file at the principal office of Wells Fargo Bank, N.A., as paying agent(the"Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value(if applicable), the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the required payment of principal, accreted value or interest (as applicable)has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment,whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s)of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non-cancellable for any reason. FINANICAL GUARANTY INSURANCE COMPANY 18. Legal Opinion; Cusip. The approving opinion of Orgain, Bell & Tucker, L.L.P., Beaumont, Texas, Bond Counsel, and CUSIP Numbers may be printed on the Bonds,but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. 16 19. (a) Pledge and Source of Parent. The City hereby covenants and agrees that all Gross Revenues of the System shall, as collected and received by the City, be deposited and paid into the special funds established in this Ordinance, and shall be applied in the manner hereinafter set forth, in order to provide for (i) the payment of all Maintenance and Operation Expenses, and (ii) the payment of principal, interest and any redemption premiums on the Parity Bonds, and all expenses of paying, securing and insuring the same. The Parity Bonds shall constitute special obligations of the City that shall be payable solely from, and shall be equally and ratably secured by a first lien on, the Net Revenues, as collected and received by the City from the operation and ownership of the System, which Net Revenues shall, in the manner hereinafter provided, be set aside for and are hereby pledged by the City to the payment of the Parity Bonds in the Interest and Sinking Fund and the Reserve Fund as hereinafter provided, and except as otherwise expressly provided herein, the Parity Bonds shall be in all respects on a parity with and of equal dignity with one another. The holders of the Parity Bonds shall never have the right to demand payment of either the principal of or interest on the Parity Bonds out of any funds raised or to be raised by taxation. (b) Construction Fund. There is hereby created and there shall be established on the books of the City a separate account to be entitled the "City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004, Construction Fund". Immediately after the sale and delivery of the Bonds, that portion of the proceeds of the Bonds to be used for the cost of the Project and the cost of issuance of the Bonds shall be deposited into the Construction Fund and disbursed for such purposes. Pending completion of construction of the Project, interest earned on such proceeds may be used, at the City's discretion, for the Project and shall be accounted for, maintained, deposited and expended as permitted by the provisions of Section 1202.043 of the Texas Government Code, as from time to time in effect, or as otherwise required by applicable law. Thereafter, such interest shall be deposited in the Interest and Sinking Fund. Upon completion of the Project, the monies, if any,remaining in the Construction Fund shall be transferred and deposited by the City into the Interest and Sinking Fund. (c) Rates and Charges. So long as any Parity Bonds remain outstanding, there shall be fixed, charged and collected rates and charges for the use and services of the System, which may be fully sufficient at all times: (i) to pay all Maintenance and Operation Expenses; and (ii) to produce Net Revenues in each fiscal year at least equal to 110 percent of the principal and interest requirements scheduled to occur in such fiscal year on all Parity Bonds then outstanding plus an amount equal to the sum of all deposits required to be made to the Reserve Fund in such fiscal year, but in no event less than the amount required to establish and maintain the Interest and Sinking Fund, the Reserve Fund as hereinafter provided, and, to the extent that funds for such purpose are not otherwise available, to pay all other outstanding obligations payable from the Net Revenues of the System as and when the same become due. The City covenants that it will not grant or permit any free service from the 17 System except for public buildings and institutions operated by the City. (d) Special Funds. The following special funds shall be maintained and accounted for as hereinafter provided so long as any of the Parity Bonds remain outstanding: (i) Waterworks and Sewer System Revenue Fund (the "Revenue Fund"); (ii) Waterworks and Sewer System Revenue Bond Interest and Sinking Fund(the "Interest and Sinking Fund"); and (iii) Waterworks and Sewer System Revenue Bond Reserve Fund (the "Reserve Fund"). The Revenue Fund shall be maintained as a separate account on the books of the City. The Interest and Sinking Fund and the Reserve Fund shall be maintained at an official depository bank of the City, separate and apart from all other funds and accounts of the City, and shall constitute trust funds which shall be held in for the benefit of the holders of the Parity Bonds,and the proceeds of which(except for interest income, which shall be transferred to the Revenue Fund) shall be and are hereby pledged to the payment of the Parity Bonds. All of the Funds named above shall be used solely as provided in this Ordinance so long as any Parity Bonds remain outstanding. (e) Flow of Funds. All Gross Revenues of the System shall be deposited as collected into the Revenue Fund. Moneys from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order of priority: (i) First, to pay Maintenance and Operation Expenses and to provide by encumbrance for the payment of all obligations incurred by the City for Maintenance and Operation Expenses which may include an operating reserve equal to one month's estimated Maintenance and Operation Expenses. (ii) Second, to make all deposits into the Interest and Sinking Fund required by this Ordinance and any ordinance authorizing the issuance of any outstanding Parity Bonds and any ordinance authorizing the issuance of Additional Parity Bonds. (iii) Third, to make all deposits into the Reserve Fund required by this Ordinance and any ordinance authorizing the issuance of any outstanding Parity Bonds and any ordinance authorizing the issuance of Additional Parity Bonds. (iv) Fourth, to pay any amounts due to any bond insurer of Parity Bonds not paid pursuant to subsections (ii) or(iii) above. (v) Fifth, for any lawful purpose, including transfers to the General Fund as permitted by law. 18 Whenever the total amounts on deposit to the credit of the Interest and Sinking Fund and the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all outstanding Parity Bonds plus the aggregate amount of all interest accrued and to accrue thereon, no further payments need be made into the Interest and Sinking Fund or the Reserve Fund. (f) Interest and Sinking Fund. On or before the last Business Day of each month so long as any Parity Bonds remain outstanding, after making all required payments and provision for payment of Maintenance and Operation Expenses; there shall be transferred into the Interest and Sinking Fund from the Revenue Fund the following amounts: (i) Such amounts, in approximately equal monthly installments, as will be sufficient to pay the interest scheduled to become due on the Parity Bonds on the next interest payment date; and (ii) Such amounts, in approximately equal monthly installments, as will be sufficient to pay the next maturing principal of the Parity Bonds, including the principal amounts of, and any redemption premiums on, any Parity Bonds payable as a result of the exercise or operation of any redemption provision contained in this Ordinance or in any ordinance authorizing the issuance of Parity Bonds. Moneys deposited to the credit of the Interest and Sinking Fund (except for interest income, which shall be transferred to the Revenue Fund) shall be used solely for the purpose of paying principal (either at maturity or prior redemption or to purchase Parity Bonds in the open market to be credited against mandatory redemption requirements), interest and redemption premiums on the Parity Bonds, plus all bank charges and other costs and expenses relating to such payment, on a pro rata basis among all series of Parity Bonds. On or before each principal and/or interest payment date for the Parity Bonds, the City shall transfer from the Interest and Sinking Fund to the paying agents for the Parity Bonds an amount equal to the principal, interest and redemption premiums payable on the Parity Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The paying agents for the Parity Bonds shall totally destroy all paid Parity Bonds and coupons (if any) and shall provide the City with an appropriate certificate of destruction. (g) Reserve Fund. Unless the Reserve Fund is fully funded, on or before the last Business Day of each month so long as any Parity Bonds remain outstanding, after making all required payments and provision for payment of Maintenance and Operation Expenses, and after making the transfers into the Interest and Sinking Fund required in the preceding Section, there shall be transferred into the Reserve Fund from the Revenue Fund an amount at least equal to one-sixtieth (1/60"') of the average annual principal and interest requirements on the Parity Bonds, so that the Reserve Fund shall contain, in no more than 60 months after the issuance of each such issue of Parity Bonds, money and investments in an aggregate amount at least equal to the average annual principal and interest requirements on all Parity Bonds then outstanding. After such amount has accumulated in the Reserve Fund and so long thereafter as such Fund contains such amount, no further deposits shall be required to be 19 made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund. But if and whenever the balance in the Reserve Fund is reduced below such amount, monthly deposits into such Fund shall be resumed and continued in amounts at least equal to one-sixtieth (1/60`') of the average annual principal and interest requirements on the Parity Bonds until the Reserve Fund has been restored to such amount; provided however, if a Reserve Fund Surety Policy has been obtained by the City pursuant to the next paragraph below, then the provisions of such next paragraph shall govern and control with respect to replenishment of amounts drawn under the Reserve Fund Surety Policy. The Reserve Fund shall be used to pay the principal of and interest on the Parity Bonds at any time when there is not sufficient money available in the Interest and Sinking Fund for such purpose and it may be used finally to pay and retire the last Parity Bonds to mature or be redeemed. To the extent permitted by law, the City expressly reserves the right at any time to satisfy all or any part of the amounts required to be on deposit in the Reserve Fund (the "Reserve Fund Requirement") by obtaining for the benefit of the Reserve Fund one or more Reserve Fund Surety Policies (a "Reserve Fund Surety Policy"). In the event the city elects to substitute at any time a Reserve Fund Surety Policy for any funded amounts in the Reserve Fund, it may apply any bond proceeds thereby released, to the greatest extent permitted by law, to any purposes for which the bonds were issued, and if all such purposes have been satisfied, to the payment of debt service on such bonds,,and it may apply any other funds thereby released to any of the purposes for which such funds may lawfully be applied including the payment of debt service on the Parity Bonds. A Reserve Fund Surety Policy shall be an insurance policy or other similar guarantee in a principal amount equal to the portion of the Reserve Fund Requirement to be satisfied which is issued by a financial institution or insurance company with a rating for its long term unsecured debt or claims paying ability in the highest letter category by two major municipal securities evaluation sources. The premium for any such policy shall be paid from bond proceeds or other funds of the City lawfully available for such purpose. The City reserves the right to fund any increase in the Reserve Fund Requirement caused by the issuance of Additional Parity Bonds by the purchase of a Reserve Fund Surety Policy in the amount of such increase or by making transfers from the Revenue Fund to the Reserve Fund, in approximately equal monthly installments, in amounts sufficient to accumulate the increase in the Reserve Fund Requirement within sixty (60)months of the issuance of such Additional Parity Bonds. If the Reserve Fund contains only cash and the balance in the Reserve Fund is reduced below the Reserve Fund Requirement at any time, the City shall make monthly transfers from the Revenue Fund to the Reserve Fund, in approximately equal monthly installments, in amounts sufficient to restore the balance in the Reserve Fund to the Reserve Fund Requirement within twelve (12) months of the date on which the balance in the Reserve Fund was so reduced. If the Reserve Fund contains a Reserve Fund Surety Policy (and no cash) and a draw is made against such policy, the City shall make monthly transfers from the Revenue Fund, in approximately equal monthly installments, in amounts sufficient to reimburse the amount drawn under such policy within twelve (12) months. If the Reserve Fund contains a combination of cash and a Reserve Fund Surety Policy, and the balance in the Reserve Fund is reduced below the Reserve Fund Requirement by a combination of cash withdrawals and draws against the Reserve Fund Surety Policy, the City shall make monthly transfers from the Revenue Fund, in approximately equal monthly installments, in amounts sufficient to restore the cash balance in the Reserve Fund and reimburse the amount drawn under such 20 policy within twelve (12) months, with reimbursement to be made for all amounts drawn under such policy before any cash deposits are made into the Reserve Fund. Any reimbursement of amounts drawn against a Reserve Fund Surety Policy shall be limited to the amounts actually paid under such policy, and the City shall have no obligation to make any reimbursement payment with respect to any such policy except as provided herein. (h) Deficiencies in Funds. If in any month there shall not be deposited into any Fund maintained pursuant to this Section 19 the full amounts required herein, amounts equivalent to such deficiency shall be set apart and paid into such Fund or Funds from the first available and unallocated money in the Revenue Fund, and such payment shall be in addition to the amounts otherwise required to be paid into such Funds during the succeeding month or months. To the extent necessary, the rates and charges for the System shall be increased to make up for any such deficiencies. (i) Investment of Funds; Transfer of Investment Income. Money in each Fund maintained pursuant to this Section of this Ordinance may, at the option of the City, be invested as permitted by law, provided that all such deposits and investments shall be made in such manner that the money required to be expended from any Fund will be available at the proper time or times, and provided further that in no event shall deposits or investment of money in the Reserve Fund mature later than the final maturity date of the Parity Bonds. Any obligation in which money is so invested shall be kept and held in the Fund from which the investment was made. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds. All interest and income derived from such deposits and investments shall be transferred or credited as received to the Revenue Fund, and shall constitute Gross Revenues of the System; provided, however, to the extent such interest and income is derived from bond proceeds, such interest and income shall not constitute Gross Revenues of the System and shall only be used for the purposes for which the bond proceeds may be used. 20. Additional Bonds. (a) Additional Parity Bonds. The City reserves the right to issue, for any lawful purpose, including the refunding of any previously issued Parity Bonds or any other bonds or obligations of the City issued in connection with the System, one or more series of Additional Parity Bonds payable from, and secured by a first lien on and pledge of, the Net Revenues of the System, on a parity with the Bonds and any other Additional Parity Bonds then outstanding; provided, however, that no Additional Parity Bonds may be issued unless: (i) The Additional Parity Bonds mature on September 1, and interest is payable on March 1 and September 1; (ii) The Interest and Sinking Fund and the Reserve Fund each contain the amount of money then required to be on deposit therein; (iii) For either the preceding Fiscal Year or any consecutive 12-month calendar period ending no more than 90 days prior to adoption of the ordinance authorizing such Additional Parity Bonds, Net Revenues were equal to at least 21 125% of the average annual principal and interest requirements on all Parity Bonds that will be outstanding after the issuance of the series of Additional Parity Bonds then proposed to be issued, as certified by the City's Finance Officer or by an independent certified public accountant or firm of independent certified public accountants; or (iv) If the City cannot meet the test described in (iii) above, but a change in the rates and charges applicable to the System becomes effective at least sixty (60) days prior to the adoption of the ordinance authorizing Additional Parity Bonds and the City's Finance Officer certifies that, had such change in rates and charges been effective for the preceding fiscal year or 12 consecutive calendar month period ending no more than 90 days prior to adoption of said ordinance, the Net Revenues for such period would have met the,test described in(iii) above. (b) Subordinate Lien Obligations. The City reserves the right to issue, for any lawful purpose, bonds, notes or other obligations secured in whole or in part by liens on and pledges of the Net Revenues that are junior and subordinate to the lien on and pledge of Net Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. (c) Special Project Bonds. The City reserves the right to issue revenue bonds secured by liens on and pledges of revenues and proceeds derived from Special Projects. 21. Covenants and Provisions Relating to all Parity Bonds. (a) Punctual Payment of Parity Bonds. The City will punctually pay or cause to be paid the interest on and principal of all Parity Bonds according to the terms thereof and will faithfully do and perform, and at all times fully observe, any and all covenants, undertakings, stipulations and provisions contained in this Ordinance and in any ordinance authorizing the issuance of Additional Parity Bonds. (b) Maintenance of System. So long as any Parity Bonds remain outstanding, the City covenants that it will at all times maintain the System, or within the limits of its authority cause the same to be maintained, in good condition and working order and will operate the same, or cause the same to be operated, in an efficient and economical manner at a reasonable cost and in accordance with sound business principles. In operating and maintaining the System, the City will comply with all contractual provisions and agreements entered into by it and with all valid rules, regulations, directions or order of any governmental, administrative or judicial body promulgating same, noncompliance with which would materially an adversely affect the operation of the System. (c) Sale or Encumbrance of System. So long as any Parity Bond remain outstanding, the City will not sell, dispose of or, except as permitted in this Ordinance, further encumber the System; provided, however, that this provision shall not 22 prevent the City from disposing of any portion of the System which is being replaced or is deemed by the City to be obsolete, worn out, surplus or no longer needed for the proper operation of the System. Any agreement pursuant to which the City contracts with a person, corporation, municipal corporation or political subdivision to operate the System or to lease and/or operate all or part of the System shall not be considered as an encumbrance of the System. (d) Insurance. The City further covenants and agrees that it will keep the System insured with insurers of good standing against risks, accidents or casualties against which and to the extent insurance is customarily carried by political subdivisions of the State of Texas operating similar properties, to the extent that such insurance is available. The cost of all such insurance, together with any additional insurance, shall be a part of the Maintenance and Operation Expenses. All net proceeds of such insurance shall be applied to repair or replace the insured property that is damaged or destroyed, or to make other capital improvements to the System, or to redeem Parity Bonds. (e) Accounts, Records and Audits. So long as any Parity Bonds remain outstanding, the City covenants and agrees that it will maintain a proper and complete system of records and accounts pertaining to the operation of the System in which full, true and proper entries will be made of all dealings, transactions,business and affairs which in any way affect or pertain to the System or the Gross Revenues or the Net Revenues thereof. The City shall after the close of each of its Fiscal Years cause an audit report of such records and accounts to be prepared by an independent certified public accountant or independent firm of certified public accountants. Each year promptly after such audit report is prepared, the City shall furnish a copy thereof without cost to the Municipal Advisory Council of Texas and any holders of Parity Bonds who shall request same. All expenses incurred in preparing such audits shall be Maintenance and Operation Expenses. (f) Competition. To the extent it legally may, the City will not grant any franchise or allow for the acquisition, construction or operation of any competing facilities which might be used as a substitute for the System and will prohibit the operation of any such competing facilities. (g) Pledge and Encumbrance of Net Revenues. The City covenants and represents that it has the lawful power to pledge the Net Revenues to the payment of the Parity Bonds and has lawfully exercised such power under the Constitution and laws of the State of Texas. The City further covenants and represents that, other than to the payment of the Parity Bonds, the Net Revenues are not and will not be pledged to the payment of any debt or obligation of the City, or in any other manner encumbered unless such pledge or encumbrance is junior and subordinate to the lien and pledge securing payment of the Parity Bonds. (h) Remedies. This Ordinance shall constitute a contract between the City and the holders of the Parity Bonds from time to time outstanding, and the Bond Insurers, and shall remain in effect until the Parity Bonds and the interest thereon and all amounts owing to the Bond Insurers under any Bond Insurance Policy shall be fully paid or discharged or provision therefor shall have been made as provided herein. In the event of a default in the payment of the principal of or interest on any of the Parity Bonds or a 23 default in the performance of any duty or covenant provided by law or in this Ordinance or a default in respect of any Bond Insurance Policy, the holder or holders of any of the Parity Bonds or any Bond Insurer, as appropriate, may pursue all legal remedies afforded by the Constitution and laws of the State of Texas to compel the City to remedy such default and to prevent further default or defaults. Without in any way limiting the generality of the foregoing, it is expressly provided that any holder of any of the Parity Bonds or any Bond Insurer may at law or in equity, by suit, action, mandamus, or other proceedings, enforce and compel performance of all duties required to be performed by the City under this Ordinance, including the making and collection of reasonable and sufficient rates and charges for the use and services of the System, the deposit of the Gross Revenues thereof into the special funds as herein provided, and the application of such Gross Revenues and Net Revenues in the manner required in this Ordinance. (i) Defeasance. The City may defease the provisions of this Ordinance and discharge its obligation to the holders of any or all of the Parity Bonds to pay principal, interest and redemption premium (if any) thereon in any manner permitted by law, including, without limitation, by depositing with any paying agent for such Parity Bonds or with the State Treasurer of the State of Texas either: (i) cash in an amount equal to the principal amount and redemption premium, if any, of such Parity Bonds plus interest thereon to the date of maturity or redemption, or (ii)pursuant to an escrow or trust agreement, direct obligations of, or obligations the principal and interest of which are guaranteed by, the United States of America, in principal amounts and maturities and bearing interest at rates sufficient to provide for the timely payment of the principal amount and redemption premium, if any, of such Parity Bonds plus interest thereon to the date of maturity or redemption; provided, however, that if any of such Parity Bonds are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in the ordinance authorizing such Parity Bonds. Upon such deposit, such Parity Bonds and coupons appertaining thereto shall no longer be regarded to be outstanding or unpaid, and the lien on and pledge of Net Revenues securing such Parity Bonds shall thereupon cease and terminate. 0) Legal Holidays. In any case where the date fixed for payment of interest on or principal of the Parity Bonds or the date fixed for redemption of any Parity Bonds shall be a legal holiday or a day on which a paying agent for the Parity Bonds is authorized by law to close, then payment of interest or principal by such paying agent need not be made on such date but may be made on the next succeeding business day with the same force and effect as if made on the date fixed for such payment and no interest shall accrue for the period from such date to the date of actual payment. (k) Unavailability of Authorized Publication. If, because of the temporary or permanent suspension of any newspaper, journal or other publication, or, for any reason, publication of notice cannot be made meeting any requirements herein established, any notice required to be published by the provisions of this Ordinance shall be given in such other manner and at such time or times as in the judgment of the City shall most effectively approximate such required publication and the giving of such notice in such manner shall for all purposes of this Ordinance be deemed to be in compliance with the requirements for publication thereof. (1) Obligations Owing to Insurers. The City stipulates and agrees that 24 it shall make full and timely payment of all amounts owing to any Insurer under any Financial Guaranty Agreements and there shall be no termination of this Ordinance or redemption, refunding or defeasance of the Parity Bonds unless and until all of such amounts owing under the Financial Guaranty Agreement in respect of those Bonds shall have been paid in full.. 22. Further Proceedings. After the Bonds to be initially issued shall have been executed, it shall be the duty of the Mayor and other appropriate officials and agents of the City to deliver the Bonds to be initially issued and all pertinent records and proceedings to the Attorney General of the State of Texas, for examination and approval. After the Bonds to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller of Public Accounts of the State of Texas for registration. Upon registration of the Bonds to be initially issued, the Comptroller of Public Accounts (or the Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein and the seal of said Comptroller shall be impressed or placed in facsimile, thereon. 23. Sale of Bonds. The Bonds are hereby sold and shall be delivered to the Underwriter at the price of$17,000,000.00,representing the principal amount of the Bonds. In addition thereto, at the time of delivery the Underwriter shall pay to the City the accrued interest on the Bonds to the date of delivery. The City finds that the bid of the Underwriter for the purchase of the Bonds and which bid has been accepted by the City was the best bid and the purchase price and terms are hereby found and determined to be the most advantageous reasonably obtainable by the City. The Mayor and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary or desire able to satisfy the conditions set out herein and to provide for the issuance and delivery of the Bonds. All officials and representatives of the City are authorized and directed to execute such documents and to do any and all things necessary, desirable or appropriate to obtain the Bond Insurance Policy, and the printing on the Bonds covered by the Bond Insurance Policy of an appropriate legend regarding such insurance is hereby approved and authorized. 24. Tax Exemption. (a) General Tax Covenant. The City intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income taxation pursuant to Sections 103 and 141 through 150 of the Code, and the applicable Income Tax Regulations (the "Regulations"). The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Bonds to be includable in gross income, as defined in Section 61 of the Code, of the holders thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of this Section; provided, however, that the City shall not be required to comply with any particular requirement of this Section if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received Counsel's Opinion to the effect that compliance with some other requirement set forth in this Section will satisfy the 25 applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in this Section. The City represents and warrants that the City shall realize present value debt service savings (determined without regard to administrative expenses) in connection with issuance of the Bonds to the extent that the proceeds thereof are used to refund the Refunded Bonds. (b) No Private Use or Payment and No Private Loan Financing. The City shall certify, through an authorized officer, employee or agent that based upon all facts and circumstances known or reasonably expected to be in existence on the date the Bonds are delivered, that the proceeds of the Refunded Bonds have not been used, and that proceeds of the Refunded Bonds and the Bonds will not be used in a manner that would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code and the Regulations promulgated thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Refunded Bonds and the Bonds including interest or other investment income derived from Bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the Bonds will not be "private activity bonds" within the meaning of Section 141 of the Code and the Regulations promulgated thereunder. (c) No Federal Guaranty. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code and applicable regulations thereunder, except as permitted by Section 149(b)(3) of the Code and such Regulations. (d) No-Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds and the amounts transferred from the Reserve Fund for the Refunded Bonds pursuant to Section 26 of this Ordinance will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148(a) of the Code and applicable Regulations thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds and the amounts so transferred from said Reserve Fund (including interest or other investment income derived therefrom), regulate investments of such proceeds and amounts, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of Section 148(a) of the Code and applicable Regulations thereunder. (e) Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section 148(f) of the Code relating to rebate to the United States, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of Section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i)maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on 26 deposit in the funds and accounts of the City allocable to other bond issues of the City or moneys which do not represent gross proceeds of any bonds of the City, (ii) calculate at such times as are required by applicable regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds, and within sixty days after the retirement of the Bonds, or on such other date as may be permitted under applicable regulations with respect to "gross proceeds" in the Escrow Fund, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into an investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangment had been at arm's length and had the yield on the issue not been relevant to either party. (f) Information Reporting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with Section 149(e) of the Code and applicable regulations thereunder. (g) Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of this Section shall survive the defeasance and discharge of the Bonds. 25. Application of Proceeds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the City,be applied as follows: (i) Accrued interest, if any, shall be deposited into the Interest and Sinking Fund; (ii) $225,000.00 from the sale of the Bonds shall be used to pay the costs of issuing the Bonds, with any remaining portion thereof to be deposited into the Construction Fund and used to pay the costs of the Project; and (iii) The sum of $16,775,000.00 from the sale of the Bonds shall be deposited into the Construction Fund and used to pay the costs of the Project; and (iv) Any proceeds from the Bonds remaining after making all such deposits and payments shall be deposited into the Interest and Sinking Fund. 26. Re ig strar. The form of agreement setting forth the duties of the Registrar is hereby approved, and the appropriate officials of the City are hereby authorized to execute such agreement for and on behalf of the City. 27. Official Statement. The Official Notice of Sale, the Preliminary Official Statement and the Official Statement prepared in the initial offering and sale of the Bonds 27 have been and are hereby authorized, approved and ratified as to form and content. The use of the Preliminary Official Statement and the Official Statement in the reoffering of the Bonds by the Underwriter is hereby approved, authorized and ratified. The proper officials of the City are hereby authorized to execute and deliver a certificate pertaining to the Preliminary Official Statement and the Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Certificates. 28. No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Ordinance, against any official or employee of the City or any person executing any Bonds. 29. Continuing Disclosure Undertaking. (a) Annual Reports. The City shall provide annually to each NRMSIR and the SID, within six months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized in this Ordinance (i) under the headings "SELECTED FINANCIAL INFORMATION", "DEBT STATEMENT", "TAX DATA", "SELECTED FINANCIAL DATA", "ADMINISTRATION OF THE CITY", and in APPENDIX B. The information to be provided shall include the financial statements of the City prepared in accordance with the accounting principles the City may be required to employ from time to time pursuant to State law or regulation and audited, if the audit is completed within the period during which they must be provided. If the audit of such financial statements is not completed within such period, then the City shall provide unaudited financial statements for the applicable fiscal year to each NRMSI and the SID within such six month period, and audited financial statements when the audit report on such statement becomes available. If the City changes its fiscal year, it will notify each NMSIR and the SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB)that theretofore has been provided to each NRMSIR and the SID or filed with the SEC. (b) Material Event Notices. The City shall notify the 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: i. Principal and interest payment delinquencies; ii. Non-payment related defaults; iii. Unscheduled draws on debt service reserves reflecting financial difficulties; iv. Unscheduled draws on credit enhancements reflecting financial difficulties; 28 V. Substitution of credit or liquidity providers, or their failure to perform; vi. Adverse tax opinions or events affecting the tax-exempt status of the Bonds; vii. Modifications to rights of Bondholders; viii. Bond calls; ix. Defeasances; X. Release, substitution or sale of property securing repayment of the securities; and xi. Rating changes. The City shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with section(a) above.. (c) Limitations, Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Texas law that causes Bonds no longer to be outstanding. 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, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION. HOLDERS OR BENEFICIAL OWNERS OF BONDS MAY SEEK AS THEIR SOLE REMEDY A WRIT OF MANDAMUS TO COMPEL THE CITY TO COMPLY WITH ITS AGREEMENT. No default by the City with respect to its continuing disclosure agreement shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. 29 Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status or type of operations of the City, if(i) the agreement, as amended, would have permitted the Underwriter to purchase or sell the Bonds in the initial primary offering in compliance with,the Rule, taking into account any amendments or interpretations of such rule to the date of such amendment, as,well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to such amendment, or(b) any person unaffiliated with the City (such as nationally recognized bond counsel) determines the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the obligations and agreement in this Section if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, and the City may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent an underwriter from lawfully purchasing or reselling the Bonds in the primary offering of the Bonds in compliance with the Rule. If the City amends its agreement, it must include with the next financial information and operating data provided in accordance with its agreement an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of information and operating data so provided. 30. Open Meeting. It is hereby officially found and determined that the meeting at which this Ordinance was adopted was open to the public, and public notice of the time, place and purpose of said meeting was given, all as required by Chapter 551 of the Texas Government Code. 31. Interpretations. All terms defined herein and all pronouns used in this, Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Parity Bonds and the validity of the lien on and pledge of the Net Revenues to secure the payment of the Parity Bonds. 32. Special Provisions Relating to the Bond Insurance Policy. If and so long as the Bond Insurance Policy is in effect, the following provisions shall apply and be applicable: (a) Redemption Notices. Notice of any redemption of Bonds shall either (i) explicitly state that the proposed redemption is conditioned on there being on deposit in the applicable fund or account on the redemption date sufficient money to pay the full redemption price of the Bonds to be redeemed, or (ii) be sent only if sufficient money to 30 pay the full redemption price of the Bonds to be redeemed is on deposit in the applicable fund or account. (b) Default-Related Provisions. (A) The City shall, to the extent there are no other available funds, use the remaining funds in the construction fund to pay principal of or interest on the Bonds in the event of a payment default. (B) In determining whether a payment default has occurred under this Ordinance or whether a payment on the Bonds has been made under this Ordinance, no effect shall be given to payments made under the Bond Insurance Policy. (C) Any acceleration of the Bonds or any annulment thereof shall be subject to the prior written consent of the Bond Insurer (if it has not failed to comply with its payment obligations under the Bond Insurance Policy). (D) The Bond Insurer shall receive immediate notice of any payment default and notice of any other default known to the Paying Agent or the Issuer within 30 days of the Paying Agent's or the Issuer's knowledge thereof. (E) For all purposes governing events of default and remedies, except the giving of notice of default to Bondholders, the Bond Insurer shall be deemed to be the sole holder of the Bonds it has insured for so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy. (F) If this Ordinance permits the Paying Agent to waive any event of default, any such waiver shall be subject to the prior written consent of the Bond Insurer. (G) The Bond Insurer shall be included as a party in interest and as a party entitled to (i) notify the Issuer, the Paying Agent, if any, or any applicable receiver of the occurrence of an event of default and(ii)request the Paying Agent or receiver to intervene in judicial proceedings that affect the Bonds or the security therefor. The Paying Agent or receiver shall be required to accept notice of default from the Bond Insurer. (H) If, on the third day preceding any interest payment date for the Bonds there is not on deposit with the Paying Agent sufficient moneys available to pay all principal of and interest on the Bonds due on such date, the Paying Agent shall immediately notify Financial Guaranty and U.S. Bank Trust National Association, New York, New York or its successor as its Fiscal Agent (the "Fiscal Agent") of the amount of such deficiency. If, by 31 said interest payment date, the Issuer has not provided the amount of such deficiency, the Paying shall simultaneously make available to Financial Guaranty and to the Fiscal Agent the registration books for the Bonds maintained by the Paying Agent. In addition: (i) The Paying Agent shall provide Financial Guaranty with a list of the Bondholders entitled to receive principal or interest payments from Financial Guaranty under the terms of the Bond Insurance Policy and shall make arrangements for Financial Guaranty and its Fiscal Agent (1) to mail checks or drafts to Bondholders entitled to receive full or partial interest payments from Financial Guaranty and (2) to pay principal of the Bonds surrendered to the Fiscal Agent by the Bondholders entitled to receive full or partial principal payments from Financial Guaranty; and (ii) The Paying Agent shall, at the time it makes the registration books available to Financial Guaranty pursuant to (i) above, notify Bondholders entitled to receive the payment of principal of or interest on the Bonds from Financial Guaranty (1) as to the fact of such entitlement, (2) that Financial Guaranty will remit to them all or part of the interest payments coming due subject to the terms of the Bond Insurance Policy, (3) that, except as provided in paragraph (b)below, in the event that any Bondholder is entitled to receive full payment of principal from Financial Guaranty, such Bondholder must tender his Bond with the instrument of transfer in the form provided on the Bond executed in the name of Financial Guaranty, and (4) that, except as provided in paragraph (b) below, in the event that such Bondholder is entitled to receive partial payment of principal from Financial Guaranty, such Bondholder must tender his Bond for payment first to the Paying Agent, which shall note on such Bond the portion of principal paid by the Paying Agent, and the, with an acceptable form of assignment executed in the name of Financial Guaranty, to the Fiscal Agent, which will then pay the unpaid portion of principal to the Bondholder subject to the terms of the Bond Insurance Policy. (I) In the event that the Paying Agent has notice that any payment of principal of or interest on a Bond has been recovered from a Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Paying Agent shall, at the time it provides notice to Financial Guaranty, notify all Bondholders that in the event that any Bondholder's payment is so recovered, such Bondholder will be 32 entitled to payment from Financial Guaranty to the extent of such recovery, and the Trustee shall furnish to Financial Guaranty its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee and subsequently recovered from Bondholders, and the dates on which such payments were made. (J) Financial Guaranty shall, to the extent it makes payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy and, to evidence such subrogation, (i) in the case of subrogation as to claims for past due interest, the Paying Agent shall note Financial Guaranty's rights as subrogee on the registration books maintained by the Paying Agent upon receipt from Financial Guaranty of proof of the payment of interest thereon to the Bondholders of such Bonds and (ii) in the case of subrogation as to claims for past due principal, the Paying Agent shall note Financial Guaranty's rights as subrogee on the registration books for the Bonds maintained by the Trustee upon receipt of proof of the payment of principal thereof to the Bondholders of such Bonds. Notwithstanding anything in this authorizing document or the Bonds to the contrary, the Paying Agent shall make payment of such past due interest and past due principal directly to Financial Guaranty to the extent that Financial Guaranty is a subrogee with respect thereto. (c) Amendments and Supplements. Any amendment or supplement to this Ordinance or any other principal financing documents executed in connection herewith shall be subject to the prior written consent of the Bond Insurer. Any rating agency rating the Bonds must receive notice of each amendment and a copy thereof at least 15 days in advance of its execution or adoption. The Bond Insurer shall be provided with a full transcript of all proceedings relating to the execution of any such amendment. or supplement. (d) Successors. No resignation or removal of the Paying Agent or Bond Registrar shall become effective until a successor has been appointed and has accepted the duties of Paying Agent or Bond Registrar, as applicable. The Bond Insurer shall be furnished with written notice of the resignation or removal of the Paying Agent or Bond Registrar and the appointment of any successor thereto. (e) Defeasance Provisions. Only cash, direct non-callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcorp interest strips, CATS, TIGRS, STRPS, or defeased municipal bonds rated AAA by S&P or Aaa by Moody's (or any combination of the foregoing) shall be used to effect defeasance of the Bonds unless the Bond Insurer otherwise approves. In 33 the event of an advance refunding, the Issuer shall cause to be delivered a verification report of an independent nationally recognized certified public accountant. If a forward supply contract is employed in connection with the refunding, (i) such verification report shall expressly state that the adequacy of the escrow to accomplish the refunding relies solely on the initial escrowed investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (ii) the applicable escrow agreement shall provide that in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement (or the authorizing document, if no separate escrow agreement is utilized), the terms of the escrow agreement or authorizing document, if applicable, shall be controlling. (g) Reporting Requirements. The Bond Insurer shall be provided with the following: (A) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Bonds, or of any advance refunding of the Bonds, including the principal amount,maturities and CUSIP numbers thereof; (B) Notice of the downgrading by any rating agency of the Issuer's underlying public rating, or the underlying rating on the Bonds or any parity obligations, to "non-investment grade"; (C) Notice of any rate covenant violation with respect to the Bonds; (D) Notice of any material events pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934, as amended; and (E) Such additional information as the Bond Insurer may reasonably request from time to time. (h) Reimbursement of Ex penses. The Issuer shall pay or reimburse the Bond Insurer for any and all charges, fees, costs and expenses that the Bond Insurer may reasonably pay or incur in connection with the following: (i) the administration, enforcement, defense, or preservation of any rights or security hereunder or under any other transaction document; (ii) the pursuit of any remedies hereunder, under any other transaction document, or otherwise afforded by law or equity, (iii) any amendment, waiver, or other action with respect to or related to this Ordinance or any other transaction document whether or not executed or completed; (iv) the violation by the Issuer of any law, rule, or regulation or any judgment, order or decree applicable to it; (v) any advances or payments made by the Bond Insurer to cure defaults of the Issuer under the transaction documents; or (vi) any litigation or other dispute in connection with this Ordinance, any other transaction document, or the transactions contemplated hereby or thereby, other than amounts resulting from the failure of the Bond Insurer to honor its 34 payment obligations under the Policy. The Bond Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver, or consent proposed in respect of this Ordinance or any other transaction document. The obligations of the Issuer to the Bond Insurer shall survive discharge and termination of this agreement. (i) Notice Addresses. The notice addresses for the Bond Insurer and the Fiscal Agent shall be as follows: Financial Guaranty Insurance Company, 125 Park Avenue, New York, New York 10017, Attention: Risk Management; and U.S. Bank Trust National Association, 100 Wall Street, 19th Floor, New York, New York 10005, Attention: Corporate Trust Department. 33. Special Provisions Relating to the Reserve Policy. To the extent permissible by applicable law, the City is authorized at any time hereafter to obtain a Qualified Surety Bond to fund the Reserve Fund Requirement. Hereinafter such Qualified Surety Bond shall be referred to as the "Reserve Policy". If and so long as a Reserve Policy is in effect, and to the extent the following provisions are not in conflict with the provisions of Section 19 of this Ordinance, the following provisions shall apply and be applicable: (A) The City shall repay any draws under the Reserve Policy and pay all related reasonable expenses incurred by Financial Guaranty (together with interest thereon at a rate equal to the lower of(i) the prime rate of Citibank, N.A. in effect from time to time plus 2% per annum and (ii) the highest permitted by Chapter 1204 of the Texas Government Code) shall enjoy the same priority as the obligation to maintain and refill the reserve fund. Repayment of draws, expenses and accrued interest (collectively, "Policy Costs") shall commence in the first month following each draw, and each such monthly payment shall be in an amount equal to 1/12 of the aggregate of Policy Costs related to such draw. If and to the extent that cash has also been deposited in the reserve fund, all such cash shall be used (or investments purchased with such cash shall be liquidated and the proceeds applied as required) prior to any drawing under the Reserve Policy, and repayment of any Policy Costs shall be made prior to replenishment of any such cash amounts. If, in addition to the Reserve Policy, any other reserve fund substitute instrument ("Additional Reserve Policy") is provided, drawing under the Reserve Policy and any such Additional Reserve Policy, and repayment of Policy Costs and reimbursement of amounts due under the Additional Reserve Policy, shall be made on a pro rata basis (calculated by reference to the Maximum Amounts available thereunder) after applying all available cash in the reserve fund and prior to replenishment of any such cash draws, respectively. (B) Amounts paid to Financial Guaranty shall be credited first to interest due under the Reserve Policy, and under the Debt Service Reserve Fund Policy Agreement, then to the expenses due under the Debt Service Reserve Fund Policy Agreement and then to principal due under the Reserve Policy and the Debt Service Reserve Fund Policy Agreement. As and to the extent that payments are made to Financial Guaranty on account of principal due under the Reserve Policy and the Debt Service Reserve Fund Policy Agreement, the coverage under the Reserve Policy will be increased by a like amount. 35 (C) If the Issuer shall fail to pay any, Policy Costs in accordance with the requirements of Paragraph 32(A) hereof, Financial Guaranty shall be entitled to exercise any and all remedies available at law or under the authorizing document other than (i) acceleration of the maturity of the Bonds or (ii) remedies which would adversely affect owners of the Bonds. (E) This Ordinance shall not be discharged until all Policy Costs owing to Financial Guaranty shall have been paid in full. (E) As security for the Issuer's repayment obligations with respect to the Reserve Policy, Financial Guaranty is hereby granted a security interest (subordinate only to that of the Bondholders), in all revenues and collateral pledged as security for the Bonds. (F) No additional bonds may be issued without Financial Guaranty's prior written consent if any Policy Costs are past due and owing to Financial Guaranty. (G) Upon the issuance of any Additional Parity Bonds secured by the Reserve Fund, such Reserve Fund shall be fully funded (at the Debt Service Reserve Fund Requirement) upon the issuance of such parity obligations, either with cash or permitted investments or by a reserve fund credit instrument acceptable to Financial Guaranty. (H) The Paying Agent shall ascertain the necessity for a claim upon the Reserve Policy and the Paying Agent shall provide notice to Financial Guaranty in accordance with the terms of the Reserve Policy at least two business days prior to each Interest Payment Date. (1) This Ordinance shall not be modified or amended without the prior written consent of Financial Guaranty. (J) The rate covenant and the additional bonds test (in each case, if applicable) set out in this Ordinance shall be calculated with at least one times coverage of the Issuer's obligations with respect to repayment of Policy Costs then due and owing. Furthermore, no additional bonds may be issued under this Ordinance without Financial Guaranty's prior written consent if any Policy Costs are past due and owing to Financial Guaranty. (K) Financial Guaranty shall be provided with written notice of the resignation or removal of the Paying Agent and the appointment of a successor thereto, and of the issuance of additional indebtedness of the Issuer, and of any drawing on any debt service reserve fund securing the Bonds at 125 Park Avenue, New York, New York 10017, Attention: Risk Management. 36 PASSED AND APPROVED this 17`h day of August, 2004. , < Mayor The City of Beaumont ATTEST: City Clerk The City of Beaumont (SEAL) 19Od4 & rr V AV 37 Section 4 OFFICIAL BID FORM August 17,2004 Mayor and City Council City of Beaumont 801 Main Street Beaumont,Texas 77701 Gentlemen: Subject to the terms of your Official Notice of Sale and Official Statement, dated August 4, 2004, which are incorporated herein by reference, we hereby submit the following bid for the $17,000,000 THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004, dated September 1,2004. This offer is being made for all said Bonds and for not less than all. For said legally issued Bonds,we will pay you the par value thereof,plus accrued interest from their date to the date of delivery to us, plus a cash premium of$ —0— for Bonds maturing and bearing interest per annum as follows: Principal Interest Principal Interest Maturity Amount Rate Maturity Amount Rate 9-1-2007(a) $ 200,000 (v•ZS % 9-1-2018(a)(b) $ 270,000 S. 00 % 9-1-2008(a) 205,000 6•15 9-1-2019(a)(b) 275,000 Y. 50 9-1-2009(a) 210,000 6•Z5 9-1-2020(a)(b) 280,000 Lt.So 9-1-2010(a) 215,000 .2S 9-1-2021(a)(b) 285,000 Z1.5- 9-1-2011(a) 220,000 6.25 9-1-2022(a)(b) 290,000 q.S0 9-1-2012(a) 225,000 6•�5 9-1-2023(a)(b) 300,000 L(.,G25 9-1-2013(a) 230,000 (,.25 9-1-2024(a)(b) 2,315,000 K.:310 9-1-2014(a) 240,000 6.25 9-1-2025(a)(b) 2,435,000 9-1-2015(a) 250,000 6.25 9-1-2026(a)(b) 2,555,000 9-1-2016(a) 255,000 (0.00 9-1-2027(a)(b) 2,680,000 K• S 9-1-2017(a)(b) 260,000 (o •00 9-1-2028(a)(b) 2,805,000 (a) At the option of the Initial Purchaser, any or all of such serial maturities may be designated as term bonds subject to mandatory sinking fund redemption as follows;provided that the mandatory sinking fund amount in each year shall equal the amounts shown above as maturing in such year. Term Bonds Years of First Maturity Date Mandatory Principal Amount Interest (September 1) Redemption of Term Bonds Rate Z,K 3.5 o00 4-45 % c1 I ( 2oib (2.6'zb 2�575,r, K,�s % (b) Subject to optional redemption and payment, at the option of the City, in whole or, from time to time, in part, on September 1, 2014, or on any date thereafter at a price equal to the principal amount thereof,plus accrued interest to the date fixed for redemption. Interest cost,in accordance with the above bid, is: GrossInterest Cost.................................................................................. $ Less: Premium.......................................................................................................... $ NETINTEREST COST........................................................................................... $ i 5, R'q`(,:7 62.So EFFECTIVE INTEREST RATE........................................................ ...................... `{.Sf S�(S The Initial Bonds shall be registered in the name of D E. '} Co (syndicate manager). We will advise Wells Fargo Bank Texas,N.A., Houston, Texas, the Paying Agent/Registrar, on forms to be provided by the Paying Agent/Registrar and on registration instructions at least five business days prior to the date set for Initial Delivery. Cashier's Check of the 64-00 S?- Bank,15J1,4 ,Texas,in the amount of$340,000 which represents our Good Faith Deposit(is attached hereto)or(has been made available to you prior to the opening of this Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official Statement." Upon delivery of the Bonds, said check will be cashed and applied to the purchase price of the Bonds on the date of delivery of the Bonds. We agree to accept delivery of and make payment for the Initial Bonds in immediately available funds at the Corporate Trust Office, Wells Fargo Bank Texas, N.A., Houston, Texas, not later than 10:00 A.M., on September 16, 2004, or thereafter on the date the Bonds are tendered for delivery,pursuant to the terms set forth in the Official Notice of Sale. The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Bonds, a certificate relating to the "issue price" of the Bonds in the form and to the effect attached to or accompanying the Official Notice of Sale,with such changes thereto as may be acceptable to the City. Respectfully submitted, By Authorized Rep esentative ACCEPTED this 17th day of August,2004,by the City Council,City of Beaumont,Texas. MY r ATTEST: jQU City Clerk (For your information you will find attached a list of the group of purchasers associated with us in this proposal) Section 5 No. 6 BOND REGISTRAR, PAYING AGENCY AND TRANSFER AGENCY AGREEMENT THIS BOND REGISTRAR, PAYING AGENCY AND TRANSFER AGENCY, AGREEMENT (the "Agreement"), dated as of this 1st day of September, 2004, by and between The City of Beaumont, Texas [a municipal corporation organized and operating under the Texas Constitution], (hereinafter, with any authorized successor, the "Issuer"), and Wells Fargo Bank, N.A., a national banking association organized and existing under the laws of the United States of America (hereinafter, with any authorized successor, the "Paying Agent"); WITNESSETH,: WHEREAS, the Issuer is authorized to issue the $17,000,000 Waterworks and Sewer System Revenue Bonds,Series 2004 (the "Bonds") in accordance with the Ordinance attached hereto as Exhibit "A" and incorporated herein for all purposes (the "Bond Order"); WHEREAS, the Issuer desires that the Bonds be issued in fully registered form with privileges of transfer and exchange as provided in the Bond Order to assure the exemption from federal income tax of interest thereon pursuant to Section 103 of the Internal Revenue Code of 1986, as amended, and is authorized by Chapter 1203, Texas Government Code Annotated, to issue the Bonds in such form and amount and to provide for the issuance of bonds upon transfer or replacement thereof or in exchange therefor at any place of payment as provided in the Bond Order; WHEREAS, the governing body of the Issuer has authorized the issuance of the Bonds subject to the terms of the Bond Order and, to provide for registration, payment, transfer, exchange, and replacement of the Bonds, the Issuer has authorized the execution and delivery of this Agreement; and WHEREAS, all things have been done which are necessary to make the Bonds, when registered by the Comptroller of Public Accounts of the State of Texas and delivered, the valid obligations of the Issuer and to constitute this Agreement a valid and binding contract in accordance with its terms: NOW, THEREFORE, for and in consideration of the premises and the mutual covenants herein contained, and subject to the conditions herein set forth, the Issuer and the Paying Agent agree as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: A. The terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular. B. All references in this Agreement to "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this Agreement as originally executed. C. The words "herein," "hereof' and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. 1 "Agreement" means this instrument as originally executed or as it may from time to time be supplemented, modified, or amended by one or more instruments supplemental hereto entered into pursuant to the applicable provisions hereof. "Board" means the governing body of the Issuer. "Board Action" means an official action adopted by the Board as certified by a duly authorized officer thereof. "Bond Order" has the meaning ascribed to such term in the preamble to this Agreement. "Bonds" has the meaning ascribed to such term in the preamble to this Agreement. "Holder" when used with respect to any Bond, means the Person in whose name such Bond is registered, in the Bond Register. "Issuer" has the meaning ascribed to such term in the preamble to this Agreement. "Paying Agent" means Wells Fargo Bank, N. A. or any successor paying agent selected in accordance with this Agreement. "Person" means any entity, individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any governmental agency or political subdivision. "Redemption Date" when used with respect to any Bond to be redeemed means the date fixed for such redemption pursuant to the terms thereof and this Agreement. "Redemption Price" when used with respect to any Bond to be redeemed means the price at which it is to be redeemed pursuant to terms thereof, excluding installments of interest whose Stated Maturity is on or before the Redemption Date. SECTION 1.02. Notices. Any request, demand, authorization, direction, notice, consent, waiver, or other written communication provided or permitted by this Agreement or the Bond Order to be made upon, given or furnished to, or filed with A. the Issuer, shall be sufficient for every purpose hereunder if in writing and mailed, first- class postage prepaid, to the Issuer and received by it at 801 Main Street, Beaumont, Texas 77701 ATTENTION: City Manager, with a copy to be provided to Orgain, Bell & Tucker, L.L.P.; 470 Orleans Street; Beaumont, TX 77701; Attention: Lance Fox or at any other address previously furnished to the Paying Agent in writing by the Issuer Request, 2 B. the Paying Agent, shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid (and properly referencing this Agreement or the Bonds) to and received by the Paying Agent 1000 Louisiana Street, Suite 640, MAC T5001-061, Houston, Texas 77002, Attention: Trust Department, or any other address previously furnished to the Issuer in writing by the Paying Agent. Where this Agreement provides for notice to Holders of Bonds of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder, at the address of such Holder as it appears in the bond register. In any case where notice to Holders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to all other Holders. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Paying Agent, but such filing is not a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.03. Effect of Headings. The Article and Section headings herein are for convenience only and do not affect the construction' hereof. SECTION 1.04. Successors and Assigns. All covenants and agreements in this Agreement by the Issuer or the Paying Agent shall bind their respective successors and assigns. SECTION 1.05. Severability Clause. In case any provision of this Agreement, the Bond Order, or the Bonds or any application thereof shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions and applications of this Agreement shall not in any way be affected or impaired thereby. SECTION 1.06. Benefits of Agreement. Nothing in this Agreement or in the Bonds, 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 under this Agreement. SECTION 1.07. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. 3 ARTICLE TWO THE BONDS SECTION 2.01. Form Generally. The Bonds have the title and are in the denominations specified in the Bond Order. The aggregate principal amount of the Bonds which may be authenticated and delivered and outstanding under this Agreement is limited as provided in the Bond Order. SECTION 2.02. Execution, Authentication, Delivery, Dating, Registration, Replacement, Cancellation, Transfer, Exchange, Redemption and Payment of Bonds. The Bonds are to be executed, authenticated, delivered, dated, registered, replaced, cancelled, and subject to transfer, exchange and redemption as provided, and the principal and Redemption Price of and interest on the Bonds is payable to the Persons and in the manner provided, in the Bond Order. ARTICLE THREE RIGHTS AND OBLIGATIONS OF PAYING AGENT SECTION 3.01. Certain Duties and Responsibilities. A. The Paying Agent 1. undertakes to perform only such duties as are specifically set forth in this Agreement and in the Bond Order, and no implied covenants or obligations shall be read into this Agreement or the Bond Order against the Paying Agent, and 2. in the absence of bad faith on its part, may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Paying Agent and conforming to the requirements of this Agreement and the Bond Order, but in the case of any such certificates or opinions which by any provision of this Agreement or the Bond Order are specifically required to be furnished to the Paying Agent, shall be under a duty to examine the same to determine whether or not they conform to the requirements thereof. B. No provision of this Agreement shall be construed to relieve the Paying Agent from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that 1. this Subsection shall not be construed to limit the effect of Subsection A of this Section; and 2. the Paying Agent shall not be liable for any error of judgment made in good faith by any officer thereof, unless it shall be proved that the Paying Agent was negligent in ascertaining the pertinent facts. C. Whether or not therein expressly so provided, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to the Paying Agent shall be subject to the provisions of this Section. SECTION 3.02. Certain Rights of Paying Agent. Except as otherwise provided in Section 3.01 hereof: 4 A. the Paying Agent may rely and shall be protected in acting or refraining from acting upon any Order, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, coupon, or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; B. the Paying Agent may consult with legal counsel and the written advice of such counsel or any opinion of counsel shall be full and complete authorization and protection in respect of any action taken, suffered, or omitted by the Paying Agent hereunder in good faith and in reliance thereon; C. the Paying Agent shall not be bound to make any investigation into the facts of matters stated in any Order, certificate, statement, instruments, opinion, report, notice, request, direction, consent, order, bond, coupon, or other paper or document, but the Paying Agent, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Paying Agent shalt determine to make such further inquiry or investigation, it shall be entitled to examine the books, records, and premises of the Issuer, personally or by agent or attorney; and D. the Paying Agent may execute any of the trusts or powers hereunder or perform any of the duties hereunder either directly or by or through agents or attorneys, and the Paying Agent shall not be responsible for any misconduct or negligence on the part of any agent employed or attorney retained with due' care by it. SECTION 3.03. Not Responsible for Recitals. The recitals contained in the Bonds, except for the certificate of authentication on the Bonds, shall be taken as the statements of the Issuer, and the Paying Agent assumes no responsibility for their correctness. SECTION 3.04. May Hold Bonds. The Paying Agent, in its commercial banking or any other capacity, may become the owner or pledgee of Bonds and otherwise deal with the Issuer with the same rights it would have if it were not serving as Paying Agent. SECTION 3.05. Money Deposited with Paying Agent. Money deposited by the Issuer with the Paying Agent for payment of the principal (or Redemption Price, if applicable) of or interest on any Bonds shall be segregated from other funds of the Paying Agent and the Issuer and shall be held in trust for the benefit of the Holders of such Bonds. All money deposited with the Paying Agent hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. 5 Amounts held by the Paying Agent which represent principal of and interest on the Bonds 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 Paying Agent in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. The Paying Agent shall have no liability by virtue of actions taken in compliance with this provision. The Paying Agent is not obligated to pay interest on any money received by it hereunder. This Agreement relates solely to money deposited for the purposes described herein, and the parties agree that the Paying Agent 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 3.06. Compensation and Reimbursement. The Issuer agrees: A. to pay to the Paying Agent from time to time reasonable compensation for all services rendered by it hereunder, which compensation shall be established initially for the Bonds in accordance with the schedule attached as Exhibit"B", which is made a part hereof for all purposes; B. except as otherwise expressly provided herein, to reimburse the Paying Agent upon its request for all reasonable expenses, disbursements, and advances incurred or made by the Paying Agent in accordance with any provisions of this Agreement (including expenses disbursements and advances of its counsel), except to the extent covered by the compensation established pursuant to Subsection A of this Section except any such expense, disbursement, or advance as may be attributable to the negligence or bad faith of the Paying Agent; and C. to and shall, to the full extent permitted by law, indemnify, defend and hold harmless the Paying Agent, together with its officers, directors, agents and employees, from and against any and all claims, losses, damages, causes of action, suits and liability of every kind, including all expenses of litigation, court costs and attorney's fees, incurred without negligence or bad faith on the part of the Paying Agent, arising out of or in connection with the administration or performance of its duties and obligations or the exercise or performance of any of its powers hereunder. SECTION 3.07. Resignation and Removal. The Paying Agent may resign from its duties hereunder at any time by giving not less than 30 days' written notice to the Issuer; provided, however, that such resignation shall not become effective until a successor shall have accepted the duties of the Paying Agent hereunder by written instrument. The Paying Agent may be removed from its duties hereunder at any time with or without cause by Board Action designating a successor upon not less than 30 days' notice; provided, however, that no such removal shall become effective until such successor has accepted the duties of the Paying Agent hereunder by written instrument. Upon the effective date of such resignation or removal (or any earlier date designated by the Issuer in case of resignation) the Paying Agent shall, upon payment of all its fees, charges, and expenses then due, transfer and deliver to, or upon the order of, the Issuer all funds, records, and Bonds held by it(except any Bonds owned by the Paying Agent as Holder or pledgee), under this Agreement. If the Paying Agent resigns or is removed, the Issuer shall by Board Action promptly appoint and engage a successor to act in the place of the Paying Agent hereunder, which appointment shall be effective as of the 6 effective date of the resignation or removal of the Paying Agent. Such successor shall immediately give notice of its substitution hereunder in the name and at the expense of the Issuer to its predecessor and to the Holders, which notice shall include the name of the successor to the Paying Agent and the address of its principal office. SECTION 3.08. Merger, Conversion, Consolidation, or Succession. Any corporation into which the Paying Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion, or consolidation to which the Paying Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Paying Agent shall be the successor of the Paying Agent hereunder without the execution or filing of any paper or any further act on the part of either of the parties hereto. In case any Bond shall have been registered, but not delivered, by the Paying Agent then in office, any successor by merger, conversion, or consolidation to such authenticating Paying Agent may adopt such registration and deliver the Bond so registered with the same effect as if such successor Paying Agent had itself registered such Bonds. SECTION 3.09, Paying Agent Not a Trustee. This Agreement shall not be construed to require the Paying Agent to enforce any remedy which any, Holder may have against the Issuer during any default or event of default under any agreement between any Holder and the Issuer, including the Bond Order or to act as trustee for such Holder. SECTION 3.10. Paying Agent Not Responsible for Bonds. The Paying Agent shall not be accountable for the use of any Bonds or for the use or application of the proceeds thereof. SECTION 3.11. Paying Agent's Funds Not Used. No provision of this Agreement shall require the Paying Agent to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights of 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. The Paying Agent shall in no event be liable to the Issuer, any Holder, or any other Person for any amount due on any Bond from its own funds. SECTION 3.12. Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. The City of Beaumont, Texas ("Issuer") By. .� . Title: Mayor ATTEST: 4 Y�Q o City Clerk (SE A) ,U[VI Cr�, ..4.. . WELLS FARGO BANK, N.A. Y d ; (,Paying Agent") P By 4, 1 d�� _eirdre ward � Name: t Title: Trust Officer ATT.. '4066080 ICK ,1 H EXHIBIT "A See the certified copy of the Bond Ordinance that is included under Tab 3 of the Transcript of Documents. 9 Wells Fargo Bank Corporate Trust Services 1445 Ross Avenue, 2nd Floor Dallas, Texas 75202 Tel: (214) 740-1548 Fax: (214)777-4086 SCHEDULE OF FEES $17,0001000 CITY OF BEAUMONT WATERWORKS & SEWER SYSTEM REVENUE BONDS SERIES 2004 SERIES 2004 To act as PAYING AGENT & REGISTRAR Acceptance Fee: $0.00 Initial Fees as they relate to Wells Fargo Bank acting in the capacity of Paying Agent/Registrar — includes creation and examination of the Paying Agent/Registrar Agreement; acceptance of the appointment; setting up of Paying Agent/Registrar records and accounting records; and coordination of closing. Acceptance Fee payable at time of Paying Agent/Registrar Agreement execution. Annual Administration Fee: $500.00 For ordinary administration services by Paying Agent/Registrar—includes daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. The Annual Administration fees are payable in advance,with the first installment due at closing. Out of Pocket Expenses: We only charge for out-of-pocket expenses in response to specific tasks assigned by the client. Therefore, we cannot anticipate what specific out-of-pocket items will be needed or what corresponding expenses will be incurred. Possible expenses would be, but are not limited to, express mail and messenger charges, travel expenses to attend closing or other meetings. There are no charges for indirect out-of-pocket expenses. This fee schedule is based upon the assumptions listed above which pertain to the responsibilities and risks involved in Wells Fargo undertaking the role of Paying Agent/Registrar. These assumptions are based on information provided to us as of the date of this fee schedule. Our fee schedule is subject to review and acceptance of the final documents. Should any of the assumptions, duties or responsibilities change, we reserve the right to affirm,modify or rescind our fee schedule. Submitted by: Gregory A Hasty—September 9,2004 Vice President/Business Development Wells Fargo Bank (214)740-1548 P#28687 Section 6 No. 7 SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF JEFFERSON § We, the undersigned officers of THE CITY OF BEAUMONT, TEXAS (the "City"), in connection with the issuance and delivery of the following described revenue bonds(the 'Bonds"): THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS,SERIES 2004, dated September 1,2004, aggregating$17,000,000, do hereby certify, as of the date set forth below, the following: 1. We officially executed and signed the Bonds by manually signing or causing facsimiles of our manual signatures to be imprinted or lithographed on each of the Bonds, and we hereby adopt such facsimile signatures as our own, respectively, and declare that such facsimile signatures constitute our signatures the same as if we have manually signed each of the Bonds. 2. The Bonds are substantially in the form, and have been duly executed and signed in the manner,prescribed in the ordinance authorizing the issuance of such Bonds. 3. At the time we so executed and signed the Bonds we were, and at the time of executing this certificate we are,the duly chosen, qualified and acting officers authorized to execute the Bonds and execute and deliver this certificate, and we hold the offices set forth below opposite our signatures. 4. No litigation of any nature has been filed or is now pending or threatened, which contests or attacks the validity of the Bonds; which would restrain or enjoin the issuance or delivery of the Bonds; which would restrain or enjoin the levy and/or collection and/or pledge of revenue or funds from which the Bonds are payable, or which would in any other manner affect the provisions made for their payment or security; or which in any manner questions the proceedings or authority concerning the issuance of the Bonds. 5. Neither the corporate existence nor the boundaries of the City are being contested; no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute, and deliver the Bonds or would affect the title of the undersigned to their respective offices; and no authority or proceedings for the issuance, execution or delivery of the Bonds have been repealed,rescinded or revoked. 6. No additional bonds, certificates, warrants or other indebtedness have been issued by the City since the date of the City's General Certificate submitted to the Attorney General of the State of Texas in connection with his approval of the Bonds. 7. The seal which has been impressed, or placed in facsimile, upon each of the Bonds is the legally adopted, proper and only official seal of the City, and such official seal is impressed on this certificate. 8. The information contained in the General Certificate dated August 17,2004, is still true and correct. SIGNED AND SEALED as of 2004. Signatures Title of Office MAYOR,THE CITY OF BEAUMONT,TEXAS CITY CLERK THE CITY OF BEAUMONT,TEXAS (S E. LIU 2 y 1' -2- THE STATE OF TEXAS § COUNTY OF JEFFERSON § BEFORE ME, the undersigned Notary Public, on this day personally appeared Evelyn Lord and Rose Ann Jones, known to me to be the persons whose names are subscribed to the attached and foregoing instrument, and who executed such instrument in my presence, and who acknowledged to me that such instrument was executed by them for the purposes and in the capacities stated therein. WITNE�S MY HAND AND SEAL OF OFFICE this � day of A o .�^ Q r' ,2004. NOTARY PUBLIC, STATE OF TEXAS (SEAL) ♦N���H I"�. LANCE FOX g®` NOTARY PUBLIC may STATE OF TEXAS 4rEOFtEi My Comm.EYpins 10-22-2005 -3- Section 7 l V � � n FRj�_11 ATTORNEY GENERAL OF TEXAS GREG ABBOTT September 16, 2004 THIS IS TO CERTIFY that the City of Beaumont, Texas (the "Issuer")has submitted to me The Ci�of Beaumont, Texas,Waterworks and Sewer System Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), in the aggregate principal amount of $17,000,000,for approval. The Bonds are dated September 1,2004,numbered R-1 through R-21, and were authorized by Ordinance No. 04068 passed on August 17, 2004 (the "Ordinance"). In connection therewith, the Issuer has additionally submitted to me for review a Debt Service Reserve Fund Policy Agreement dated as of September 16, 2004 (the"Agreement"). 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 Bonds. 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 Bonds have been issued in accordance with law and are valid and binding special obligations of the Issuer. (2) The Bonds,together with the Parity Bonds,are equally and ratably payable from and secured by a first lien on the Net Revenues collected and received from the operation and ownership of the Issuer's System. (3) The owner of the Bonds shall never have the right to demand payment of the Bonds from any funds raised or to be raised by taxation. POST OFFICE BOX 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-2100 WWW.OAG.STATE.TX.US An Equal Employmen!Oppar!uni!y Employer • Prin!ed on Rrryded Paper The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 - $17,000,000 -Pa e2 - Therefore, the Bonds are approved and, pursuant to section 1502.064 of the Government Code, the Agreement is also approved. Attorney neral of the State of Texas No.42299 Book No.2004C MAA 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: The City of Beaumont Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 numbered R-1/R-21. of the denomination of $ various, dated September 1, 2004, 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 16th day of September, 2004, under Registration Number 68949. Given under my hand and seal of office, at Austin, Texas, the 16th day of September, 2004. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, 11 Bond Clerk ❑X Assistant Bond Clerk in the office of the Comptroller of the State of Texas,do hereby certify that, acting under the direction and authority of the Comptroller on the 16th day of September. 2004, 1 signed the name of the Comptroller to the certificate of registration endorsed upon the: The City of Beaumont Texas Waterworks and Sewer System Revenue Bonds, Series 2004, numbered R-1/R-21. ed September 1. 2004, and that in signing the certificate of registration I used the following si na re: IN NESS WHEREOF I have ex cuted this certificate this the 16th day of September. 2004. 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 68949. GIVEN under my hand and seal of office at Austin,Texas,this the 16th day of September. 2004. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas Section 8 Form 80384; Information Return for Tax-Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) OMB No.1545-0720 (Rev. November 2000) ► See separate Instructions. Department of the Treasury Caution: If the issue price is under 5100,000, use Form 8038-GC. Internal Revenue service Reporting Authority If Amended Return, check here ► ❑ 1. Issuer's name 2 Issuer's employer identification number City of Beaumont,Texas �D 0 0 0 2 7 3 Number and street(or P.O. box if mail is not delivered to street address) Room/suite 4 Report number 801 Main Street 3 2004-01 5 City,town, or post office, state,and ZIP code 6 Date of issue Beaumont,TX 77701 September 1692004 7 Name of issue 8 CUSIP number City of Beaumont,Texas Waterworks&Sewer System Revenue Bonds,Series 2004 074561 DX6 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 Lance Fox,Bond Attorney ( 409 )838-6412 . Type of Issue (check applicable box(es) and enter the issue rice) See instructions and attach schedule 11 ❑ Education . . . . . . . . . . . . . . . . . . . . . . . . . 11 12 ❑ Health and hospital . . . . . . . . . . . . . . . . . . . . . 12 13 ❑ Transportation . . . . . . . . . . . . . . . . . . . . . . . 13 14 ❑ Public safety. . . . . . . . . . . . . . . . . . I . . . . . . . 14 15 1:1 Environment(including sewage bonds) . 15 16 ❑ Housing . . . . . . . . . . . . . . . . . . . . . . . . . 16 17 E5 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . 17 17,227,701.95 18 ❑ Other. Describe 00- 18 19 If obligations are TANS or RANs, check box lo- El If obligations are BANS, check box ► ❑ 20 If obligations are in the form of a lease or installment sale, check box ► ❑ Description of Obli ations. Complete for the entire issue for which this form is bein q filed. (a)Final maturity date (b)Issue price (c)Stated redemption (d)Weighted (e)Yield price at maturity average maturity 21 09/0102028 $ 17,227,701.95 $ 17,000,000.00 19.143 years 4.791871 % ' Uses of Proceeds of Bond Issue (including underwriters' discount 22, Proceeds used for accrued interest . . . . . . 22 25,007.50 23 Issue price of entire issue (enter amount from line 21, column (b)) . . 23 17,227,701.95 24 Proceeds used for bond issuance costs(including underwriters' discount) 24 A. . 25 Proceeds used for credit enhancement . . . . . . . . 25 26 Proceeds allocated to reasonably required reserve or replacement fund 26 27 Proceeds used to currently refund prior issues . . . . . . . 27 28 Proceeds used to advance refund prior issues . . . . . . . . 28 29 Total (add lines 24 through 28). . . . . . . . . . . . . . . . . 329,680.92 30 Nonrefundin roceeds of the issue (subtract line 29 from line 23 and enter amount he 16,898,021.03 Description of Refunded Bonds (Complete this part only for refunding bonds. 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . . ► years 33 Enter the last date on which the refunded bonds will be called . . . . . . . . . ► 34 Enter the date(s) the refunded bonds were issued ► , Miscellaneous 35 Enter the amount of the state volume-cap allocated to the issue under section 141(b)(5) 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract(see instructions) 36a b I Enter the final maturity date of the guaranteed investment contract ► 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a b If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► ❑ and enter the name of the issuer ► and the date of the issue Do- 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(111)(small issuer exception),check box . . . ► ❑ 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . ► ❑ 40 If the issuer has identified a hedge, check box . . . . . . . . . . . . . . . . . . . . . . . Under penalties of perjury,I declare that I have examined this return and accompanying schedules and statements,and to the best of my knowledge Sign and belief,they are true,correct,and complete. Here 5'-/6-1,-7 ' Signature of issuer's uthorized representative Date 'Type or print name and title For Paperwork Reduction Act Notice, see page 2 of the Instructions. cat. No.637735 Form 8038-G (Rev. 11-2000) Section 9 No. 10 OFFICIAL STATEMENT CERTIFICATE We, the undersigned officers of THE CITY OF BEAUMONT, TEXAS (the "City"), acting solely in our respective official capacities, hereby certify with respect to that issue of"The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004" in the principal amount of$17,000,000 (the "Bonds") as follows: That to the best of our knowledge and belief: (a) the descriptions and statements pertaining to the City contained in its Preliminary and final Official Statements, on the respective dates of such statements, on the date of sale of the Bonds, and on the date of delivery of the Bonds, did not and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made,not misleading; and (b) as of the date of delivery of the Bonds, there have been no material adverse changes in the City's financial condition and affairs since the date of the Preliminary and final Official Statements. It is expressly stipulated that this certificate does not cover any information contained in Appendix A to the Preliminary and Final Official Statements relating to taxing jurisdictions other than the City, or stated to have been obtained from sources other than the City records or to information supplied to the City by the Underwriters of the Bonds for inclusion in the Preliminary and Final Official Statements. In rendering this certificate, we have relied in part on our examination of records of the City relating to matters within our respective areas of responsibility, and our discussions with, or certificates or correspondence signed by, certain other officials, employees, consultants and representatives of the City as to matters not within our respective areas of responsibility. EXECUTED on this day of September, 2004,the date of delivery of and payment for the Bonds. THE CITY OF BEAUMONT,TEXAS �3Nin eta' By: � X14 Mayor (SEAL) // i City Clerk ty Section 10 No. 11 NO-DEFAULT CERTIFICATE THE STATE OF TEXAS § COUNTY OF JEFFERSON § THE CITY OF BEAUMONT § We, the undersigned Mayor and City Clerk, respectively, of The City of Beaumont, Texas (the "City"), do hereby make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 (the 'Bonds"), now in the process of issuance. We certify that the City is not in default as to any covenant, condition or obligation contained in any ordinance authorizing the issuance of its outstanding bonds and certificates of obligation. WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY this l� day of September, 2004. Mayor, The ity of Beaumont, Texas C3i�p %%t City Clerk, The City o eaumont, Texas } c kseasare Section 11 No. 12 September 16, 2004 Mayor and City Council The City of Beaumont 801 Main Street Beaumont,Texas 77704 Gentlemen: This opinion is being rendered to you in connection with the sale by The City of Beaumont, Texas (the "City") of its $17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004 (the 'Bonds"), issued pursuant to the terms of an ordinance adopted by the City Council of the City on August 17, 2004 (the "Ordinance"). Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. I have acted as City Attorney in connection with the issuance, sale and delivery of the Bonds and have examined the Constitution and laws of the State of Texas, the Ordinance and certain certificates and other documents of representatives of the City and of certain other public officials, and have examined such other records and documents and have made such other investigation as deemed appropriate for the purposes of this opinion. Based upon the foregoing and subject to the qualifications set forth below, I am of the opinion that (i) the Ordinance has been duly authorized, adopted, executed and delivered by the City and constitutes a legal, valid and binding obligation of the City enforceable in accordance with its terms, and (ii) no litigation of any nature has been filed or is now pending to restrain or enjoin the issuance or delivery of the Bonds or which would affect the legal provisions made for their payment or security, or in any manner questioning the validity of the Bonds or the proceedings or authority pertaining to the issuance of the Bonds. The opinion expressed above is qualified to the extent that enforceability of the Ordinance may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws of general application in effect from time to time relating to or affecting the enforcement of creditors' rights. Yours very truly, r , //a� L e Nichols, City Attorney The City of Beaumont,Texas Section 12 ORGAIN , BELL & TUCKER , L. L. P. ATTORNEYS AT LAW P. O. BOX 1 751 LANCE FOX OTHER OFFICES PARTNER BEAU MONT, TEXAS 77704- 1751 HOUSTON - THE WOODLANDS EXTENSION 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: Icf @Obt.com TELEPHONE (409) 838-64 1 2 SILSBEE FAX (409) 838-6959 www.obt.com No.13 September 16, 2004 Re: $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds,Series 2004 The City of Beaumont,Texas 801 Main Street Beaumont, Texas 77701 RBC Dain Rauscher,Inc. Dallas,Texas Gentlemen: This opinion is being rendered to The City of Beaumont, Texas (the "City") and RBC Dain Rauscher, Inc. (the "Underwriter") in connection with the sale of the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds") issued pursuant to the terms of an ordinance adopted by the City Council of the City on August 17, 2004 (the "Ordinance"). Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. In our capacity as Bond Counsel,it is our opinion that the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. We further certify that we have reviewed the information appearing in the Official Statement under the captions "THE BONDS", "SELECTED PROVISIONS OF THE ORDINANCE," "LEGISLATION AND REGULATION," "CONTINUING DISCLOSURE OF INFORMATION" (except for the paragraph entitled"Compliance with Prior Undertakings"), "LEGAL MATTERS-Legal Opinions," and "APPENDIX C -FORM OF LEGAL OPINION," solely to determine whether such information fairly and accurately summarizes the provisions of the law, documents and other matters referred to therein. This letter is to further advise you that the Underwriter is hereby authorized to rely upon the opinion that we have delivered in our capacity as Bond Counsel regarding the legality and validity of Page 2 the Bonds, the same as if such opinion were addressed to the Underwriter. Yours very truly, ORGAIN,BELL & TUCKER,L.L.P. D ciao, -� -f-� �f �-• p Section 13 f� TX DISCLOSURE OF GUAR., FUND NONMMCIPAnoN F61C event the insurer is unable to In the Financial Guaranty Insurance company fulfill its contractual obligation under 125 Park Avenue this policy or contract or application or New York,NY 10017 certificate or evidence of coverage, the T 212.312.3000 T 800.352.0001 policyholder or certificateholdeir is not protected by an insurance guaranty fund or Municipal Bond Debt Service other solvency protection arrangemerrc. Reserve Fund Policy Issuer: The City of Beaumont,Texas Policy Number: 04010589 Control Number: 0010001 Bonds: Waterworks and Sewer System Revenue Premium: $27,478.97 Bonds,Series 2004,together with any Maximum Amount• $1,373,948.44 parity obligations issued under the ' authorizing document,as amended and supplemented,and secured by the same debt service reserve fund Paying Agent: Wells Fargo Bank Texas,N.A., Termination Date: September 1,2028 Houston,Texas Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy,hereby unconditionally and irrevocably agrees to pay the paying agent named above or its successor, as paying agent for the Bonds (the "Paying Agent"), for the benefit of Bondholders,that portion(not to exceed the Maximum Amount set forth above) of the amount required to pay principal and interest(but not any prepayment premium)on the Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. No payment shall be due hereunder for any event of Nonpayment that occurs after the Termination Date set forth above. Financial Guaranty will make such payment to the Paying Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. Upon such disbursement, Financial Guaranty shall become entitled to reimbursement therefor(together with interest thereon) all as provided in the Debt Service Reserve Fund Policy Agreement between the Issuer and Financial Guaranty dated as of the Effective Date of this Policy. The Maximum Amount shall be automatically reinstated when and to the extent that the Issuer repays amounts disbursed hereunder, but shall not be reinstated to the extent of amounts received by Financial Guaranty constih ti,,n in-r—f r)n amounts disbursed to the Paying Agent pursuant to this Policy. Financial Guaranty shall provide Notice to the Paying Agent of any reinstatement of any portion of the Maximum Amount within one Business Day of such reinstatement. This Policy is non-cancelable for any reason, including the failure of the Issuer to reimburse Financial Guaranty for any payment made hereunder. As used herein,the term"Bondholder"means, as to a particular Bond,the person other than the Issuer who, at the time of Nonpayment,is entitled under the terms of such Bond to payment thereof. "Due for Payment" FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9008(12/94) Page 1 of 2 F6IC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800-352.0001 Municipal Bond Debt Service Reserve Fund Policy means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment' in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the Paying Agent for payment in full of all principal and interest Due for Payment on such Bond and includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from the Paying Agent for the Bonds to Financial Guaranty or from Financial Guaranty to the Paying Agent,as the case may be. "Business Day" means any day other than a Saturday, Sunday or a day on which the Paying Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: September 16,2004 Authorized Representative U.S.Bank Trust National Association acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9008(12194) Page 2 of 2 Section 14 No. 15 FEDERAL TAX CERTIFICATE I, the undersigned officer of The City of Beaumont, Texas (the "City"), make this certification for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on City's Water and Sewer System,Revenue Bonds, Series 2004 (the "Obligations"), which are being issued in the aggregate principal amount of $17,000,000 and delivered simultaneously with the delivery of this certificate. I do hereby certify as follows in good faith on the date of issue of the Obligations: 1. Responsible Officer. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the City. I am the officer of the City charged, along with other officers of the City, with responsibility for issuing the Obligations. 2. Code and Regulations. I am aware of the provisions of Sections 148, 149 and 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations (the "Regulations") heretofore promulgated under Sections 148, 149 and 150 of the Code. This certificate is being executed and delivered pursuant to Sections 1.148-0 through 1.148-11, 1.149(b)- 1, 1.149(d)-1, 1.149(g), 1.150-1 and 1.150-2 of the Regulations. 3. Definitions. The capitalized terms used in this certificate (unless otherwise defined) that are defined in the Ordinance authorizing the issuance, award and sale of the Obligations dated August 17, 2004 (the "Ordinance") shall for all purposes hereof have the meanings therein specified. All such terms defined in the Code or the Regulations shall for all purposes hereof have the same meanings as given to those terms in the Code and the Regulations unless the context clearly requires otherwise. 4. Reasonable Expectations. The facts and estimates that are set forth in this certificate are accurate. The expectations that are set forth in this certificate are reasonable in light of such facts and estimates. There are no other_facts or estimates that would materially change such expectations. In connection with this certificate, the undersigned has to the extent necessary reviewed the certifications set forth herein with other representations of the City as to such accuracy and reasonableness. The undersigned has also relied, to the extent appropriate, on representations set forth in the certificate of RBC Dain Rauscher, Inc., in its capacity as the City's financial advisor, attached hereto as Exhibit "A". The undersigned is aware of no fact, estimate or circumstance that would create any doubt regarding the accuracy or reasonableness of all or any portion of such document. 5. Description of Governmental Purpose. The City is issuing the Obligations pursuant to the Ordinance for the purposes of paying for (a) cost of construction of authorized improvements, renovations, upgrades, expansions and repairs to the City's waterworks and sewer -2- system, as described more fully in the Ordinance and(b)the costs of issuance of the Obligations. 6. Amount and Use of Proceeds of the Obligations. The sales proceeds from the issuance of the Obligations will be $17,227,701.95. Such amount represents the stated redemption price at maturity (excluding accrued interest for those Obligations the interest on which is paid at least once annually) of the Obligations, equal to $17,000,000.00, plus a premium of$449,213.35, less a discount of $221,511.40. No portion of the purchase price of any of the Obligations is provided by the issuance of any other issue of obligations. The sales proceeds will be expended as follows: (a) the amount of$117,901.95 will be disbursed to pay th underwriter's discount, (b) the amount of$109,300.00 will be used to pay the premium for the municipal bond insurance policy, (c) the amount of$27,478.97 will be used to pay the premium for the debt service reserve fund surety policy, (d) the amount of$75,000.00 will be used to pay other costs of issuance, and (c) the amount of$16,898,021.03 will be retained by the City and disbursed to pay or reimburse the costs of acquisition and purchase of the Project. The aggregate amount of the costs of acquisition and purchase of the Project is anticipated to be not less than such amount. Any costs of the Project not financed out of original or investment proceeds of the Obligations will be financed out of the City's available funds. Other than to the extent of preliminary expenditures (i.e., issuance costs and similar costs that are incurred prior to commencement of acquisition and purchase of the Project), no portion of the amount retained by the City out of the proceeds of the Obligations will be disbursed to reimburse the City for any expenditures made by the City prior to the date that is 60 days before the date hereof. Except for an amount that does not exceed 5% of the sales proceeds of the Obligations (and that is directly related to capital expenditures financed by the Obligations), the City will only expend proceeds of the Obligations for (a) costs that would be chargeable to the capital accounts of the Project if the City's income were subject to federal income taxation and (b) interest on the Obligations in an amount that does not cause the aggregate amount of interest paid on all of the Obligations to exceed that amount of interest on the Obligations that is attributable to the period that ends on the later of (i) the date that is three years from the issue date of the Obligations or(ii)the date that is one year after the date on which the Project is placed in service. 7. Pre-issuance Accrued Interest. The City will receive from the Purchaser on the issuance date of the Obligations the amount of $35,007.50 representing accrued interest on the Obligations from September 1, 2004, through the date of delivery. Such amount will be deposited in the Debt Service Fund, and will be disbursed on March 1, 2005, to pay interest on the Obligations. 8. Use of Investment Proceeds. The best estimate of the City is that investment proceeds resulting from the investment of any proceeds of the Obligations pending expenditure of such proceeds for costs of the Project will be retained by the City and used to pay or reimburse Project costs in addition to those described in Paragraph 6 above. 9. No Replacement Proceeds. Other than amounts described herein, there are no amounts that have a sufficiently direct nexus to the Obligations or to the governmental purposes of the Obligations that the amounts would have been used for such purpose if the proceeds of the -3- Obligations were not used or to be used for such purpose. (a) No Sinking Funds. Other than to the extent of the Debt Service Fund and the Debt Service Reserve Fund, there is no other debt service fund, redemption fund, reserve fund, replacement fund, or similar fund reasonably expected to be used directly or indirectly to pay principal or interest on the Obligations. (b) No Pledged Funds. Other than amounts in the Debt Service Fund and the Debt Service Reserve Fund, and other than a pledge the net revenues of the City's waterworks and sewer system, there is no amount that is directly or indirectly, other than solely by reason of the mere availability or preliminary earmarking,pledged to pay principal or interest on the Obligations, or to a guarantor of part or all of the Obligations, such that such pledge provides reasonable assurance that such amount will be available to pay principal or interest on the Obligations if the City encounters financial difficulty. For purposes of this certification, an amount is treated as so pledged if it is held under an agreement to maintain the amount at a particular level for the direct or indirect benefit of the holders or the guarantor of the Obligations. (c) No Other Replacement Proceeds. There are no other replacement proceeds allocable to the Obligations because the City reasonably expects that the term of the Obligations will not be longer than is reasonably necessary for the governmental purposes of the Obligations. The Obligations would be issued to achieve the governmental purpose of the Obligations independent of any arbitrage benefit as evidenced by the expectation that the Obligations reasonably would have been issued if the interest on the Obligations were not excludable from gross income (assuming that the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate). (d) Weighted Average Maturity. The weighted average maturity of the Obligations will not be greater than 120 percent of the weighted average estimated economic life of the portion of the Project financed, determined in accordance with Section 147(b) of the Code. Such weighted average estimated economic life is determined in accordance with the following assumptions: (a) The weighted average was determined by taking into account the respective costs of each asset financed by the Obligations, (b) the reasonably expected economic life of an asset was determined as of the later of the date hereof or the date on which such asset is expected to be placed in service (i.e., available for use for the intended purposes of such asset); (c) the economic lives used in making this determination are not greater than the useful lives used for depreciation under Section 167 of the Code prior to the enactment of the current system of depreciation in effect under Section 168 of the Code (i.e., the "mid-point lives") under the asset depreciation range ("ADR") system of Section 167(m) of the Code, as set forth in Revenue Procedure 83-35, 1985-1 C.B. 745, where applicable, and the "guideline lives" under Revenue Procedure 62-21, 1962-2 C.B. 418, in the case of structures; and (d) land or any interest therein has not been taken into account in determining the average reasonably expected economic life of such property. (e) No Net Operating Revenues. The City will not receive any amounts from any person in -4- respect to the Project or any portion of the Project that in the aggregate exceed on an annual basis the properly allocable portion of the ordinary and necessary expenses (within the meaning of section 162 of the Code and the regulations thereunder) directly attributable to the operation and maintenance of that portion of the Project in respect of which such amounts are received. For purposes of this paragraph 9(e), ordinary and necessary expenses do not include any general overhead or administrative expenses. 10. Yield on the Obligations. For purposes of this certificate, the yield on the Obligations is the discount rate that, when used in computing the present value as of the issue date of the Obligations, of all unconditionally payable payments of principal, interest and fees for qualified guarantees on the Obligations, produces an amount equal to the present value, using the same discount rate, of the aggregate issue price of the Obligations as of the issue date. For purposes of determining the yield on the Obligations, the issue price of the Obligations is the sum of the issue prices for each group of substantially identical Obligations. For each group of substantially identical Obligations, the issue price is the first price at which a substantial amount (i.e., 10%)is sold to the public(excluding bond houses,brokers, or similar persons or organizations acting in the capacity of underwriters and wholesalers). The issue.price (including accrued interest to the date of issue only) of the Obligations aggregated $17,227,701.95. The yield on the Obligations calculated in this manner, as shown in Exhibit "A" to this certificate,is 4.791871%. -5- 11. Temporary Periods and Yield Restrictions. (a) Pre-issuance Accrued Interest. The amount described in paragraph 7 represents accrued interest on the Obligations for a period not in excess of one year and will be expended within one year;therefore, such amount may be invested at an unrestricted yield. (b) Project. The City has incurred or will incur within 6 months of the date hereof a binding obligation to a third party which is not subject to any contingencies within the control of the City or a related party pursuant to which the City is obligated to expend at least 5% of the sales proceeds of the Obligations on the Project. The City reasonably expects that work on or acquisition of the Project will proceed with due diligence to completion and that the proceeds of the Obligations will be expended on the Project with reasonable dispatch. The City reasonably expects that 85% of the sales proceeds of the Obligations will have been expended on the Project prior to August 1, 2007. Any proceeds not expended prior to August 1, 2007, will be invested at a yield not "materially higher" than the yield on the Obligations, except as set forth in Paragraph 13 below. The City reasonably expects that any amount derived from the investment of moneys received from the sale of the Obligations and from the investment of such investment income will not be commingled with substantial other receipts or revenues of the City and will be expended prior to August 1, 2007, or one year after receipt of such investment income, whichever is later. Any such investment proceeds not expended prior to such date will be invested at a yield not "materially higher" than the yield on the Obligations, except as set forth in Paragraph 13 below. 12. Funds. (a) Debt Service Fund. Pursuant to the Ordinance the City has confirmed the debt service fund designated the "Waterworks and Sewer System Revenue Bond Interest and Sinking Fund" (i.e., the Debt Service Fund) which will be used primarily to achieve a proper matching of revenues and debt service on the Bonds, within each Bond Year. The revenues are anticipated to be sufficient to pay debt service each year on the Bonds. The Debt Service Fund will be depleted at least once each year except for a reasonable carryover amount not to exceed the greater of(a) one year's earnings on the Debt Service Fund or(b) one-twelfth of annual debt service. The City reasonably expects that any such revenues deposited in the Debt Service Fund will be disbursed within 13 months of the date of receipt of such revenues by the City. Any such amount not expended within such period will be invested at a yield not "materially higher" than the yield on the Bonds, except as set forth in paragraph 13 below. (b) Reserve Fund. The Reserve Fund confirmed in the Ordinance will be used to secure payment of debt service on the Bonds in the event that the monies in the Debt Service Fund are insufficient. The City will satisfy the Reserve Fund Requirement as defined in the Ordinance by purchasing one or more surety bond policies and, therefore, no funds are expected to be deposited in the Reserve Fund. Nevertheless, to the extent that the portion of the amount in deposit in the Reserve Fund allocable to the Bonds in the aggregate exceeds the least of 9a) ten -6- percent of the stated principal amount of the Bonds (or sale proceeds in the event that the amount of original issue discount exceeds two percent multiplied by the stated redemption price at maturity of the Bonds), (b) the maximum annual principal and interest requirements of the Bonds, and (c) 125 percent of average annual principal and interest requirements of the Bonds, such excess will be invested in obligations the yield on which is not in excess of the yield on the Bonds, except as set forth in paragraph 13 below. 13. Waiver of Minor Portion. Pursuant to section 1.148-9(g) of the Regulations, the City hereby elects to waive the minor portion available under section 1.148-9(f) of the Regulations. 14. Issue. There are no other obligations which,(a) are sold at substantially the same time as the Bonds (i.e., within 15 days), (b) are sold pursuant to the same plan of financing with the Bonds, and (c) will be paid out of substantially the same source of funds as the Bonds. 15. Compliance With Rebate Requirements. The City has covenanted in the Ordinance that it will take all necessary steps to comply with.the requirement that "rebatable arbitrage earnings" on the investment of the "gross proceeds" of the Bonds, within the meaning of section 148(f) of the Code be rebated to the federal government. Specifically,,the City will (a) maintain records regarding the investment of the "gross proceeds" of the Bonds as may be required to calculate such "rebatable arbitrage earnings" separately from records of amounts on deposit in the funds and accounts of the City which are allocable to other bond issues of the City or moneys which do not represent "gross proceeds" of any bonds of the City, (b) calculate at such intervals as may be required by applicable Regulations, the amount of"rebatable arbitrage earnings," if any, earned from the investment of the "gross proceeds" of the Bonds and (c) pay, not less often than every fifth anniversary date of the delivery of the Bonds and within 60 days following the final maturity of the Bonds, or on such other dates required or permitted by applicable Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the "gross proceeds" of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's-length and had the yield on the issue not been relevant to either party. 16. Not an Abusive Transaction. (a) General. No action taken in connection with the issuance of the Bonds is or will have the effect of (a) enabling the City to exploit, other than during an allowable temporary period, the difference between tax-exempt and taxable interest rates to obtain a material financial advantage (including as a result of an investment of any portion of the gross proceeds of the Bonds over any period of time, notwithstanding that, in the aggregate, the gross proceeds of the -7- Bonds are not invested in higher yielding investments over the term of the Bonds), and (b) overburdening the tax-exempt bond market by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the Bonds, based on all the facts and circumstances. Specifically, (i) the primary purpose of each transaction undertaken in connection with the issuance of the Bonds is a bona fide governmental purpose; (ii) each action taken in connection with the issuance of the Bonds would reasonably be taken to accomplish the governmental purposes of the Bonds if the interest on the Bonds were not excludable from gross income for federal income tax purposes (assuming the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate on the Bonds); (iii) the proceeds of the Bonds will not exceed by more than a minor portion the amount necessary to accomplish the governmental purposes of the Bonds and will in fact not be substantially in excess of the amount of proceeds allocated to expenditures for the governmental purposes of the Bonds. (b) No Window Refunding. No portion of the Bonds has been structured with maturity dates the primary purpose of which is to make available released revenues that will enable the City to avoid transferred proceeds or to make available revenues that may be invested to be ultimately used to pay debt service on another issue of obligations. (c) No Sale of Conduit Loan. No portion of the gross proceeds of the Prior Bonds or the Bonds has been or will be used to acquire, finance, or refinance any conduit loan. 17. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the gross proceeds of the Bonds will not be used in a manner that would cause any of the Bonds to be an "arbitrage bond" within the meaning of section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 18. No Private Use, Payments or Loan Financing. (a) General. The City reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Bonds will cause either the "private business tests" or the"private loan financing test," as such terms are defined in the Regulations, to be met. (i) No portion of the proceeds of the Bonds will be used and no portion of the proceeds of the Prior Bonds has been used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) Any activity carried on by a person other than a natural person or a state of local governmental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the project financed by the Prior Bonds (the "Project") is treated as the direct use of the proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Bonds or the Prior Bonds as a result of ownership, actual or -8- beneficial use of the proceeds pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output-type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the Project. (ii) The City has not taken and will not take any deliberate action that would cause or permit the use of any portion of the Project to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Bonds remains outstanding (or until an opinion of nationally recognized bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax purposes of interest payable on the Bonds). For this purpose any action within the control of the City is treated as a deliberate action. A deliberate action occurs on the date the City enters into a binding contract with a nongovernmental person for use of the Project that is not subject to any material contingencies. (iii) No portion of the proceeds of the Bonds will be directly or indirectly used to make or finance a loan to any person other than a state or local,government unit. (b) Dispositions of Personal Property in the Ordinary Course. Dispositions of personal property components of the Project will occur in the ordinary course of an established governmental program and will satisfy the following requirements: (i) The weighted average maturity of the portion of the Bonds financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii) The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; (iii) Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv) The City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the Issuer reasonably expect to spend such amounts on governmental programs within 6 months from the date of commingling. -9- WITNESS MY HAND this day of September, 2004. THE CITY OF BEAUMONT, TEXAS By; Evelyn I,4 d,Mayor -10- EXHIBIT A CERTIFICATE OF FINANCIAL ADVISOR We, the undersigned, have acted as financial advisor to The City of Beaumont, Texas (the "City"), in connection with the sale and delivery of the City's Waterworks and Sewer System Revenue Bonds, Series 2004, in the aggregate amount of $17,000,000 (the " Obligations"). We hereby certify as follows: 1. I am the duly chosen, qualified and acting officer of the Financial Advisor for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the Financial Advisor. I am the officer of the Financial Advisor charged, along with other officers of the Financial Advisor, with the responsibility for issuing the Obligations. 2. The initial yield on the Obligations, based on an issue price (including accrued interest to the date of issue only) of$17,227,701.95 is not less than 4.791871 percent. For purposes of this certificate, the term "yield" means that yield which is computed as described in paragraph 10 of the No-Arbitrage Certificate to which this certificate is attached. No Underwriters' discount, issuance costs, or costs of carrying or repaying the Obligations have been taken into account for purposes of computing the yield on the Obligations. 3. We have worked closely with representatives of the City in structuring the financial terms of the Obligations. We hereby represent that to the best of our knowledge the statements set forth in paragraph 16 of the No-Arbitrage Certificate to which this certificate is attached, are true, accurate and complete. We hereby authorize the City to rely on the statements made herein in connection with making the representations set forth in the No-Arbitrage Certificate to which this certificate is attached and in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Obligations from the gross income of their owners. We hereby authorize Orgain, Bell &Tucker, L.L.P., to rely on this certificate for purposes of its opinion regarding the treatment of interest on the Obligations as excludable from gross income for federal income tax purposes. Capitalized terms used herein and not otherwise defined have the meaning ascribed to such terms in the No-Arbitrage Certificate to which this certificate is attached. EXECUTED this 16th day of September, 2004. RBC DAIN RAUSCHER,INC. By: d,, /, �/ Z, Title: Q A A 2 c. o -11- EXHIBIT "B" STATEMENT OF ELECTIONS REGARDING ARBITRAGE REBATE 1, the undersigned officer of The City of Beaumont, Texas (the "City"), execute this Statement of Elections for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the " Obligations"), which are being issued in the aggregate principal amount of$17,000,000 and delivered simultaneously with the delivery of this statement. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature; as such, I am familiar with the matters addressed herein and I am duly authorized to execute and deliver this statement. I am charged, along with others, with responsibility for issuing the Obligations. I acknowledge that each of the elections made below, if any, is irrevocable,unless otherwise stated below. DO NOT ELECT ELECT N/A X 1. To use actual facts to apply the provisions of paragraphs(e)through(m)of Section 1.148-7 of the regulations. Treas. Reg. § 1.148- 7(f)(2) X 2. To exclude earnings on a reasonably required reserve or replacement fund from the definition of "available construction proceeds" for purposes of the spending requirements. Treas. Reg. §1.148-7(i)(2). X 3. To treat the portion of the Obligations that is not a refunding issue as two, and only two separate issues, one of which (a) meets the definition of a construction issue and (b) is reasonably expected as of the date hereof to finance all of the construction expenditures to be financed by the Obligations. The amount of the issue price of the Obligations allocated to the separate construction issue is $ Treas. Reg. § 1.148- 7�)(1) -12- X 4. To pay a penalty (the "1-1/2% penalty") to the United States in lieu of the obligation to pay arbitrage rebate on available construction proceeds in the event that the Obligations fail to satisfy any of the semiannual spending requirements for the two-year rebate exception. Treas. Reg. § 1.148-7(k)(1). WITNESS MY HAND as of this day of September,2004. THE CITY OF BEAUMONT,TEXAS r Evelyn Lord, Mayor -13- Section 15 TX DISCLIOS M OF GUAR. FUND NONpAi nClW0N FDIC event the insursr is unable to f the obligation under Financial Guaranty Insurance Company fulfill its contractual wig 125 Park Avenue lication or York,N312-3000 New Yo , Y 10017 thlS poilcy or cOntraCt � application 9, the T w rk tificatehoidW certificate or evidence Of co"i'a9 not T 800.352.0001 policyholder or cer is fund protected by an insurance guaranty or other solvency protection arrangement. Municipal Bond New Issue Insurance Policy Issuer: The City of Beaumont,Texas Policy Number: 04010588 Control Number: 0010001 Bonds: $17,000,000.00 in aggregate principal Premium: $109,300.00 amount of Waterworks and Sewer System Revenue Bonds,Series 2004 Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy,hereby unconditionally and irrevocably agrees to pay U.S. Bank Trust National Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above- described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment,whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent,in form reasonably satisfactory to it,of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond,appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder,including the Bondholder's right to payment thereof. This Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein,the term`Bondholder"means, as to a particular Bond,the person other than the Issuer who, at the time of Nonpayment,is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond,the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed FGIC is a registered service mark used by financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9000(10/93) Page 1 of 2 FGIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800.352.0001 Municipal Bond New Issue Insurance Policy in writing, or written notice by registered or certified mail,'from a Bondholder or a paying agent for the Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile'to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President l �% Effective Date: September 16,2004 uthorized�Repr U.S.Bank Trust National Association acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9000(10193) Page 2 of 2 FDIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.3123000 T 800.352.0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: 04010588 Control Number: 0010001 It is further understood that the term"Nonpayment"in respect of a Bond includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. NOTHING HEREIN SHALL BE CONSTRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representativW 1 1 President Effective Date: September 16,2004 Authorized Repr entative Acknowledged as of the Effective Date written above: Authorized Officer U.S.Bank Trust National Association,as Fiscal Agent FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form E-0002(10/93) Page 1 of 1 Section 16 ORGAIN , BELL & TUCKER , L. L. P. ATTORNEYS AT LAW P. O. BOX 1 751 LANCE FOX OTHER OFFICES BEAUMONT, TEXAS 77704- 1 75 1 PARTNER HOUSTON - THE WOODLANDS EXTENSION 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: Icf@obt.com TELEPHONE (409) 838-54 1 Z SILSBEE FAX (409) 838-6959 www.obt.com No.17 September 16, 2004 Re: $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds,Series 2004 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 Gentlemen: This letter is being delivered to you in connection with the issuance by The City of Beaumont, Texas (the "City")of its$17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004(the 'Bonds"),issued pursuant to the terms of an ordinance adopted by the City on August 17,2004. Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. We have acted as Bond Counsel to the City in connection with the issuance, sale and delivery of the Bonds. In our capacity as Bond Counsel, we have on this date delivered our opinion regarding the legality and validity of the Bonds,the Ordinance and certain other matters. This letter is to advise you that you are hereby authorized to rely upon such opinion the same as if it were addressed to you. Attached to this Opinion is an executed original of the Debt Service Reserve Fund Policy Agreement dated September 16, 2004, between the City and Financial Guaranty Insurance Company ("FGIC"). This Agreement has been entered into between the City and FGIC in connection with the issuance by FGIC of its Municipal Bond Debt Service Reserve Fund Policy (the "Reserve Policy"), which policy has been issued to satisfy the reserve fund requirements under the Ordinance. It is our opinion that the Debt Service Reserve Fund Policy Agreement has been duly authorized and executed by the City, and that the terms thereof are valid and enforceable against the City,except to the extent such enforcement may be limited by laws relating to bankruptcy,insolvency, reorganization, or moratorium or other similar laws affecting the rights of creditors, or the exercise of judicial discretion in accordance with the general principles of equity. Yours very truly, ORGAIN,BELL&TUCKER,L.L.P. nn Section 17 ORGAIN , BELL & TUCKER, L. L. P. ATTORNEYS AT LAW P. O. BOX 1 75 1 LANCE FOX OTHER OFFICES PARTNER BEAU MONT, TEXAS 77704- 1 75 I HOUSTON - THE WOODLANDS EXTEN51ON 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: ICf@obt,com TELEPHONE (409) 838-64 1 2 SILSBEE FAX (409) 838-6959 www.obt.com No. 18 September 16, 2004 Re: $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds,Series 2004 RBC Dain Rauscher,Inc. Dallas,Texas Gentlemen: This letter is being delivered to you in connection with the issuance by The City of Beaumont, Texas (the "City")of its$17,000,000 Waterworks and Sewer System Revenue Bonds,Series 2004(the 'Bonds"),issued pursuant to the terms of an ordinance adopted by the City on August 17,2004. Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. We have acted as Bond Counsel to the City in connection with the issuance, sale and delivery of the Bonds. In our capacity as Bond Counsel, we have on this date delivered our opinion regarding the legality and validity of the Bonds,the Ordinance and certain other matters. This letter is to advise you that you are hereby authorized to rely upon such opinion the same as if it were addressed to you. Yours very truly, ORGAIN,BELL&TUCKER,L.L.P. Section 18 F C Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.3123000 F 212.312.3093 September 16, 2004 The City of Beaumont RBC Dain Rauscher Inc., as Underwriter or as Representative of the Underwriters Re: $17,000,000.00 in aggregate principal amount of The City of Beaumont, Texas Waterworks and Sewer System Revenue Bonds, Series 2004 Ladies and Gentleman: I am Senior Counsel of Financial Guaranty Insurance Company ("Financial Guaranty"), and have been requested to render an opinion concerning the issuance by Financial Guaranty of its Municipal Bond New Issue Insurance Policy (the "Policy") and its Municipal Bond Debt Service Reserve Fund Policy (the "Reserve Policy") in connection with the issuance of the captioned obligations (the "Bonds"). I have examined such documents and records as I have deemed relevant for purposes of this opinion, including (a) the Certificate of Incorporation of Financial Guaranty, including all amendments thereto, (b) the amended By-laws of Financial Guaranty as in effect on the date hereof, (c) the certificate of authority issued to Financial Guaranty by the Superintendent of Insurance of the State of New York, (d) the certificate of authority issued to Financial Guaranty by the Commissioner of Insurance of the State of Texas, (e) the executed Policy, (f) the executed Reserve Policy and (g) the statements in the Official Statement dated August 17, 2004 relating to the Bonds (the "Official Statement") under the captions "BOND INSURANCE" and "DEBT SERVICE RESERVE FUND POLICY'. On the basis of the foregoing, it is my opinion that: (1) Financial Guaranty is a stock insurance corporation validly existing and in good standing under the laws of the State of New York and qualified to do business therein and is licensed and authorized to issue its financial guaranty insurance policies under the laws of the State of Texas. (2) The Policy and the Reserve Policy are valid and binding upon Financial Guaranty and enforceable in accordance with their respective terms, subject to applicable laws affecting creditors' rights generally. (3) Financial Guaranty, as an insurance company, is not eligible for relief under the Federal Bankruptcy Laws. Any proceedings for the liquidation, conservation or -F6- IC September 16, 2004 Page 2 rehabilitation of Financial Guaranty would be governed by the provisions of the Insurance Law of the State of New York. (4) The statements described above in the Official Statement relating to Financial Guaranty, the Policy and the Reserve Policy accurately and fairly present the summary information set forth therein and do not omit any material fact with respect to the description of Financial Guaranty relative to the material terms of the Policy or the Reserve Policy or the ability of Financial Guaranty to meet its obligations under the Policy or the Reserve Policy. Very truly yours, r Isa�sel Guerra Senior Counsel 04010588 04010589 Section 19 NO. 20 PAYING AGENT/REGISTRAR'S RECEIPT The undersigned duly authorized representative of WELLS FARGO BANK, N.A., the paying agent/registrar for the following described bonds: THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004, in the principal amount of $17,000,000, certifies that said bonds have been delivered to the purchaser, RBC Dain Rauscher, Inc., and that the purchase price in the amount of $ 17,035,007.50(cons isting of $17,000,000.00 in principal, plus a premium of $-0-, plus accrued interest of $35,007.50) has been received on behalf of the City. EXECUTED AND DELIVERED this 16th day of September, 2004. WELLS FARGO BANK, N.A. By: u Title: Section 20 No. 21 CERTIFICATE AS TO DEBT SERVICE SCHEDULE This Certificate is executed and delivered with regard to the $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), which are being delivered to and purchased by the Underwriter on the date hereof. Capitalized terms used below shall have the meaning assigned to them in that certain Ordinance adopted by the City Council of the City of Beaumont, Texas, on August 17, 2004, authorizing the issuance of the Bonds and other matters related thereto (the "Ordinance"). The undersigned hereby certifies that the Debt Service Schedule attached hereto as Exhibit "A" (herein referred to as the "Debt Service Schedule") shows all outstanding bonds, including the Bonds, of the City that are payable in whole or in part from the Net Revenues of the City's waterworks and sewer system. EXECUTED this day of September, 2004. THE CITY OF BEAUMONT, TEXAS By: Name: Evelyn tord Title: Mayor City of Beaumont, Texas Waterworks&Sewer System Debt Adjustable Rate Rev.Ref.Bonds, Reveune Bonds, Revenue Bonds, Revenue Bonds, Series 1998 Series 2000 Series 2002* Series 2004 Total 2005 2,684,987.50 1,536,173.76 4,970,000.00 840,180.00 10,031,341.26 2006 2,685,162.50 1,532,736.26 4,924,500.00 840,180.00 9,982,578.76 2007 2,680,162.50 1,538,986.26 4,880,250.00 1,040,180.00 10,139,578.76 2008 2,685,587.50 1,534,298.76 4,826,500.00 1,032,680.00 10,079,066.26 2009 2,681,387.50 1,534,298.76 4,779,000.00 1;024,867.50 10,019,553.76 2010 2,681,675.00 1,533,673.76 4,726,250.00 1,016,742.50 9;958,341.26 2011 2,680,925.00 1,542,423.76 4,658,250.00 1,008,305.00 9,889,903.76 2012 2,683,875.00 1,539,673.76 4,601,500.00 999,555.00 9,824,603.76 2013 3,706,286.26 5,048,750.00 990,492.50` 9,745,528.76 2014 3,701,911.26 4,933,500.00 986117.50 9,621,528.76 2015 3,693,473.76 4,817,750.00 981,117.50 9,492,341.26 2016 3,685,661.26 4,695,000.00 970,492.50 9,351,153.76 2017 3,702,031.26 4,539,500.00 960,192.50 9,201,723.76 2018 3,719,975.00 4,374,250.00 954,592.50 9,048,817.50 2019 3,739,250.00 4,204,250.00 946,092.50 8,889,592.50 2020 3,774,750.00 4,008,750.00 938,717.50 8,722,217.50 2021 6,525,000.00 931,117.50 7,456,117.50 2022 5,850,000.00 923,292.50 6,773,292.50 2023 5,175,000.00 920,242.50 6,095,242.50 2024 2,921,367.50 2,921,367.50 2025 2,932,562.50 2,932,562.50 2026 2,936,900.00 2,936,900.00 2027 2,940,537.50 2,940,537.50 2028 2,938,237.50 2,938,237.50 21,463,762.50 42,015,603.88 92,538,000.00 32,974,762.50 188,992,128.88 *Interest rate set at the maximum of 15%. Average Debt Service: 7,874,672.04 Maximum Debt Service: 10,139,578.76 Section 21 Section 22 No Text 108 No. 23 CERTIFICATE FOR TEXAS BOND REVIEW BOARD The undersigned officials of The City of Beaumont, Texas (the "City"") hereby execute -this, Certificate-in connection with the issuance of the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), in the principal amount of $17,000,000, and hereby certify the following: 1. Name of Bond Issue. The name of this issue of Bonds is $17,000,000 THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004. 2. (a) Par Amount. The par amount of the issue is $17,000,000. (b) Bond Premium. The amount of the bond premium for this issue is $-0-. (c) Original Issue Discount. The amount of the original issue discount is $-0-. 3. Dated Date. The dated date of the Obligations is September 1, 2004. 4. Closing Date. The expected and anticipated closing date is September 16, 2004. 5. Maturity Schedule. The maturity amounts and coupon rates for the Obligations is as follows: Year of Principal Interest Maturity Amount Rate. 2007 $ 200, 000 6 . 250% 2008 $ 205, 000 6. 250 2009 $ 210, 000 6. 250% 2010 $ 215, 000 6. 250% 2011 $ 220, 000 6. 250% 2012 $ 225, 000 6. 250% 2013 $ 230, 000 6. 250% 2014 $ 240, 000 6 . 250% 2015 $ 250, 000 6. 250% 2016 $ 255, 000 6 . 000% 2017 $ 260, 000 6 . 000% 2018 $ 270, 000 5 . 000% 2019 $ 275, 000 4 . 500 2020 $ 280, 000 4 . 500% 2021 $ 285, 000 4 . 500 2022 $ 290, 000 4 . 500% 2023 $ 300, 000 4 . 625% 2024 $2, 315, 000 4 . 700% 2026 $4 , 990, 000* 4 . 750% 2027 $2, 680, 000 4 . 750% 2028 $2, 805, 000 4 . 750% *Denotes a Term Bond. 6. Call Provisions. The Bonds maturing on and after September 1, 2015 are subject to redemption prior to maturity on September 1, 2014 or any date thereafter. 7. Mandatory Redemption Provisions. The Bonds maturing on September 1, 2026, are subject to mandatory redemption prior to maturity in the amounts and on the dates as follows: Date: Amount: September 1, 2025 $2,435,000 September 1, 2026 $2,555,000 8. Debt Service Schedule. Attached hereto as Exhibit "A" and incorporated herein by reference is a debt service schedule for the Bonds. 9. Derivative Products. There were no derivative products used in connection with the issuance of the Bonds. 10. Refunded Bonds. The proceeds of the Bonds are not being used to refund any other outstanding bonds. 11. Pledge. The Bonds are payable solely from and are secured by a pledge of and first lien on the Net Revenues of the City's waterworks and sewer system. 12. Credit Enhancement. Payment of the bonds is insured by a municipal bond insurance policy issued by Financial Guaranty Insurance Company. 13. Ratings. The Ratings for the Bonds are Aaa by Moody's and AAA by Standard & Poor. 14. Type of Sale. The Bonds were sold pursuant to competitive bidding. 15. Pricing. The pricing for the Bonds was done pursuant to competitive bidding that took place on August 17, 2004. 16. Purchaser. The purchaser of the Bonds is RBC Dain Rauscher, Inc. 17. Official Statement. Attached hereto is the Official Statement for the Bonds. 18. Costs of Issuance. Attached hereto as Exhibit "B" and incorporated herein by reference is a schedule of the best estimate of the City of the costs of issuance of the F ends ?n the event the final costa of issuance are significantly different than frorfi ►he following estimate, the City hereby certifies that it will submit the changes directly to the Texas Bond Review Board. -2- 19. Financing Participants. The following participants were involved in the issuance of the Obligations: Financial Advisor RBC Dain Rauscher, Inc. Bond Counsel Orgain, Bell &Tucker, L.L.P. Paying Agent/Registrar Wells Fargo Bank, N.A. Underwriter RBC Dain Rauscher, Inc. [The remainder of this page has intentionally been left blank. Signature page follows.] -3- WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY OF BEAUMONT, TEXAS,this day of S P40-.4A .52004. Mayor, ITY OF BEAUMONT,TEXAS City Clerk,CITY OF BEAUMONT,TEXAS (SEAL) r� t aoeaa' W EXHIBIT"B" Service Firm One-Time Fee Annual Fee Bond Rating Moody's $8,000 -0- Standard & Poor's $8,500 -0- Other General Costs of Issuance -0- $50,000 Specialized Costs of Issuance NONE -0- -0- Credit Facility NONE -0- -0- Bond Insurance FGIC $109,300 -0- Total Underwriting Spread $-0- Did underwriter pay rating fee(s)? No Did underwriter pay bond insurance fee? Yes Participants Firm Financial Advisor RBC Dain Rauscher, Inc. Bond Counsel Orgain, Bell &Tucker, L.L.P. Paying Agent/Registrar Wells Fargo Bank, N.A. Underwriter RBC Dain Rauscher, Inc. Section 23 .> ;. 4< " - t ; } ;t REGISTERED REGISTERED �,�(sltltiiY NUMBER STATE OF TEXAS •a AW AIKE114 F7� COUNTY OF JEFFERSON °E1 �1 ����k Citp of oeaumont, Tenn waterWorko aub *ewer opotem Rebenue SERIES 2004 Yr` INTERESTRATE: MATURITY DAZE: DATED DATE: CUSIP: September 1, 2004 ;. st' REGISTERED OWNER: PRINCIPAL AMOUNT: D O L LA R S �s •, a,}Fit" t >. The City of Beaumont, 'Texas (the "City") promises to pay, but solely from certain Net Interest on this bond is payable by check on March 1 and September I,beginning on March 1,2005, Revenues as hereinafter provided,to the Registered Owner identified above,or registered assigns,on mailed to the registered owner of record as shown on the books of registration kept b the Registrar P g g g g• g• P Y g• < the maturity date specified above, upon presentation and surrender of this bond at the principal as of the fifteenth day of the month next preceding each interest payment date. Any accrued �.'• °�tfl!tx: corporate trust office of Wells Fargo Bank, N.A., Houston, Texas (the "Registrar"), the principal interest due at maturity shall be paid upon presentation and surrender of this Bond at the principal uf� ryry#�F�s sir amount identified above,payable in any coin or currency of the United States of America which on corporate trust office of the Registrar. �- §': the date of payment of such principal is legal tender for the payment of debts due the United States REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET of America, and to pay, solely from such Net Revenues, interest thereon at the rate shown above, FORTH ON THE REVERSE HEREOF,WHICH PROVISIONS SHALL HAVE THE SAME FORCE ,. calculated on the basis of a 3E0 day year of twelve 30 day months, from the later of September 1, AND EFFECT AS IF SET FORTH AT THIS PLACE. .- 2004,or the most recent interest payment date to which interest has been paid or duly provided for. ttlti a ry7 . r•r IN WITNESS WHEREOF, this bond has been signed with the manual or facsimile signature of the Mayor and countersigned with the manual or facsimile signature of the City Clerk, and the official seals ¢ of the City has been duly imp::essed, or placed in facsimile, on this bond. _ AUTHE;VTICATION CERTIFICATE — ql THE CITY OF BEAUMONT,TEXAS t ¢ �e + It is hereby certified that this bond has been delivered pursuant to the Bald Ordinance described 1111 '. in the text of this Bard. F ' # Wells Fargo Bank, N.A. >tl, Houston, Texas e. By Au thorized Si g nature Il/llt fi T q� W Date of A uthentication: City Clerk Mayor s. .v.. . .. .., :. ^S.. ,,,.-„ W. .,....r ..., .. .w,..�: r -::,.:;Y: :ar...: ,,:.,,.u. w... ...r ,-.. .. 'ar.. ,.. ,. a ✓" ,,^ .:r° r,' r.� `'E' .,r' ^,, •.� �i �",.�G • ''e r, ,:,,... ,_.:� ,r ^a �..:{',r"., „a.. .r, -.<c_, m ,r. h.....N.., •rr a..-: ..r ,r! *... ., >r r...= _.r rr. a' -s-..: ��.:.:�!:..:.p ir. -..,-.,./ rr .:- :. `'` e Y .'.,m. ' I IIS 110,D ix one.1eJuly auth,He d issue ofannds aggngenmg S17.000.000(the-BonJx').issued for the P.W,eer mviding TTre Paying Agvm Ielll wlvvl for,edM,M.k.J.l.orhy M,y h,,e.cMMY nnteetet.,.I.in ranJOm xclLStiam.y principulumounl 1'umis w(i)limwc,lh,cxp.n.urn.nP.ir.nlavaion anJ nla,d improvvmenuwthc Citv.wevmorkxan0 sewerxvs,em.andf ill payinF allcov. ol'Term ponds.yual to thcaggregarc principal.noun ol'such Term lL+nJsw MnWecmd.snuil call.u,h Term llonJs lies rtllvmption on the el'i.xuaneeul',M1c lk+nJ..pursu.n,toannrdinanWdopwdhYtc CiYCOM,iI..August 17,2N4(t,-Or inanLti).undi.a Mancewl,h whcduled momleory rVWcmption dale,and shall give noGCC OI'wch ink pl;on in ucmrdunu:with NC IL+nJONv+.Tneprincipulamoum of the authorin ofChMle,150'.T'esu.(iuvemmcm CWe,main mdaf.andall mnnapplicahlclaw. Term Bonds rvaluired to Fe mundworily ndv,.meJ xh:sll be rcduerd by the principal annum nf'Term BunJx wn;ch.m ka l JS Jays prior w If• T'IIISBONDANDAI,LOF1*1 IC BONDS OF TI I IS SERIES arc spn'ialo hlig;vionsoflhe CRY.Me wgaher xilh the Cirvs ouumnding mandatory nelention dmeshull hove txrn leiiverd w the ReFivmr lo,cmal1winnor shulih...been olpiuwll.nWe—d wJ rcrlprcvi,u.ly WeLlwnrkx ale Sewer Sysem Re—R,lunding Bend,.Se,iex 1998.te Cily-,—su mg Wecrworkx and Scwcr Sy—Revenue Re. cr Wild egehen a nemIMry netnnlion rryuimmmt. IunJing Bonds Scrie.1999.the City's ouuunJin f W:rtmworks m,d Sewer System Revrnue BOWS Series 20N.and the City's ou,xmnding NOTICE Of ANY REDEMPTION shall M given a le.0 thirty 1301 days prior to Ik da,e f ixnl Im redemption M1v lust class marl. Watt kxand Se.e1S),e.Ad,Muahlc R,e RevrnwHe.d..Smio2N2,.rcaxm ILywd mtubly payable from Md.wund by,r.w In— aJdrcssdIn tlnregiskrdownn of cxh aond toMredeemedinwMic or in pan at,he:ufJrvs.shownon the M,ok.nlrcFi.trmion kept hy,lw ,he-Ne Rev :,ollcud anJ rte vd teethe Ci,v lieem th,nP,mrion andowrxrshipofthow properties lk;litiV>.improv tc Vuipmen Rein—When Bond..orponiorts themrt'nave Men ealld larreJvmDtiu unJ Jac provision ha.nttm nc,JcwnJWmthe vmuthe prl'neipol rifhu anJ POU'cr.mnstitutiang the wawrwor4 unJ.wv,r.ys„mol'thcC irywhich an Jclind in the Ordin.n,a.tM-Sy.tem".which redegeJ shalikpayahw solely l'wm,k fullspmvidcd lbrrcdempti,,n and imcrcxt which wvWeotmviw;unrucnn the lumx,n,s Nu Hev,nuv�an nyuinJ a,Mwt asiJc f'nr.ne Pl,egedto,M1L'OaymvmtofYM1i,.wricx,lNml..the ouu.wWing bends and alladJidunW bed.. c,ileJnt'orrvWemPtonsMllnmminm,un tNdu,c fixW frnJcmp,inn. vu,don.parity therewith.in the ln,ttext anJ SinkinF FUnJand the RamcFUnJ rcyuir,JwMmaintaitx:d for the pavmcm ofall such bonds. THIS BOND ISTRANSFERABLE Mlyupon p—emiunends ,enderut the principal w,,M.e tru nRic.,te RCgiurar.duly :,flax mantuuydevrilwW+u+J proved lur in une.vnjvvrmma r�+tr;ainnxunJlimibdonx impo.vd by tnc0rdimulce.TnfxBare anJmeuriLSnf rnJUrscd l'o:tmrtxf+ar xmmpaniVW by an a.xignmLmt duly CxccuHW Mthr«gixknlowner orhisauthnri<d epmxenmtive.suhievvwtM which it ix.p rt..felt,,with the i.I : t--n,laYMfexrle1Y nn—eh Nn Revenues and In nelmn inMFled...x or eeneml tmm and eendilio s ol't,Ordinance. obligmien of the City."17111:I IOLDLR Of T111 S OBLIGATION IS NOT ENTITLED TO DEMAND PA YM ENT OF THIS OBLIGATION , THE BONDS ARE EXCHANGEABLE.,to Mi-inel err Mec,mmlliW.1'the Regierm er benJ.in the prineipulamoumol'S5.N) OUT OF ANY MONEY RAISED By TAXATION, o inkgml multiple trnml:suhjq In 1k.nand en m..,ol'tk Ordmenee. PIIECITY HASRLSLRVLDTHERIGHT'TO ISSUE ADDITIONAL PARITY REVENUE BONDS.xubim,w Oe mtriaion.and elv THIS BOND.xh.11.1 be valid or.bli,,enY In,any p ne,rM muted manvkn,lit uml,r rheONin.ntt unl,..this fi—,iffier Iimim,urnxwn,ained in the ONirunw.which shallM,ywllymd mutely pay.M1le lmm.and.WUnxl hyalirst lien on and pldF,of t,aforcwid (i)ix rcguvred M Uw COmpuollerofPehlieA=mM,Ittee Sel-17x.y by rtyiem,umw•nilieatemm,MWmallixN helel-6)LS:mtrnhgd Nu R—uvs in,M.eunc man rant tnth,.vmv a:thi.BOdaMlksvrusol which i,isa Pan b,'th,Repistr.rbY duevtcclnionol'theauNemigion Wniliuntc rndorsW hL•nvn. THE CITY RESERVES THE RIGHT.,itxtoption.mrdwmtc Bond,kvingrtad m.neilies,.oral,.ScptLmba 1.2015.in wh.i m THE REGISTEREDOWNERol'thm Be.d.hYueIMunW h,rcol'.ackrrowl egvs anJ agnvrsm kMUnJ by.lute,krm.anJ enndi,ieen. in pan.on Nepl..1 1.2014.e,My Jaw tcru111.inim,gml multiples ol'E5,ON.e.a priecol'M,plus clued intmee w to de,t fixed wr oft,Ordinance. reevmp,inn.Reli-renuwi.m:uk,otMONinanW l'm mmPlnc Jvv;H mncvm;nFthcmarmerdnW inglhe Bonds. THE CITY hae Mend;nt eOrditwae—itwill m all time—i&a 1egalI,,1ee;f1e,[_6tmr lixtMlL,d—d will cause nntixnf BONDSmuturing in thcycm2(126 Uh,'Tvmm l3Pndi'l annlm wF,lc„tee nunda,ory ndgption prior to ma,urinin,hcamount..ndon arty Chmgcol rcgistrm toMmaild:ouMrcFistcrN ownm. the Jax'..avout Mleew.ata priw,ywf wtkprineilx,lamoun;to Mr,Jwmd Pluxnc,ywd in,cratw,he dvmption Ja,c: IT IS HEREBY cenitiLW.rand are mvc..Id,h t this Bend My het duly and validly i.we land&Ifiv d:0.1 all mu.eenditiunsunJ ,hung n,.iled or IF—toll prfonned,to exist all w be done prtnukm weer in the i.suoneeand delivmol'tis Bond ha.c Men perti,nned. JERM BONDS DUF 1e—IN,,l 101, .nd have NM,don,in—dwee with law:that the bend..of Nix xrivsN no,exanvW any smwwry limialion:Met,Pro Wwn Ien M,n fYdt made leer the p.e.,of principal Me!in.nst...hi,Mnd and all oft,Mnds nl this uric.by the ef,a id lien,,.and pledge nr,he Nn Scpkmbe,1.2025 S2.435-N0 R,v,•nc,::ai tr Svsu..m. ORDAIN, BELL Ev TUCKER,L.L.P. ATTORNEYS AT LAW 470 ORLEANS STREET BEAUMONT,TEXAS))701 _P`Mher 16,20 THE CITY HAS RESERVED THE RIGHT TO ISSUEaJdi,innal parity Nnds and suNNimued lien mvenuenM1ligahync sufti,c,.the _ieji mnuin,d in the OrJiruncc.which may Msaund Ma licneen upmiq with.mxuberJin;ucanJ inl',rior,n.the lirn,rn the Nm kvrvvmuvs WEI[AVEAMCD,,Mndeoun..I till The Ciy,,l'Be...M.T.I.l the-Cite').in--ionwit an issue of revenue Nnds(th, Ming ponds. -0.,d:IdvscrikJ.s fi,lleex'.: ' HER OUR OPINION thee: IE CIIV OF BGUMONT,TE%AB.WA'f[H WORKS AND SEWER SYSTEM REVENUE BONDS,SERIES IT IS FURT 2004,in the E,MI enh.6,:WaUlple .1 S l 7.EXI dined Svq,glx11.2004. IU loosest nn to 0.wds iscxefud.Mefm glensinmm,fe,link l menme ux purpnvs Md,,iming lux:end The Bondsmtun.Mar intemt anJ m.v Mtmn mred ledexclungVW as10 u,in the Bela and in the ldinnew doped by the Ci, (2) The BUndsm nt•piva viry Mnd-witin rein aningul't,CaW,.anJ inwnstonik pond.i.mx whjvvt Councilofthc Utv on AUgux,17.2UW.aa,Mri<ingtkir, Wlt,-ONinanvc).TheBntWxmckingissucd lbrthe puryn.eeellinuning eeth atcme individualxo mrp,re •scy,ta m tM B,,mis will NincluJd in impronms,nu,o to C;NSx.terworksamlwwmly Ec, —fieIlvd,wrt.Winte Ordinal 'he"adju.nWc.ncnimamringy"„fa enr,.6nn(oter EEM.ny S mr_F,,n.rcgulatcJ invastmrnlcomp.nY. W'EIIAVLAMED.sbendInuw1 In,thepeTn1e.rrtmduring onoptnkl,wM resplel.tolepliry and,llidi.,fthe Bonds e,khe ROT,REMIC or FASIT)NerWrpawsofa,mputing i.eletnaivemin;mum elliMilitY, ONinet Mdm to C—itutkm.nd ell,fte SellefTe—under which to Cin;s Ming.<a homemle einol'tc Selle'Tem..nd also lhr ,he pMM,a nl nnJvring an oPWM it lelpnx w thcex,lus;on nfinw,xt on the Bodx Ire,gins cane le,kWemj lee.,m pe ,sw In Providing w,h EE we he,,rclicd on epnen sefth.CilY w it mped ee allele within t,k...IWge,,Ithc Ci,y Inweh eMleity we h.ve examine rclevm,pmvis;,,nsnfteCe—lium and laws oft,State ofTCS.Wfiwble pmvis .efts lnwnal which we hiv.M,indepeMMjyendive,and have assumed inn,.inning u,mpliancewith the a—name in to OnImee,M,E to peeM. RLNL..CUdeeef 1986...:unenled(,heC"e).mund,cix xss Traawn RTlhauns.nd pubinMd mfi.Ep ran,lnlenal Rev uc Srn inF le theta, xoI'Ihl CWewhieh.[Tell the cxclus ,gm. nleerim .t he B,,JS fix ree&f inmm,tax purp,wx.Hl h we have deemed relevant.a-11liPt Ilf—fled pnxeedingnftheCity C...4L,lthe City 1-i,ing w the iswanw el B1 mis.mtd othmn rcprvwm m,0.mmnd,okinam ,mp ae.liflh Citytieil_eeenplywith te-i,nb+;ng pwvnion.ofthe Online—ill— m vial EwNw hi n the kn,wledg,ur control.1 to City.M,which we rely:and ee.mntmenxMmJWMern Md inammrntc aeNri. n the Bawd.�muld beeome in eletble in 911,inene,l'mmthe kee"Inrig;pal defiv,rv,ngmdles.Mte Jae In which to evrnt ea mg.o,h mE; rckuing u,the i.wancc 1teBands.inel.din.e„xttmd BlM.Tk tmnwlip,mN.i.arsili dmpi.efeenein MVWdin6 el'thcCi,Y nelM Cu...il ef'te City:npra:scnu,ivasofte.CllYmea+tm PUbli,olticials:are otm anilidlb-1 Meing w to etnri-ieen and ixwanccol Ioa"'P—MME above,we 11Mm MoPiniun ant MY 11WCml..ow ns kxal 1. nwy111m mulnng In-he nWipmf to Bamdx.W'cMv,notinvgiga,al or verified origimsl moWx:Jini'rccord..dauor n,kr menial.WChav,mLenM1dany1l,nMihEity Inv .nor dispositionnfthc Bends ,m , suitmpttv wtc firunei;J mnditknurcyabili,u'snl'tc Cily"the dneln—tame in mnnm;un wih de-1 oflhe finds. xyt H,I=,;fte Bme.xhould be axmc tin t eOwn,tship oI'm ,nMt ohiigeli vwlt in mllakml fed,mlisxnmcuva:nn.,- BASED ON SUCI I EXAMINATION.IT IS OUR OPINION thin: 4urnWsto limvtcial ivtiw,onN life inwmnwmtd pmpa,yatW v,..,ry inwmrxcmmpani�ti utsm,ihS vnrp,mti,,mwit SuMdmPwrCgniny dpmfits individwl rtvipicn.nf Social Ss;aritY nr RaiiraxW Rvvirvmmal,I+,petits.anJ,vp.yen who maYNJevmd whav nd or nlin dI.&-tdne to purchase e,een,M,exempUIIigM; .,.1.l,ti,nm.W,elinli,nign en"nelionx A,ing N..A—intheUnitdSee- (1) The Ordirm Md the lk d..c rte evWid and leg.11y binding obligationsof to Ci,y in neenldma,wit the maYkxubjeew,Nnvw'EMMRh Mnliu ee”nn tareltiuivcly.mnn�W auning and pmliu l wleemg el emP,in—web as imnestnn nmmlvMd mmlitkms tma+l:eywp,wttc a muchwfile,m ml,M limi,d by lows selling wMk,MeY. toB.&L FOr thewruuom.Mldm oft,BurW.shoulJcn wb tcir fax dviw, ,,therm.,,, •.eel"invertingm the Hn—. iL ncY rttrtfmticu nn omens ummotcramilm law.aflixtingthc righciot'c Nimnor te,s,rciunf Th"pinion.xt lirM aMvearc hasdo exiling lawnwhich ix suhjwtwchangc.Suchopinenxm luMmh.wennourknowlcJ• 1 jdh:ial Ji.,rawnln4clxxJ:m,ew;trey mcml prim:;plvznl iyuiry;and lucuaxul'lk6ue hcrmC Wcawm nnJUtYwuphucorxu—hieh k-Nevi-ef tortlk rmY'Ixuol'cirwm.unLV„hm mvy haxul4rwm, ('--) TM Bnn&and all nuLSUndingw and sLwm.y.,emr,vrnuc Mnd.hm,u,li+rc,,r h,rcalin issud onapmity wourakmwn orw .,fleet any dram any law the mlY hmcekr We.­,Murmv�clT rive, tle—it we payable Enm and m,t,WEMalimlllmuntc^NetRwrnuvs'nceiv xland mllmdby to City Youn wly. Isom the npma,,,nanJOwn,mhipnftk-S)skm'...delitxJ.ndprovideJ in tk ONtawl. ORDAIN,BELL&TUCKER,L.L.P. STATF,MENTOFINSURANCE Financial Guammv Inwranw Compam(•Financial Gu:vantv-1 has is.0 dagMicy mnmining,h,foilowingpmvisinn.wi,h ngxct w TheCityol'Bewmont(Jeliirwn C,,untYl.Toyv WecwurksanJ Sewer System R,vrnu,ponds.Mrivsz0lu ItM'fmJs").weh p,fiLY kingon sloe teprimipW Niee,li Well,Fay BMIL N.A_w peying 2VM(the-Plying Agvmi): hsiwnckN Guamn,y kn•Iw unc,,ditu+nully are irrcvac:tlYagrcLS w pay Iixdi.Mmgrntw tc BondMlJvn Wt p+nion.I'tc principal„l'ad inknst on tc Bonds bleb isthcn due I'urpaymvmUaJ.bleb tk i.wcroftc f,rW<Ithc"Iswvi I.hall Mvc failLW n,pruvi&-.Duc fixpayrtnmt mean.,yvit rv'1xvv,o Prineipal,,rwemkd v:JUe(it'apPliwhkl.tested meuritydak tmuJ'.or tedaeamwhich t,wmesNll have km,dulycalld for mmWeam xiNing land rcdemgionandduvs'rat relirwunyglirndas:a+n which,k p:,vmrnmlPrin'm.l ax ezrgJ valw(il'lpplictle)ol't,Bnndx i.Jue by rvmx+nnl'mll fix rdmnPMrnlmkrtan n,wJatsxy sinking lumf nWgmion),x,ckrmen nrmhmdvanvmem N'Imuurity.and wit mplttw mklm.tcsu6.edacfi,ryym tofxuch inkrcrt. Upon rwcip,nl'tcl,ph,mW urkley4Phicnmiv nwhxxiuvmtk wnlinnd in writing.nrx wehy.girt,dorcrniE dmail,fromaBondholdm or t,Paying Ag,n,w Finarxial GummuylhmtcrttluircJpavmrnt ofprincipW.acmetW valu,ax inter>tl:uupplieaFlelhu.m,thttm made by,hell., he Paving AIMEE.FiMeeial Geneentyon t,due decuf weh PkInMe el wnbinone EMzi s da-Y 1111 rmcipt.laxiw ofsuch nonpayment whiesevm i,low,will mak,a depmi,ufl'Md,in with U.S.EMIL rrWit Nah,,W Asvxieion.nrie.nvvxwxas ill agmu(k-1 iswl AFeni)..ulli,ivm,w mak mtM portion oi'wcrnpaymrnt inn Pail by tk Issuer.Up,,p— Inn wte•Fiswl Agentofevidrnce wi.facwry wit oft,Bondholder's right tprw uvv wen paymcm and any app.,psi;netinstrum,ntsol.sxifnmmt myuinJto vLrst.11 nlsuch BOnJNIJ,r'x right to wcl,p:n min Fimm:ul G ,:kFixul AF ill Jivhuma:weh.noun.tcllonJMWCr.w AsuwJhmein,k krm-0.mJNUkr-mwnxtk P,noneetkrthan toIssumor,heMrtoxer(xlul'M+nd pmc„d.whoethc,ima;nl'nnnPaymvm nla Bamdhrn,itl,d oinks the kemx,,l such Bell! paynene the,-L The WIiq is m,mmmclwble I,,,MY axyn. FINANICAL G UARANTY INSURANCE COMPANY AS9/G.1'.4Ex'T Fnr 1.1w rcrei d Ill,um4•n dlxr bmI&­jg; en✓mafrruma ePI—prin,ornpe+wme.addreu.an✓:ip 1a,fT free) (PI-1 el Seelols,ca11N m r pmxr efL•a/aipn o)T frr,) Net i bmNam/v!lrlgb,11l.nrlr.urWhenbvirrerm'ablvrortnirmes andapp.inv ar _ nunfrwi✓bnmlun the blab keprJ"ge—non dl,mf..xirhfullpoxer nJsubnimuonmtlrpremues. D:I T/in: xignumr,Guarunrrr✓: \'OTl('h”sixwrun•must d.•xaaunrrr✓bva memherfirm ujt,,\'a•w)'or45soek f_,clwnJ;e or o commercial bon4or slurs rompanv. Reginrmd-_ :\'OTICE:Th,signaun•above must eorrcspo,Wro the prune ufrhr regisrrrrdowneras-shown on,lx/rr n/rhii baWin e,vn/wrrirvlur. -hen y.1,,awn.-1-g,menr e,h—R,x hassarver. Section 24 Ms. Deri Ward September 10, 2004 Page 2 In addition, RBC Dain has purchased optional insurance from Financial Guaranty Insurance Company ("Financial Guaranty"). Based on the information provided by FGIC, the following monies will separately be wired by RBC Dain as indicated below: RBC Dain will wire the insurance premium in the amount of$109,300.00 prior to closing to: JPMorgan Chase Bank Routing/Transit No. 021000021 Branch and Account No. 904951812 For Credit to Financial Guaranty Insurance Company Premium Account FGIC Policy#04010588 Contact: Anna Gaffney 212-312-3067 ***Please indicate Policy Number on wire*** In addition, the City has purchased a Surety Bond from Financial Guaranty. Based on the information provided by Financial Guaranty,the following monies will separately be wired by the City as indicated below. If I may be of further assistance, please do not hesitate to contact me at 713-651-3370. Sincerely, Frank J. Ildebrando Managing Director cc: Brenda Davis-RBC Dain Rauscher Inc. Lance Fox-Orgain, Bell &Tucker, L.L.P. Kandy Daniel -City of Beaumont Anna Gaffney-Financial Guaranty Insurance Company Ryan O'Hara—RBC Dain Rauscher Inc. Tara Thurkettle—RBC Dain Rauscher Inc. Section 25 Section Zs ADDENDUM TO OFFICIAL STATEMENT DATED AUGUST 17, 2004 $1790009000 THE CITY OF BEAUMONT, TEXAS WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 This Addendum serves to correct the following data shown in the Maturity Table (Maturities 2027 and 2028) on the cover page of the aforementioned Official Statement, as well as, the addition of information regarding the Reserve Surety Policy found under "DEBT SERVICE RESERVE FUND POLICY" on page 6 of the Official Statement. PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES $12,010,000 Serial Bonds Initial CUSIP Initial CUSIP Principal Maturity Interest Reoffering Nos. Principal Maturity Interest Reoffering Nos. Amount September 1 Rate Yield(a) 074561 Amount September 1 Rate Yield(a) 074561 $ 200,000 2007 6.25% 2.1200% DX 6 $ 270,000 2018(b) 5.000% 4.2000% EJ 6 205,000 2008 6.25 2.5200 DY 4 275,000 2019(b) 4.500 4.3000 EK 3 210,000 2009 6.25 2.8500 DZ 1 280,000 2020(b) 4.500 4.4300 EL 1 215,000 2010 6.25 3.0800 EA 5 285,000 2021(b) 4.500 4.5300 EM 9 220,000 2011 6.25 3.3200 `EB 3 290,000 2022(b) 4.500 4.6200 EN 7 225,000 2012 6.25 3.5100 EC 1 300,000 2023(b) 4.625 4.7000 EP 2 230,000 2013 6.25 3.7000 ED 9 2,315,000 2024(b) 4.700 4.7500 EQ 0 240,000 2014 6.25 3.8300 EE 7 ******** ***** **** **** **** 250,000 2015(b) 6.25 3.9000 EF 4 ******** ***** **** **** **** 255,000 2016(b) 6.00 4.0000 EG 2 2,680,000 2027(b) 4.750 4.8900 ET 4 260,000 2017(b) 6.00 4.1000 EH 0 2,805,000 2028(b) 4.750 4.9200 EU 1 $4,990,000 Term Bond,Due September 1,2026(b)(c)Interest Rate 4.75%(Yield$98.390)(a)CUSIP No.074561 ES6 (a) The initial yields will be established by and are the sole responsibility of the Underwriters, and may subsequently be changed. (b) The Bonds maturing on or after September 1,2015 are subject to redemption,at the option of the City,at the par value thereof plus accrued interest,in whole or in part,on September 1,2014,or any date thereafter. (c) Subject to mandatory redemption by lot or other customary random selection on September 1 in the years and in the amounts set forth herein under the caption "THE BONDS - Redemption of the Bonds -Mandatory Redemption." Please attach the enclosed sticker to the cover page of all Official Statements. In addition, please replace page 6 with the attached page 6, then follow with the addition of pages 6a and 6b to each Official Statement received under separate cover. L 7 OFFICIAL STATEMENT DATED AUGUST 17,2004 IT IS ANTICIPATED THAT ON THE DELIVERY DATE FOR THE BONDS,BOND COUNSEL WILL RENDER AN OPINION THAT INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS. SEE "LEGAL MATTERS - TAX EXEMPTION" HEREIN FOR A DISCUSSION OF BOND COUNSEL'S OPINION, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. The City will not designate the Bonds as qualified tax-exempt obligations for financial institutions. NEW ISSUE RATINGS: Moody's Investors Service,Inc.(Financial Guaranty Insured)............"Aaa" Standard&Poor's Ratings Services(Financial Guaranty Insured).."AAA" $17,000,000 THE CITY OF BEAUMONT, TEXAS (A political subdivision of the State of Texas located within Jefferson County) WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 Dated: September 1,2004 Principal of and interest on The City of Beaumont, Texas $17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004 a (the "Bonds")are payable by Wells Fargo Bank Texas,N.A., the paying agent/registrar(the "Registrar"). Interest on the Bonds will accrue from September 1, 2004 and be payable on March 1 and September 1 of each year, commencing March 1, 2005, to the registered owners appearing on the registration books of the Registrar on the 15th day of the month preceding each interest payment 1 date(the"Record Date"). See"THE BOND - ,' on September 1, 2014 or any date thereafter, at a price equal to the principal amount thereof plus laccrued interest to the dat ttof redemption. The Bonds are special obligations of The City of Beaumont,Texas the"City") of the Net Revenues (hereinafter defined) of the City's waterworks and sanitary payable solely from a first lien D D pledges tary sewer system. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OR GENERAL OBLIGATION OF THE CITY AND ARE NOT PAYABLE FROM FUNDS RAISED OR TO BE RAISED BY TAXATION. The liens on Net Revenues securing the Bonds are on a parity with the liens !, securing the City's outstanding Prior Lien Bonds (as defined in the Ordinance). See "THE BONDS - Source of Payment." The 1 proceeds of the Bonds will be used to finance the expansion, repair, renovation and related improvements to the waterworks and sewer system and to pay certain costs incurred in connection with the issuance of the Bonds. (See "THE BONDS - Use of t Proceeds.") Payment of principal of and interest on the Bonds as the same become due and payable is insured by a municipal bond insurance policy to be issued by Financial Guaranty Insurance Company simultaneously with the delivery of the Bonds. I Financial Guaranty Insurance Cotnpanv PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES $12,010,000 Serial Bonds Initial CUSIP Initial CUSIP Principal Maturity Interest Reoffering Nos. Principal Maturity Interest Reoffering Nos, Amount September 1 Rate Yield(a) 074561 Amount September 1 Rate Yield(a) 074561 $ 200,000 2007 6.25% 2.1200% DX 6 $ 270,000 201M) 5.000% 4.2000% EJ 6 205,000 2008 6.25 2.5200 DY 4 275,000 2019(b) 4.500 4.3000 EK 3 210,000 2009 6.25 2.8500 DZ 1 280,000 2020(b) 4.500 4.4300 EL 1 215,000 2010 6.25 3.0800 EA 5 285,000 2021(b) 4.500 4.5300 EM 9 220,000 2011 6.25 3.3200 EB 3 290,000 2022(b) 4.500 4.6200 EN 7 225,000 2012 6.25 3.5100 EC 1 300,000 2023(b) 4.625 4.7000 EP 2 230,000 2013 6.25 3.7000 ED 9 2,315,000 2024(b) 4.700 4.7500 EQ 0 240,000 2014 6.25 3.8300 EE 7 250,000 2015(b) 6.25 3.9000 EF 4 ******* ***** **** **** **** 255,000 2016(b) 6.00 4.0000 EG 2 2,680,000 2027(b) 4.750 4.8900 ET 4 260,000 2017(b) 6.00 4.1000 EH 0 2,805,000 2028(b) 4.750 4.9200 EU 1 $4,990,000 Term Bond,Due September 1,2026(b)(c)Interest Rate 4.75%(Yield$98.390)(a)CUSIP No.074561 ES6 (a) The initial yields will be established by and are the sole responsibility of the Underwriters,and may subsequently be changed. (b) The Bonds maturing on or after September 1,2015 are subject to redemption,at the option of the City, at the par value thereof plus accrued interest,in whole or in part,on September 1,2014,or any date thereafter. (c) Subject to mandatory redemption by lot or other customary random selection on September 1 in the years and in the amounts set forth herein under the caption"THE BONDS-Redemption of the Bonds-Mandatory Redemption." The Bonds are being issued pursuant to the Constitution and laws of the State of Texas and provisions of an ordinance (the "Ordinance")adopted by the City Council(the"City Council")of the City on August 17,2004. The Bonds are offered when,as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Orgain,Bell &Tucker, L.L.P.,Beaumont,Texas, Bond Counsel for the City, as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See "LEGAL MATTERS." The Bonds are expected to be available for delivery on or about September 16, 2004. USE OF INFORMATION IN OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"), this document constitutes an Official Statement of the District with respect to the Bonds that has been "deemed final" by the City as of its date except for the omission of no more than the information permitted by the Rule. No dealer, broker,salesman or other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement, and,if given or made,such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without notice,and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the condition of the City or other matters described herein since the date hereof. TABLE OF CONTENTS Page page USE OF INFORMATION IN OFFICIAL Water and Sewer Rates.........................................16 STATEMENT........................................................1 Historical Operations of the System................. 18 INTRODUCTORY STATEMENT................................3 SELECTED PROVISIONS OF THE ORDINANCE..18 SALE AND DISTRIBUTION OF THE BONDS..........3 Definitions............................................................18 Sale of the Bonds....................................................3 Pledge and Source of Payment.............................19 Prices and Marketability.........................................3 Bond Covenants....................................................19 Securities Laws.......................................................3 Financial Statements.............................................21 Municipal Bond Ratings.........................................4 ADMINISTRATION OF THE CITY..........................22 BOND INSURANCE......................................................4 Mayor and City Council.......................................22 Payments Under the Policy....................................4 Administration......................................................22 Financial Guaranty Insurance Company................5 Consultants............................................................23 Financial Guaranty's Credit Ratings......................6 LEGISLATION AND REGULATION........................23 OFFICIAL STATEMENT SUMMARY........................7 Affecting the City's Operations............................23 INTRODUCTION.........................................................10 Affecting the Tax Base.........................................24 THE BONDS.................................................................10 OTHER CONSIDERATIONS......................................24 Special Obligations...............................................10 Future Bond Issues.............................................. 24 Description............................................................10 Other Financing Arrangements...........................:25 Redemption of the Bonds.....................................10 Pension Fund........................................................25 Paying Agent/Registrar........................................11 Collective Bargaining...........................................25 Successor Paying Agent/Registrar.......................11 Litigation...............................................................25 Source of Payment................................................11 Risk Management/Self Insurance........................25 Authority for Issuance..........................................12 LEGAL MATTERS......................................................26 Use of Proceeds....................................................12 Legal Opinions................................................. 26 Legal Investments in Texas..................................12 Tax Exemption................. ........... .. 26 ........................ Remedies in the Event of Default........................12 Tax Accounting Treatment of Original INVESTMENT AUTHORITY AND INVESTMENT Issue Discount Bonds..................................27 OBJECTIVES OF THE CITY.............................13 No-Litigation Certificate......................................28 Legal Investments.................................................13 CONTINUING DISCLOSURE OF INFORMATION 28 Investment Policies...............................................13 Annual Reports.....................................................28 CITY REVENUE DEBT Material Event Notices.........................................29 Debt Statement......................................................14 Availability of Information From Debt Service Schedule..........................................15 NRMSIRs and SID......................................29 THE SYSTEM...............................................................16 Limitations and Amendments Description of the System....................................16 Audited Financial Report of the City...................30 Compliance With Prior Undertakings..................30 Certification as to Official Statement...................30 GENERAL CONSIDERATIONS................................30 Updating of Official Statement............................30 Sources and Compilation of Information.............30 CONCLUDING STATEMENT...................................30 APPENDIX A—Economic And Demographic Characteristics APPENDIX B—Excerpts from Comprehensive Annual Financial Report APPENDIX C—Form of Legal Opinion APPENDIX D—Specimen of Financial Guaranty Insurance Policy i 2 INTRODUCTORY STATEMENT Information contained in this Official Statement, including Appendix B, has been obtained from The City of Beaumont, Texas (the "City") in connection with the offering by the City of its Waterworks and Sewer System Revenue Bonds,Series 2004(the"Bonds")identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts of revenues from the City's waterworks and sewer system and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. SALE AND DISTRIBUTION OF THE BONDS Sale of the Bonds i After requesting competitive bids for the Bonds, the City has accepted the bid resulting in the lowest net interest cost, which bid was tendered by a syndicate lead by RBC Dain Rauscher Inc. ("Underwriters") to purchase the Bonds bearing the interest rates shown under "MATURITY SCHEDULE" at a price of the par value thereof, plus accrued interest to the date of delivery. The net effective interest rate on the Bonds was 4.818715% as calculated pursuant to Section 1204.005,Texas Government Code. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriters on or before the respective dates of delivery of the Bonds stating the prices at which a substantial amount of each maturity of each series of the Bonds has been sold to the public. For this purpose,the term"public" shall not include any bondhouse, broker or similar person acting in the capacity of underwriters or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriters at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriters. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended,in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities acts of any jurisdiction. The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such jurisdictions. For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, shall constitute a"Final Official Statement" of the Ciiy with respect to the Bonds, as such term is defined in Rule 15c2-12 of the Securities and Exchange Commission. I 3 F Municipal Bond Ratings In connection with the sale of.the Bonds, the City has made application to Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Corporation ("S&P") for a rating and the ratings of"Aaa" and "AAA", respectively, have been assigned to the Financial Guaranty Insured Bonds. An explanation of the significance of such ratings may be obtained from Moody's and S&P. The ratings reflect only the view of Moody's and S&P and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that they will not be revised downward or withdrawn entirely by Moody's and/or S&P, if, in the judgment of Moody's and S&P, circumstances . so warrant. Any such downward revision or withdrawal of the ratings on one or both series of the Bonds may have an adverse effect on the market price of the Bonds. BOND INSURANCE Financial Guaranty has supplied the following information for inclusion in this Official Statement. No representation is made by the issuer or the underwriter as to the accuracy or completeness of this information. Payments Under the Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value(if applicable)of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "Issuer"). Financial Guaranty will make such payments to U.S.Bank Trust National Association,or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal, accreted value or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice(in accordance with the terms of the Policy)from an owner of Bonds or the trustee or paying agent(if any)of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any j appropriate instruments of assignment,that all of such owner's rights to payment of such principal,accreted value or interest(as applicable)shall be vested in Financial Guaranty. The term"nonpayment"in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been i recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable) of the Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. If the Bonds are accelerated or become subject to mandatory redemption, Financial Guaranty will be obligated to pay principal (or accreted value, if applicable) and interest on the originally scheduled principal (including mandatory sinking fund redemption) and interest payment dates. Upon such payment, Financial Guaranty will become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder's rights thereunder. The Policy does not insure any risk other than Nonpayment by the Issuer, as defined in the Policy. Specifically, the Policy does not cover: (i)payment on acceleration, as a result of a call for redemption(other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; (ii)payment of any redemption,prepayment or acceleration premium; or(iii) nonpayment of principal (or accreted value, if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent,if any. As a condition of its commitment to insure Bonds,Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement,and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. I 4 I In the event that Financial Guaranty is unable to fulfill its obligations under the Policy, the policy lr,;>1der. bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. Financial Guaranty Insurance Company Financial Guaranty, a New York stock insurance corporation, is a direct, wholly-owned subsidiary rif Corporation, and provides financial guaranty insurance for public finance and structured finance obligaatiiaons. Financial Guaranty is licensed to engage in financial guaranty insurance in all 50 states,the District of Columbia and the Commonwealth of Puerto Rico and, through a branch, in the United Kingdom. Financial Guaranty is a ,ix+[c]ly- owned subsidiary of FGIC Corporation,a Delaware corporation. On December 18, 2003, an investor group consisting of The PMI Group, Inc. ("PMI"), affiliates of The Bla,:.kstone Group L.P. ("Blackstone"),affiliates of The Cypress Group L.L.C. ("Cypress")and affiliates of CIVC Partnu,rs LT, ("CIVC") acquired FGIC Corporation (the "FGIC Acquisition") from a subsidiary of General Electric iIZapilt Corporation("GE Capital"). PMI,Blackstone,Cypress and CIVC acquired approximately respectively, of FGIC Corporation's common stock. FGIC Corporation paid GE Capital approximately and ;n 3 million in pre-closing dividends from the proceeds of dividends it, in turn, had received from Financial Guaranil:y, and GE Capital retained approximately$234.6 million in liquidation preference of FGIC Corporation's con,,ertiib]le participating preferred stock and approximately 5% of FGIC Corporation's common stock. Neither Ff,;I][C Corporation nor any of its shareholders is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy,including the Policy,issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where it is dornieleid,, including Article 69 of the New York Insurance Law("Article 69"), a comprehensive financial guaranty insurance statute. Financial Guaranty is also subject to the insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of generally authority that may be exercised by the various insurance regulators, vary by jurisdiction, but insurance companies to maintain minimum standards of business conduct and solvency, to meet certain fin nic;ial tests, to comply with requirements concerning permitted investments and the use of policy forms and premium hates and to file quarterly and annual financial statements on the basis of statutory accounting principles ("SAP") an,d other reports. In addition, Article 69, among other things, limits the business of each financial guaranty insurer„ including Financial Guaranty,to financial guaranty insurance and certain related lines. For the six months ended June 30,2004,and the years ended December 31,2003 and December 31,2002,Financial Guaranty had written directly or assumed through reinsurance, guaranties of approximately $27.1 billion, $42,4 billion and $47.9 billion par value of securities, respectively (of which approximately 60%, 79% and 81%, respectively, constituted guaranties of municipal bonds), for which it had collected gross premiums of approximately$162.9 million, $260.3 million and$232.6 million,respectively. For the six months ended June 30, 2004, Financial Guaranty had reinsured, through facultative arrangements, approximately 0.1% of the risks it had written. As of June 30, 2004, Financial Guaranty had net admitted assets of approximately$2.935 billion, total liabilities of approximately $1.793 billion, and total capital and policyholders' surplus of approximately $1.142 billion„ determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The unaudited financial statements of Financial Guaranty as of June 30, 2004, and the audited financial statements of Financial Guaranty as of December 31, 2003 and December 31,2002, which have been filed with the Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs"),are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE," or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently filed by Financial Guaranty with such NRMSIRs,and shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by the Issuer with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. 5 Financial Guaranty also prepares quarterly and annual financial statements on the basis of generally accepted accounting principles. Copies of Financial Guaranty's most recent GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue, New York, NY 10017, Attention:Corporate Communications Department. Financial Guaranty's telephone number is(212)312-3000. Financial Guaranty's Credit Ratings The financial strength of Financial Guaranty is rated"AAA"by Standard&Poor's,a Division of The McGraw-Hill Companies, Inc., "Aaa" by Moody's Investors Service, and "AAA" by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies' current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure_ that is provided to potential purchasers of the Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading"BOND INSURANCE." In addition,Financial Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. DEBT SERVICE RESERVE FUND POLICY Financial Guaranty has supplied the following information for inclusion in this Official Statement. No representation is made by the issuer or the underwriter as to the accuracy or completeness of this information. The Reserve Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond Debt Service Reserve Fund Policy (the "Reserve Policy"). The Reserve Policy unconditionally.guarantees the payment of that portion of the principal or accreted value (if applicable) of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the Issuer,provided that the aggregate amount paid under the Reserve Policy may not exceed the maximum amount set forth in the Reserve Policy, $1,373,948.44. Financial Guaranty will make such payments to the paying agent (the "Paying Agent")for the Bonds on the later of the date on which such principal or accreted value(if applicable)and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice subsequently confirmed in writing or written notice by registered or certified mail from the Paying Agent of the nonpayment of such amount by the Issuer. The term "nonpayment" in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final nonappealable order of a court having competent jurisdiction. The Reserve Policy is non-cancellable and the premium will be fully paid at the time of delivery of the Bonds. The Reserve Policy covers failure to pay principal or accreted value (if applicable) of the Bonds on their respective stated maturity dates,or dates on which the same shall have been called for mandatory sinking fund redemption,and not on any other date on which the Bonds may have been accelerated,and covers the failure to pay an installment of interest on the stated date for its payment. The Reserve Policy shall terminate on the earlier of the scheduled final maturity date of the Bonds or the date on which no Bonds are outstanding under the authorizing document. Generally,in connection with its issuance of a Reserve Policy,Financial Guaranty requires, among other things, (i) that, so long as it has not failed to comply with its payment obligations under the Reserve Policy, it be granted the power to exercise any remedies available at law or under the authorizing document other than(A)acceleration of the Bonds or(B)remedies which would adversely affect holders in the event that the issuer fails to reimburse Financial Guaranty for any draws on the Reserve Policy; and (ii)that any amendment or supplement to or other modification of the principal legal documents be subject to Financial Guaranty's consent. The specific rights, if any, granted to 6 Financial Guaranty in connection with its issuance of the Reserve Policy may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement. Reference should be made as well to such description for a discussion of the circumstances,if any, under which the issuer of the Bonds is required to provide additional or substitute credit enhancement,and related matters. The Reserve Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In the event that Financial Guaranty is unable to fulfill its obligations under the Reserve Policy,the policy holder or bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. Financial Guaranty Insurance Company Financial Guaranty, a New York stock insurance corporation, is a direct, wholly-owned subsidiary of FGIC Corporation, and provides financial guaranty insurance for public finance and structured finance obligations. Financial Guaranty is licensed to engage in financial guaranty insurance in all 50 states,the District of Columbia and the Commonwealth of Puerto Rico and,through a branch, in the United Kingdom. Financial Guaranty is a wholly- owned subsidiary of FGIC Corporation,a Delaware corporation. On December 18, 2003, an investor group consisting of The PMI Group,Inc. ("PMI"), affiliates of The Blackstone Group L.P. (`Blackstone"), affiliates of The Cypress Group L.L.C. ("Cypress")and affiliates of CIVC Partners L.P. ("CIVC") acquired FGIC Corporation (the "FGIC Acquisition") from a subsidiary of General Electric Capital Corporation("GE Capital"). PMI,Blackstone,Cypress and CIVC acquired approximately 42%,23%,23%and 7%, respectively, of FGIC Corporation's common stock. FGIC Corporation paid GE Capital approximately $284.3 million in pre-closing dividends from the proceeds of dividends it, in turn, had received from Financial Guaranty, and GE Capital retained approximately $234.6 million in liquidation preference of FGIC Corporation's convertible participating preferred stock and approximately 5% of FGIC Corporation's common stock. Neither FGIC Corporation nor any of its shareholders is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy,including the Policy,issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where it is domiciled, including Article 69 of the New York Insurance Law("Article 69"), a comprehensive financial guaranty insurance statute. Financial Guaranty is also subject to the insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance regulators, vary by jurisdiction, but generally require insurance companies to maintain minimum standards of business conduct and solvency, to meet certain financial tests,to comply with requirements concerning permitted investments and the use of policy forms and premium rates and to file quarterly and annual financial statements on the basis of statutory accounting principles ("SAP")'and other reports. In addition, Article 69, among other things, limits the business of each financial guaranty insurer, including Financial Guaranty,to financial guaranty insurance and certain related lines. For the six months ended June 30,2004,and the years ended December 31,2003 and December 31,2002,Financial Guaranty had written directly or assumed through reinsurance, guaranties of approximately $27.1 billion, $42.4 billion and $47.9 billion par value of securities, respectively (of which approximately 60%, 79% and 81%, respectively, constituted guaranties of municipal bonds), for which it had collected gross premiums of approximately$162.9 million, $260.3 million and $232.6 million, respectively. For the six months ended June 30, 2004, Financial Guaranty had reinsured, through facultative arrangements, approximately 0.1% of the risks it had written. As of June 30, 2004, Financial Guaranty had net admitted assets of approximately$2.935 billion, total liabilities of approximately $1.793 billion, and total capital and policyholders' surplus of approximately $1.142 billion, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The unaudited financial statements of Financial Guaranty as of June 30, 2004, and the audited financial statements of Financial Guaranty as of December 31, 2003 and December 31, 2002, which have been filed with the Nationally Recognized Municipal Securities Information Repositories("NRMSIRs"),are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading `BOND INSURANCE," or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently filed by Financial Guaranty with such NRMSIRs,and shall not be deemed, 6a except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any)included in documents filed by the Issuer with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. Financial Guaranty also prepares quarterly and annual financial statements on the basis of generally accepted accounting principles. Copies of Financial Guaranty's most recent GAAP and SAP financial statements are available upon request to: Financial Guaranty Insurance Company, 125 Park Avenue, New York, NY 10017, Attention: Corporate Communications Department. Financial Guaranty's telephone number is(212)312-3000. Financial Guaranty's Credit Ratings The financial strength of Financial Guaranty is rated"AAA"by Standard&Poor's, a Division of The McGraw-Hill Companies, Inc., "Aaa" by Moody's Investors Service, and "AAA" by Fitch Ratings. Each rating of Financial Guaranty should be evaluated independently. The ratings reflect the respective ratings agencies' current assessments of the insurance financial strength of Financial Guaranty. Any further explanation of any rating may be obtained only from the applicable rating agency. These ratings are not recommendations to buy, sell or hold the Bonds, and are subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. Financial Guaranty does not guarantee the market price or investment value of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Neither Financial Guaranty nor any of its affiliates accepts any responsibility for the accuracy or completeness of the Official Statement or any information or disclosure that is provided to potential purchasers of the Bonds, or omitted from such disclosure, other than with respect to the accuracy of information with respect to Financial Guaranty or the Policy under the heading "DEBT SERVICE RESERVE FUND POLICY." In addition,Financial Guaranty makes no representation regarding the Bonds or the advisability of investing in the Bonds. 6b 1 ' t j! OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer pa;ticularly to sections that are indicated for more complete information. GENERAL The Issuer......................................................The City of Beaumont,Texas(the "City")is a political subdivision and home rule city of the State of Texas located within Jefferson County, Texas. The Bonds......................................................$17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds") are dated September 1, 2004. The Bonds mature September 1, 2007 through September 1, 2028. Interest on the Bonds will accrue from the dated date, and be payable March 1, 2005, and on each March 1 and September 1 thereafter until maturity or prior redemption. The Bonds include$12,010,000 principal amount of serial bonds maturing on September 1 of each year 2007 through 2024, inclusive, 2027 and 2028 (the "Serial Bonds") and $4,990,000 aggregate principal amount of term bonds maturing on September 1, 2026 which have certain mandatory redemption amounts (the "Term Bonds") in the principal amounts set forth under the caption "THE BONDS —Redemption of the Bonds —Mandatory Redemption." The Serial Bonds and the Term Bonds are collectively referred to herein as the"Bonds." See"THE BONDS-Description." k Redemption of the Bonds..............................Bonds maturing on or after September 1, 2015, are subject to redemption, in whole or from time to time in part, on September 1, 2014, or on any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. See "THE BONDS — Redemption of the Bonds — Optional Redemption." In addition to being subject to optional redemption, the Term Bonds are subject to mandatory sinking fund redemption on September 1 in the years and in the amounts more completely described in the Official Statement under "THE BONDS—Redemption of the Bonds—Mandatory Redemption," which amounts are subject to reduction by prior cancellation and optional redemption. The Term Bonds to be mandatorily redeemed shall be selected by lot or other customary random selection method by the Registrar. Other Characteristics.....................................The Bonds are issued in fully registered form in integral multiples of $5,000 of principal amount. The Bonds are subject to redemption prior to their scheduled maturities on September 1, 2014, or any date thereafter,at the par value thereof plus accrued interest. tiPaying Agent/Registrar..................................The initial paying agent/registrar is Wells Fargo Bank Texas, N.A., Houston,Texas(the"Registrar"). Source of Payment.........................................Principal of and interest on the Bonds are payable from a first lien on and pledge of the Net Revenues (hereinafter defined) from the operation of the City's waterworks and sanitary sewer system on a parity with the other certain outstanding water and sewer revenue bonds of the City. The Bonds are not a charge upon any other income or revenues of the City, and shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City. See "THE BONDS-Source of Payment." 7 Use of Proceeds.............................................Proceeds of the Bonds will be used to finance the expansion, repair, renovation and related improvements to the waterworks and sewer system and to pay the costs of the issuance of the Bonds. See "THE BONDS-Use of Proceeds." Ratings...........................................................Moody's Investors Service,Inc. (Financial Guaranty Insured).. "Aaa" Standard&Poor's Ratings Services(Financial Guaranty Insured)................................................................................. "AAA„ Payment Record.............................................The City has never defaulted on the timely payment of principal of and interest on its obligations t 9 a a s E 8 SELECTED FINANCIAL INFORMATION (Unaudited) The Revenue Bonds: Outstanding Revenue Bonds(as of July 1,2004)................................................................. $74,605,000 TheBonds............................................................................................................................. 17.000.000 Total Revenue-Supported Debt.............................................................................. 91.605.000 Fund Balances(as of August 1,2004): DebtService Fund.................................................................................................. $ 4,009,454 ReserveFund.......................................................................................................... (a) Coverage: Average Annual Debt Service of$5,857,399(2004-2028).................................... 1.92x Maximum Annual Debt Service of$6,946,668(2020).......................................... 1.62x Water Customers(September 30,2003)............................................................................... 41,056 Summary of Water and Sewer Operating Revenues and Expenses: Fiscal Year Ended September 30 2003 2002 2001 2000 1999 Revenues $26,890,035 $26,391,991 $26,222,501 $21,452,671 $19,273,995 Expenses $15,647.611 $15,676.636 $14,436,517 $14,177.959 $13,803.513 Revenue Available for Debt Service $11.242.424 $10,715,355 $IL2&5.9-84 7.274.712 $ 5.470.482 (a) The Reserve Fund requirements for the Outstanding Bonds is satisfied by Surety Bonds. i s i r r 8 9 - -- INTRODUCTION This Official Statement and the Appendices hereto provide certain information with respect to the issuance by The City of Beaumont, Texas (the "City") of its Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"). The Bonds are issued pursuant to the Texas Constitution, the general laws of the State of Texas, and an Ordinance authorizing issuance of the Bonds(the"Ordinance")adopted by the City Council of the City(the"Council"). There follows in this Official Statement descriptions of the Bonds, the plan of financing, and certain information about the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City upon request. Certain capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance,except as otherwise indicated herein. THE BONDS Special Obligations THE BONDS ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE FROM AND SECURED BY A FIRST LIEN ON NET REVENUES AS COLLECTED AND RECEIVED BY THE CITY FROM THE OPERATION AND OWNERSHIP OF THE SYSTEM. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OR GENERAL OBLIGATION OF THE CITY AND ARE NOT PAYABLE FROM FUNDS RAISED OR TO BE RAISED BY TAXATION AND OWNERS OF THE BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF FROM THE LEVY OF AD VALOREM TAXES OR FROM ANY SOURCE NOT PLEDGED TO PAYMENT OF THE BONDS. SEE"THE BONDS-SOURCE OF PAYMENT." Description The Bonds are dated September 1, 2004,bear interest from their respective delivery dates at the stated interest rates indicated under "PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES," which interest is payable March 1, 2005, and each March 1 and September 1 thereafter until maturity or prior redemption. The Bonds are issued in fully registered form in denominations of$5,000 of principal amount or any integral thereof. Principal of the Bonds is payable at the principal payment office of Wells Fargo Bank Texas, N.A.,Houston,Texas (the "Paying Agent/Registrar"). Interest on the Bonds will be payable by check, dated as of the interest payment date, and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying Agent/Registrar. See"THE BONDS-Paying Agent/Registrar." The Bonds are transferable only on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount of Bonds of the same series and maturity,in any authorized denomination, upon surrender of the Bonds to be exchanged at the principal payment office of the Paying Agent/Registrar. No service charge will be made for any transfer, but the City may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. It will be required that all transfers be made within three business days after request and presentation. The record date(the "Record Date')for the interest payable on any interest payment date means the 15th day of the month next preceding such interest payment date. The City has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds, or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the Paying Agent/Registrar of security or indemnity to keep them harmless. The City may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption of the Bonds - Optional Redemption- Bonds maturing on September 1, 2015, and thereafter shall be subject to redemption and payment at the option of the District, in whole or from time to time in part, on September 1, 2014, or on any date thereafter, at the par value thereof plus accrued interest to the date fixed for redemption. Notice of the exercise of the reserved right of redemption will be given at least thirty (30) days prior to the redemption date by sending such notice by first class mail to the Registered Owner of each Bond to be redeemed in whole or in part at the address shown on the bond 10 s register. If less than all of the Bonds are redeemed at any time, the maturities of the Bonds to be redeemed shall be selected by the District. If less than all of the Bonds of a certain maturity are to be redeemed, the particular Bonds or portions thereof to be redeemed will be selected by the Registrar prior to the redemption date by such random method as the Registrar deems fair and appropriate in integral multiples of$5,000 within any one maturity. The Registered Owner of any Bond,all or a portion of which has been called for redemption,shall be required to present such Bond to the Registrar for payment of the redemption price on the portion of the Bonds so called for redemption and issuance of a new Bond in the principal amount equal to the portion of such Bond not redeemed. -Mandatory Redemption- The Term Bonds are subject to mandatory sinking fund redemption and shall be redeemed by the District prior to their scheduled maturities on September 1 in the years and in the amounts set forth below at a redemption price equal to the principal amount redeemed plus accrued interest to the mandatory redemption date (the "Mandatory Redemption Date,"or"Mandatory Redemption Dates"): $4,990.000 Term Bond Maturing on September 1 2026 Mandatory Redemption Date Principal Amount September 1,2025 $2,435,000 September 1,2026 2,555,000 On or before 30 days prior to each Mandatory Redemption Date set forth above,the Registrar shall (i)determine the principal amount of such Term Bond that must be mandatorily redeemed on such Mandatory Redemption Date,after taking into account deliveries for cancellation and optional redemptions as more full provided for below, (ii)select, ` g P � P � YP (� ) by lot or other customary random method, the Term Bond or portions of the Term Bond of such maturity to be mandatorily redeemed on such Mandatory Redemption Date,and(iii)give notice of such redemption as provided in the Bond Resolution. The principal amount of any Term Bond to be mandatorily redeemed on such Mandatory Redemption Date shall be reduced by the principal amount of such Term Bond which, by the 45t`day prior to such f Mandatory Redemption Date, either has been purchased in the open market and delivered or tendered for cancellation by or on behalf of the District to the Registrar or optionally redeemed and which,in either case,has not previously been made the basis for a reduction under this sentence. Paying Agent/Registrar The initial Paying Agent/Registrar is Wells Fargo Bank Texas, N.A., Houston,Texas. The Bonds are being issued in fully registered form in integral multiples of$5,000 of principal amount. Interest on the Bonds will be payable semiannually by the Paying Agent/Registrar by check mailed on each interest payment date by the Paying Agent/Registrar to the registered owner at the last known address as it appears on the Paying Agent/Registrar's books on the Record Date. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacing the Paying Agent/Registrar as defined above. If the City replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor paying agent/registrar (the "Successor Paying Agent/Registrar"), and the Successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any Successor Paying Agent/Registrar selected by the City shall be a commercial bank or trust company organized under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Bonds. Source of Payment The Bonds are special obligations of the City payable,both as to principal and interest,solely from and secured by a first lien on and pledges of the Net Revenues (as hereinafter defined) of the City's waterworks and sanitary sewer system (the "System") after the payment of maintenance and operating expenses of the System. The Ordinance defines Net Revenues as all Gross Revenues remaining after deducting Maintenance and Operation Expenses. Gross Revenues are defined as all revenues, income and receipts of every nature derived or received by the City from the operation and ownership of the System and the interest income from the investment or deposit of money in the Revenue Fund, the Debt Service Fund and the Reserve Fund. THE BONDS ARE NOT A CHARGE UPON ANY OTHER INCOME OR REVENUES OF THE CITY AND SHALL NEVER CONSTITUTE AN 11 INDEBTEDNESS OR PLEDGE OF THE GENERAL CREDIT OR TAXING POWERS OF THE CITY. The Ordinance does not create a lien or mortgage on the System and any judgment against the City may not be enforced by levy and execution against any property owned by the City, except the Net Revenues. See "SELECTED PROVISIONS OF THE ORDINANCE"and"THE BONDS-Remedies in the Event of Default." The Ordinance permits the City to issue additional first lien bonds that are on a parity with the Bonds and to issue junior lien bonds. See"SELECTED PROVISIONS OF THE ORDINANCE." As additional security for the Bonds, a Reserve Fund has been established pursuant to the Ordinance which is to be funded in an amount equal to the aggregate average annual debt service requirements of the outstanding Bonds,and any additional bonds issued on a parity with the Bonds. The Ordinance permits the City to use reserve fund surety policies(as defined herein)in lieu of making cash deposits to the Reserve Fund. Authority for Issuance The Bonds are being issued pursuant to the applicable provisions of the Constitution and laws of the State of Texas, particularly Chapter 1502, Texas Government Code, as amended, and the provisions of the Ordinance adopted by the City Council, which specifically authorize the sale and issuance of the Bonds. Further reference to the Ordinance is hereby made. Use of Proceeds The Bonds are being issued to finance the expansion,repair,renovation and related improvements to the water and sewer system and to pay the costs related to the issuance of the Bonds. Legal Investments in Texas Pursuant to Section 1201.041 of the Texas Government Code, the Bonds, whether rated or unrated, are (a) legal investments for banks, savings banks,trust companies,building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees and (b) legal investments for the public funds of cities, towns, villages, school districts,and other political subdivisions or public agencies of the State. Most political subdivisions in the State of Texas are required to adopt investment guidelines under the Public Funds Investment Act, Chapter 2256, Texas Government Code, and such political subdivisions may impose a requirement consistent with such act that the Bonds have a rating of not less than "A" or its equivalent to be legal investments for such entity's funds. The Bonds are eligible under the Public Funds Collateral Act, Chapter 2257, Texas Government Code, to secure deposits of public funds of the State or any political subdivision or public agency of the State and are lawful and sufficient security for those deposits to the extent of their market value. Again,political subdivisions in the State of Texas may impose a requirement that the Bonds have a rating of not less than "A" or its equivalent to be eligible to serve as collateral for their funds. The City has not made any investigations of any other laws,rules,regulations or investment criteria that might affect the suitability of the Bonds for any of the above purposes or limit the authority of any of the above entities or persons to purchase or invest in the Bonds. Remedies in the Event of Default The Ordinance requires the City to maintain water and sewer charges sufficient to provide for the annual payment of debt service and provide for a Reserve Fund for the benefit of the Bonds and any other outstanding revenue bonds of the City. The City has elected to satisfy the Reserve Fund requirements with respect to the Bonds with a reserve fund surety policy. The Ordinance does not provide any other security for the payment of the Bonds,or any express remedies in the event of default,make no provision for acceleration of maturity of the Bonds in the event of default, and do not provide for a trustee to protect the rights of the holders of the Bonds. Although a holder of the Bonds could presumably obtain judgment against the City in the event of default in the payment of principal or interest on the Bonds, such judgment could not be satisfied by execution against any property of the City. A holder of the Bonds could,in the event of default,ask a court for a mandamus or court order compelling the City to maintain water and sewer charges sufficient to produce revenues to pay principal of and interest on the Bonds as it comes due or to perform the City's other obligations under the Ordinance. Such remedy might need to be enforced on a periodic basis. The enforcement of a claim for payment of principal or interest on the Bonds would be subject to judicial discretion, sovereign police powers and the applicable provisions of the federal bankruptcy laws and to any other similar laws affecting the rights of political subdivisions generally. 12 i INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the City Council of the City. Both state law and the City's investment policies are subject to change. Legal Irivestments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal of and interest on which are unconditional) guaranteed or insured b or backed b the fu Y g y, y 11 faith and credit of,the State of Texas or the United States or their respective agencies and instrumentalities,p g 5 obligations of states ( ) g , agencies, counties, cities, and other political subdivisions of any state rates as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, (6) certificates of deposit issued by a savings bank or a state or national bank domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits, (7) certificates of deposit and share certificates issued by a savings bank or a state or federal credit union domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses(1)through(5)or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured b obligations described in clause 1 and are laced through a primary government securities dealer or a Y g O, P g P � Yg k' financial institution doing business in the State of Texas,(9)bankers'acceptances with a stated maturity of 270 days or less from date of issuance,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 fewer from the date of issuance 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 regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of$1 for each share, and(12)no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses; and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of no less than AAA or its equivalent. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than Aaa or AAA or an equivalent by at least one nationally recognized rating service or no lower than investment grade by at least one nationally recognized rating service with a weighted average maturity no greater than 90 days. 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 the market index. Investment Policies Under Texas law, the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds'investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment,(5)diversification of the portfolio,and(6)yield. 13 y Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived." At least quarterly, the investment officers of the City shall submit an investment report detailing: (1) the investment position of the City; (2) the beginning market value, any additions and changes to market value, the ending value for each pooled fund group, and fully accrued interest for the reporting period, (3)the book value and market value of each separately listed asset at the beginning and end of the reporting period, (4)the maturity date of each separately invested asset, (5) the account or fund or pooled fund group for which each individual investment was acquired, and (6) the compliance of the investment portfolio as it related to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the City Council. The City's investment policy requires investments in accordance with applicable state law. However the City's investments are limited to direct obligations of the United States or its agencies and instrumentalities which are non- callable and have a maximum stated maturity of 5 years or less;certificates of deposit issued by approved depository banks with a maximum stated maturity of 5 years or less; fully collateralized direct repurchase agreements as described above with a defined termination date of 90 days or less;no load money market mutual funds regulated by the Securities and Exchange Commission with a dollar weighted average stated maturity of 90 days or less; and approved investment pools which are continuously rated no lower than AAA, AAA- by at least one nationally recognized agency. Texpool (an investment pool operated by the State of Texas for the benefit of local governments),LOGIC(Local Government Investment Cooperative)and Texas TERM(a fixed rate,fixed term pool 60 days to one year)are currently the City's approved investment pools. City policy allows for investment in securities with maximum maturity dates of two years or less for pooled and debt service funds and five years or less for debt service reserve funds. The City's investment balances on June 30,2004 were as follows: Face Principal Market Book Amount Invested Principal Value Money Market Funds and Pools $26,426,316 $26,426,316 $26,449,996 $26,426,316 Bank Deposits and CDs 1,729,570 1,729,570 1,729,570 1,729,570 Agency Securities 23.000,000 23.428.927 23.009.390 23,064.987 Total Portfolio $5 ,155.886 $51,584,81 $51.188,9 $5-1 '220 873 CITY REVENUE DEBT Debt Statement The following tables, calculations and narratives relate to the Bonds. The Bonds are not a charge upon any other income or revenues of the City and shall never constitute an indebtedness or pledge of the general credit or taxing powers of the City. See"THE BONDS-Source of Payment." -Bonded Indebtedness- Outstanding Revenue Bonds(as of July 1,2004)................................................................. $74,605,000 TheBonds............................................................................................................................. 17.000.000 Total Revenue Supported Debt.............................................................................. $91.60,50 Fund Balances(as of July 1,2004): DebtService Fund.................................................................................................. $ 4,009,454 ReserveFund.......................................................................................................... (a) Coverage: Estimated Average Annual Debt Service of$5,857,399(2004-2028)............................ 1.92x Estimated Maximum Annual Debt Service of$6,946,668(2019)................................... 1.62x (a) The Reserve Fund requirements for the Outstanding Bonds is satisfied by Surety Bonds. 1 14 i Debt Service Schedule The following is a combined schedule of the principal and interest due on the City's outstanding waterworks and sewer system revenue bonds and the Bonds. Fi§cal Year Total New Total Ending Current Plus: The Bonds Principal Debt Service 9-30 Debt Service Principal Interest &Interest Requirements 2004 $5,734,694 $ 5,734,694 2005 5,700,894 $ 840,180 $ 840,180 6,541,074 2006 5,707,826 840,180 840,180 6,548,006 2007 5,723,484 $ 200,000 840,180 1,040,180 6,763,664 2008 5,732,684 205,000 827,680 1,032,680 6,765,364 2009 5,746,159 210,000 814,868 1,024,868 6,771,026 2010 5,762,394 215,000 801,743 1,016,743 6,779,136 2011 5,775,864 220,000 788,305 1,008,305 6,784,169 2012 5,795,746 225,000 774,555 999,555 6,795,301 2013 5,806,906 230,000 760,493 990,493 6,797,399 2014 5,833,629 240,000 746,118 986,118 6,819,746 2015 5,864,084 250,000 731,118 981,118 6,845,201 2016 5,897,644 255,000 715,493 970,493 6,868,136 2017 5,932,709 260,000 700,193 960,193 6,892,901 2018 5,967,300 270,000 684,593 954,593 6,921,893 2019 6,000,575 275,000 671,093 946,093 6,946,668 2020 6,032,625 280,000 658,718 938,718 6,971,343 2021 4,972,500 285,000 646,118 931,118 5,903,618 2022 4,815,000 290,000 633,293 923,293 5,738,293 2023 4,657,500 300,000 620,243 920,243 5,577,743 2024 2,315,000 606,368 2,921,368 2,921,368 2025 2,435,000 497,563 2,932,563 2,932,563 2026 2,555,000 381,900 2,936,900 2,936,900 2027 2,680,000 260,538 2,940,538 2,940,538 2028 2.805.000 133,238 2,938.238 2.938,238 $113.460 217 17.000.000 15.974.771 S32-274,'771 $146.434,282 Average Annual Requirements(2004-2028)........................................................................ $5,857,399 Maximum Annual Requirements(2020).............................................................................. $6,946,668 15 n THE SYSTEM Description of the System -Waterworks System- The water production facilities consist of approximately 13 miles of diversion canals,two pumping stations,and one gravity intake for diverting raw water from the Neches River at three separate points and transporting water to a 30 Million Gallon Daily (MGD) filtration plant. The treatment plant consists of raw water pumps, chemical addition equipment,coagulation/clarification tanks,rapid sand filters, and high service pumps. A five million gallon ground storage tank is located at the plant for storage of treated water. In addition to the surface water supply, water is also produced from 3 wells. The wells have a total capacity of 17 MGD and include two 5 million gallon ground tanks for pumping the well water into the City's distribution system. The distribution system is common to both surface water supply and the ground water supply. It consist of 693 miles of 6" thru 42" lines, 2,700 fire hydrants, four 1 million gallon elevated storage tanks, one 1.5 million gallon elevated storage tank,a 0.3 million gallon elevated storage tank and a 2.7 million gallon ground storage tank. -Top Ten Water Customers- 2003 2003 Water Consumption System Revenues Company (in Gallons) ! (in 000) , TDCJ/Utilities&Energy 304 670,000 $1,188,588 Federal Correctional Complex 281,068,000 1,247,753 St.Elizabeth Hospital 78,182,800 304,143 ` Lamar University 68,747,900 278,126 Mobil Chemical/Mobil Oil 54,834,200 188,955 Peak Sulphur/Olin Chemical 54,785,700 125,918 Memorial Herman Baptist 42 016,900 179,555 Jefferson County Correctional 37,108,300 164,158 Betz Chemical 35,650,000 116,570 Beaumont Housing 34,494,200 158,069 -Sanitary Sewer System- The Sanitary Sewer System consists of one 30 MGD high rate trickling filter sewerage treatment plant with polishing ponds, 32 sewerage lift stations with capacities ranging from 0.1 MGD to 60 MGD, and 600 miles of sewer lines ranging in size from 6"diameter to 72"diameter. Water and Sewer Rates The City currently serves approximately 41,000 water and sewer customers. Of the total, approximately 89% are residential and 11% are commercial. The City serves approximately 50 metered customers located outside the City. The following is a summary of the City's current water and sewer rates approved by the City Council on June 22, 2004 and become effective July 1 of each year as shown below. 16 I The City charges the following rates for water and sanitary sewer service furnished to customers within and outside i the City limits. -Water Rates(Minimum)- t Meter Inside City Outside City Size/Inches 2004 2005 2006 2004 2005 2006 5/8 $ 7.22 $ 7.51 $ 7.81 $10.82 $11.26 $11.71 1 7.96 8.30 8.64 11.98 12.46 12.95 1 %2 8.75 9.10 9.47 13.13 13.65 14.20 2 10.93 11.37 11.82 16.40 17.05 17.74 3 22.22 23.11 24.03 33.33 34.55 36.05 4 26.93 28.01 29.13 40.40 42.01 43.69 6 48.54 50.48 52.50 72.80 75.71 78.74 8 66.76 69.43 72.21 100.14 104.15 108.31 10 91.88 95.58 99.38 137.82 143.33 149.07 12 114.54 119.13 123.89 171.82 178.69 185.64 First 1,000 Gallons Minimum Calculated Above Minimum Calculated Above Over 1,000 Gallons $Per 1,000 Gallons $2.44 $2.54 $2.64 $3.66 $3.81 $3.96 Sy -Sewer Rates(Minimum)- Meter Inside City Outside City Size/Inches 2004 2005 2006 2004 2005 2006 5/8 $ 4.61 $ 4.79 $ 4.98 $ 6.91 $ 7.19 $ 7.47 1 4.68 4.87 5.07 7.02 7.31 7.60 1 V2 4.76 4.95 5.15 7.14 7.43 7.72 2 5.17 5.38 5.60 7.76 8.07 8.39 3 5.85 6.08 6.33 8.78 9.13 9.49 4 8.58 8.93 9.28 12.87 13.39 13.93 6 14.05 14.61 15.20 21.07 21.92 22.79 8 17.18 17.87 18.58 25.77 26.80 27.88 10 23.43 24.37 25.34 35.15 36.56 38.01 12 29.66 30.85 32.09 44.50 46.28 48.13 First 1,000 Gallons Minimum Calculated Above Minimum Calculated Above Over 1,000 Gallons $Per 1,000 Gallons $2.21 $2.30 $2.39 $3.32 $3.45 $3.59 17 Historical Operations of the System September 30 REVENUES: 2003 2002 2001 2000 1999 Charges for Services $26,405,043 $25,813,738 $24,750,863 $21,131,598 $19,086,283 Investment Earnings 479,137 575,110 1,450,669 229,257 134,971 Miscellaneous 5.855 3.143 20.969 91.816 52.741 Totals $26.890.035 $26.391.991 $26,222,501 $21,452.671 $19.273.995 EXPENSES: Personal Services $ 6,048,117 $ 6,139,163 $ 5,726,505 $ 6,232,442 $ 5,623,876 Other Operating 4,360,494 5,187,473 5,060,012 4,104,625 4,353,273 Payments in Lieu of Taxes 5,239,000* 4,350,000* 3,650,000 3,650,000 3,650,000 Loss on Uncollectible Accounts --- --- 190.892 176.364 Total $15.647.611 $15,676,636 $14,436,517 $14.177.959 $13.803.513 Available for Debt Service $11.242.424 $10.715,355 $11.785.984 $ 7.274,712 $ 5.470.482 Customer Count: Water 41,056 40,950 40,836 40,650 40,474 Sewer 39,500 39,398 39,288 39,182 39,047 i * Shown in CAFR as part of transfers out. SELECTED PROVISIONS OF THE ORDINANCE The Ordinance authorizes the issuance and sale of the Bonds and prescribe terms,conditions,and provisions for the payment of the principal of and interest on the Bonds by the City. Set forth below is a summary of certain provisions of the Ordinance. Such summary is not a complete description of the entire Ordinance and is qualified by reference to the Ordinance,copies of which are available from the City's Financial Advisor upon request. Definitions The following are selected terms that are defined in the Ordinance: The term "Additional Parity Bonds" shall mean the additional parity revenue bonds permitted to be issued by the City pursuant to the Ordinance. The term"Gross Revenues" shall mean all revenues,income and receipts of every nature derived or received by the City from the operation and ownership of the System (but excluding any utility deposits) and the interest income from the investment or deposit of money in the Revenue Fund,the Interest and Sinking Fund,and the Reserve Fund. The term "Maintenance and Operation Expenses" shall mean the reasonable and necessary expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service,and all payments under contracts now or hereafter defined as operating expenses by the Legislature of the State of Texas. Depreciation shall never be considered as a Maintenance and Operation Expense. 18 The term"Net Revenues" shall mean all Gross Revenues remaining after deducting the Maintenance and Operation Expenses. The term "Parity Bonds" shall mean the Series 1998 Bonds, the Series 1999 Bonds the Series 2000 Bonds and the Series 2902 Bonds, and each series of Additional Parity Bonds from time to time hereafter issued, but only to the extent such Parity Bonds remain outstanding within the meaning of the Ordinance. The term "Record Date" shall mean the fifteenth (15th) calendar day of the month next preceding each Interest Payment Date. II The term "Reserve Fund Requirement" shall mean an amount equal to the average annual principal and interest requirement on the Parity Bonds, which may be determined and redetermined each year by the City but in no event less frequently than upon the issuance of each series of Parity Bonds. The term "System" shall mean all properties, facilities, improvements, equipment, interests and rights constituting the waterworks and sewer system of the City, including all future extensions, replacements, betterments, additions, II' improvements,enlargements,acquisitions,purchases and repairs to the System,but excluding all Special Projects. Pledge and Source of Payment THE BONDS ARE SPECIAL OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM AND SECURED BY A FIRST LIEN ON NET REVENUES AS COLLECTED AND RECEIVED BY THE CITY FROM THE OPERATION AND OWNERSHIP OF THE SYSTEM. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OR GENERAL OBLIGATION OF THE CITY AND ARE NOT PAYABLE FROM FUNDS y RAISED OR TO BE RAISED BY TAXATION AND OWNERS OF THE BONDS SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT THEREOF FROM THE LEVY OF AD VALOREM TAXES OR FROM ANY SOURCE NOT PLEDGED TO PAYMENT OF THE BONDS. In the Ordinance, the City covenants and agrees that all Gross Revenues of the System shall, as collected and received by the City,be deposited and paid into the special funds established in the Ordinance,and shall be applied to provide for(i)the payment of all Maintenance and Operation Expenses,(ii)the payment of principal,interest and any redemption premiums on the Parity Bonds,and all expenses of paying,securing and insuring the same. Bond Covenants Pursuant to the provisions of the Ordinance, the following covenants, terms, conditions and obligations shall exist with respect to all Parity Bonds. Rates and Charges- So long as any Parity Bonds remain outstanding,there shall be fixed,charged and collected rates and charges for the use and services of the System,which may be fully sufficient at all times: (1) to pay all Maintenance and Operation Expenses;and (2) to produce Net Revenues in each fiscal year at least equal to 110 percent of the principal and interest requirements scheduled to occur in such fiscal year on all Parity Bonds then outstanding plus an amount equal to the sum of all deposits required to be made to the Reserve Fund in such fiscal year, but in no event less than the amount required to establish and maintain the Interest and Sinking Fund, the Reserve Fund as hereinafter provided, and, to the extent that funds for such purpose are not otherwise available, to pay all other outstanding obligations payable from the Net Revenues of the System as and when the same become due. The City covenants that it will not grant or permit any free service from the System except for public buildings and institutions operated by the City. -Flow of Funds- All Gross Revenues of the System shall be deposited as collected into the Revenue Fund. Moneys from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order of priority: (1) First, to pay Maintenance and Operation Expenses and to provide by encumbrance for the payment of all obligations incurred by the City for Maintenance and Operation Expenses which may include an operating reserve equal to one month's estimated Maintenance and Operation Expenses. 19 (2) Second, to make all deposits into the Interest and Sinking Fund required by the Ordinance authorizing the Bonds and any ordinance authorizing the issuance of any outstanding Parity Bonds and any ordinance authorizing the issuance of Additional Parity Bonds. (3) Third, to make all deposits into the Reserve Fund required by the Ordinance authorizing the Bonds and any ordinance authorizing the issuance of any outstanding Parity Bonds and any ordinance authorizing the issuance of Additional Parity Bonds. (4) Fourth,to pay any amounts due to any bond insurer of Parity Bonds not paid pursuant to subsections (2)or(3)above. (5) Fifth,for any lawful purpose,including transfers to the General Fund as permitted by law. Whenever the total amounts on deposit to the credit of the Interest and Sinking Fund and the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all outstanding Parity Bonds plus the aggregate amount of all interest accrued and to accrue thereon,no further payments need be made into the Interest and Sinking Fund or the Reserve Fund. Reserve Fund- The Ordinance requires that, unless the Reserve Fund is fully funded, on or before the last Business Day of each month so long as any Parity Bonds remain outstanding, after making all required payments and provision for payment of Maintenance and Operation Expenses,and after making the transfers into the Interest and Sinking Fund required in the preceding Section, there shall be transferred into the Reserve Fund from the Revenue Fund an amount at least equal to one-sixtieth(1/60'') of the average annual principal and interest requirements on the Parity Bonds, so that the Reserve Fund shall contain, in no more than 60 months after the issuance of each such issue of Parity Bonds, money and investments in an aggregate amount at least equal to the average annual principal and interest requirements on all Parity Bonds then outstanding. After such amount has accumulated in the Reserve Fund and so long thereafter as such Fund contains such amount, no further deposits shall be required to be made into the Reserve Fund,and any excess amounts may be transferred to the Revenue Fund. But if and whenever the balance in the Reserve Fund is reduced below such amount,monthly deposits into such Fund shall be resumed and continued in amounts at least equal to one-sixtieth(1/60th)of the average annual principal and interest requirements on the Parity Bonds until the Reserve Fund has been restored to such amount. The Reserve Fund shall be used to pay the principal of and interest on the Parity Bonds at any time when there is not sufficient money available in the Interest and Sinking Fund for such purpose and it may be used finally to pay and retire the last Parity Bonds to mature or be redeemed. s To the extent permitted by law, the City expressly reserves the right at any time to satisfy all or any part of the amounts required to be on deposit in the Reserve Fund (the "Reserve Fund Requirement") by obtaining for the benefit of the Reserve Fund one or more Reserve Fund Surety Policies (a "Reserve Fund Surety Policy"). In the q event the City elects to substitute at any time a Reserve Fund Surety Policy for any funded amounts in the Reserve Fund, it may apply any bond proceeds thereby released, to the greatest extent permitted by law, to any purposes for which the bonds were issued, and if all such purposes have been satisfied, to the payment of debt service on such bonds, and it may apply any other funds thereby released to any of the purposes for which such funds may lawfully be applied including the payment of debt service on the Parity Bonds. A Reserve Fund Surety Policy shall be an insurance policy or other similar guarantee in a principal amount equal to the portion of the Reserve Fund Requirement to be satisfied which is issued by a financial institution or insurance company with a rating for its long term unsecured debt or claims paying ability in the highest letter category by two major municipal securities evaluation sources. The premium for any such policy shall be paid from bond proceeds or other funds of the City lawfully available for such purpose. The City reserves the right to fund any increase in the Reserve Fund Requirement caused by the issuance of Additional Parity Bonds by the purchase of a Reserve Fund Surety Policy in the amount of such increase or by making transfers from the Revenue Fund to the Reserve Fund, in approximately equal monthly installments, in amounts sufficient to accumulate the increase in the Reserve Fund Requirement within sixty (60) months of the issuance of such Additional Parity Bonds. If the Reserve Fund contains only cash and the balance in the Reserve Fund is reduced below the Reserve Fund Requirement at any time, the City shall make monthly transfers from the Revenue Fund to the Reserve Fund, in approximately equal monthly installments, in amounts sufficient to restore the balance in the Reserve Fund to the Reserve Fund Requirement within twelve l (12)months of the date on which the balance in the Reserve Fund was so reduced. If the Reserve Fund contains a Reserve Fund Surety Policy (and no cash) and a draw is made against such policy, the City shall make monthly 20 I transfers from the Revenue Fund, in approximately equal monthly installments, in amounts sufficient to reimburse tl the amount drawn under such policy within twelve(12)months. If the Reserve Fund contains a combination of cash and a Reserve Fund Surety Policy, and the balance in the Reserve Fund is reduced below the Reserve Fund Requirement by a combination of cash withdrawals and draws against the Reserve Fund Surety Policy,the City shall make mbnthly transfers from the Revenue Fund,in approximately equal monthly installments, in amounts sufficient to restore the cash balance in the Reserve Fund and reimburse the amount drawn under such policy within twelve (12) months, with reimbursement to be made for all amounts drawn under such policy before any cash deposits are made into the Reserve Fund. Any reimbursement of amounts drawn against a Reserve Fund Surety Policy shall be limited to the amounts actually paid under such policy, and the City shall have no obligation to make any reimbursement payment with respect to any such policy except as provided herein. -Additional Bonds- (1) Additional Parity Bonds. The City reserves the right to issue, for any lawful purpose,including the I refunding of any previously issued Parity Bonds or any other bonds or obligations of the City issued in connection with the System, one or more series of Additional Parity Bonds payable from, and I secured by a first lien on and pledge of, the Net Revenues of the System,on a parity with the Bonds r and any other Additional Parity Bonds then outstanding; provided, however, that no Additional Parity Bonds may be issued unless: (i) The Additional Parity Bonds mature on September 1, and interest is payable on March 1 and i September l; (ii) The Interest and Sinking Fund and the Reserve Fund each contain the amount of money then required to be on deposit therein; (iii) For either the preceding Fiscal Year or any consecutive 12-month calendar period ending no more than 90 days prior to adoption of the ordinance authorizing such Additional Parity Bonds, Net Revenues were equal to at least 125% of the average annual principal and interest srequirements on all Parity Bonds that will be outstanding after the issuance of the series of Additional Parity Bonds then proposed to be issued,as certified by the City's Finance Officer or by an independent certified public accountant or firm of independent certified public accountants;or (iv) If the City cannot meet the test described in (iii) above, but a change in the rates and charges applicable to the System becomes effective at least sixty(60)days prior to the adoption of the ordinance authorizing Additional Parity Bonds and the City's Finance Officer certifies that,had such change in rates and charges been effective for the preceding fiscal year or 12 consecutive calendar month period ending no more than 90 days prior to adoption of said ordinance,the Net Revenues for such period would have met the test described in(iii)above. (2) Subordinate Lien Obligations. The City reserves the right to issue, for any lawful purpose, bonds, notes or other obligations secured in whole or in part by liens on and pledges of the Net Revenues that are junior and subordinate to the lien on and pledge of Net Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. (3) Special Project Bonds. The City reserves the right to issue revenue bonds secured by liens on and t pledges of revenues and proceeds derived from Special Projects. Financial Statements A copy of the City's Financial Statements for the fiscal year ended September 30, 2003, is attached hereto in the APPENDIX B. Copies of such statements for preceding years are available,for a fee,upon request. 21 ADMINISTRATION OF THE CITY Mayor and City Council Policy-making and legislative functions are the responsibility of and are vested in the Mayor and City Council under provisions of the "Charter of the City of Beaumont" (the "Charter") approved by the electorate December 6, 1947, and amended in 1952, 1972, 1983, 1986, 1998 and 2003. The Council is composed of seven members, including the Mayor, three of whom, including the Mayor, are to be elected at-large in even numbered years. All members serve two-year terms. The Mayor is entitled to vote on all matters before the Council, but has no power to veto Council action. Members of the Council are described below: Term Council Members Position Expires Occupation Evelyn M.Lord Mayor May 2005 International Consultant Becky Ames Mayor Pro Tem and May 2005 Administrator/Collier Park Councilmember at Large Retirement Community Lulu L. Smith,M.D. Councilmember Ward 1 May 2005 Physician Nancy A.Beaulieu Councilmember Ward 2 May 2005 Marketing/Public Relations Consultant Andrew P.Cokinos Councilmember at Large May 2005 Investments/Real Estate Audwin Samuel Councilmember Ward 3 May 2005 Attorney at Law/ Samuel and Associates Bobbie J.Patterson Councilmember Ward 4 May 2005 Marketing Education Coordinator Ozen High School Beaumont I.S.D. Administration Under provisions of the Charter, the Council enacts local legislation, adopts budgets, determines policies and appoints the City Manager, who is charged with the duties of executing the laws and administering the government of the City. As the chief executive officer and head of the administrative branch of the City government, the City Manager is given the power and duties to: (1) Appoint and remove all department heads and all other employees in the administrative service of the City and may authorize the head of a department to appoint and remove subordinates in his respective department; (2) Prepare the budget annually,submit it to Council,and be responsible for its administration; (3) Prepare and submit to Council a complete report on the finances and administrative activities of the City; (4) Keep Council advised of the financial condition and future needs of the City and make appropriate recommendations;and (5) Perform such other necessary duties as prescribed by the Charter or required by Council. 22 j Members of the administrative staff are described below: Years in Staff Member Position Position Years of Service Kyle Hayes City Manager 2 11 Lane Nichols City Attorney 22 35 Rose Ann Jones City Clerk 6 mo. 6 mo. Max S.Duplant Finance Officer 2 2 Kandy Daniel Treasurer 15 23 III'' Thomas A.Warner Public Works Director 19 26 III Thomas J. Scofield,Jr. Police Chief 11 34 Michel Bertrand Fire Chief 8 28 Ingrid West Holmes Public Health Director 7 23 Maurine Gray Community Services Director 13 38 Marie Dodson Human Resources Director 3 3 Phyllis Boudreaux MIS Director 13 13 Kirby Richard Central Services Director 13 23 j Consultants The City has retained several consultants to perform professional services in connection with the independent auditing of its books and records and other City activities. Several of these consultants are identified below: BondCounsel..................................................................................................................Orgain,Bell&Tucker,L.L.P. Beaumont,Texas Auditors .............................................................................................................Cook Shaver Parker&Williams,P.C. Beaumont,Texas FinancialAdvisor....................................................................................................................RBC Dain Rauscher Inc. Houston,Texas LEGISLATION AND REGULATION Affecting the City's Operations The Environmental Protection Agency ("EPA") has issued regulations (commonly known as National Pollution & Discharge Elimination System "NPDES") that require the City to obtain a discharge permit for the City's storm sewer system. The landfill, airport facilities and transit facilities are currently operating under separate industrial permits. These permits have been modified to multi-sector permits. As required by law and applicable EPA regulations,the City updated and received these permits in April, 1998. The City has spent approximately$800,000 in consulting fees to obtain the NPDES permits. The City paid one-half of this cost and the other one-half was paid by Jefferson County Drainage District No. 6. The City received the final permit, which was effective October 1, 1998. The City anticipates it will have to spend approximately$500,000 a year to comply with the requirements of the permits. In addition, the NPDES permit requires the City to eliminate illicit connections to its storm sewer system. Regulations mandate compliance over the next five years. Based upon current estimates,the City projects its cost of compliance with these requirements to be approximately$800,000. It is currently expected that the City will pay for such costs out of its general fund so long as there is no significant increase in actual compliance cost. In addition, the NPDES permit requires the City to take storm water samples at five locations three times annually. If the samples reveal an unacceptable level of pollutants, the City may be required to purify the storm water or it may be required to take action to require local property owners to purify the storm water before it is discharged to the City's storm sewer system. It is not possible to predict what costs the City may incur if it is required to purify the storm water and whether the City would have to borrow funds for such purpose. 23 City operations are also impacted by numerous federal mandates such as The Americans With Disabilities Act and regulations controlling the abatement of asbestos and lead paint. The City, to its knowledge, is presently in compliance with such regulations. The ad valorem tax rate for 2003 remained equal to the prior year at$0.67. This will provide adequate resources for fiscal year 2004 expenditure levels. Administration is monitoring inflows and outflows on a monthly basis and adjusting expenditure levels as necessary. Affecting the Tax Base Air quality control measures of the EPA and the Texas Commission on Environmental Quality ("TCEQ") may curtail new industrial, commercial and residential development in the City and the surrounding areas. Existing ambient ozone concentrations exceed EPA standards, and sulfur dioxide emissions are increasing. Because of these factors, federal regulations are particularly stringent with regard to construction or modifications of certain facilities which emit pollutants. The regulations require, among other things, that new or increased hydrocarbon emissions must be offset by reductions of existing sources in the area. New and more stringent limitations on development in the Beaumont area may result if reasonable further progress is not made toward attaining the EPA's ambient air quality standard for ozone. Such limitations could include(1)more stringent offset regulations, (2)outright bans of new large facilities, and (3) increased transportation controls. Enforcement of such limitations could have an adverse effect on assessed valuations in the City and the surrounding area. The EPA has approved a state implementation plan including the Beaumont area(ending the possibility of sanctions which have been proposed by the EPA). The EPA recently reclassified the Beaumont area from serious to moderate. Under the provisions of the Flood Disaster Protection Act of 1973 and accompanying regulations, the Federal Insurance Administration identified property lying within the 100-year flood plain (areas with a probability of flooding of 1% or greater each year) and subjected those areas to regulations which restricted construction. These regulations are being implemented in phases, as increasingly detailed data becomes available. The City and Jefferson County have passed ordinances implementing building restrictions in flood plain areas. Approximately 66% of the surface area in the County and approximately 12% of the surface area in the City are considered flood hazard areas, which may have an adverse effect on the market valuation of the property within the areas and all of which may adversely effect assessed valuations. Recent regulations submitted to the EPA by the TCEQ may require installation of a gas control system at the City's landfill within the next three years. OTHER CONSIDERATIONS Future Bond Issues The City estimates that up to$15,000,000 in additional ad valorem tax debt may be issued in calendar year 2005. If issued, these bonds will provide funds for additional street and drainage improvements included in the current capital improvement program. The City is currently in the process of upgrading and rehabilitating its existing water and sewer system. The City expects to pay for the cost of such upgrade and rehabilitation to the water and sewer system out of existing revenues from the System. To the extent that revenues are not sufficient for such purposes, the City may find it necessary to issue revenue bonds. The City plans to issue an additional $10,000,000 in calendar year 2005 and $10,000,000 in 2006. The City anticipates that within the next year it will have to make upgrades to the water System to comply with new federal requirements. The City is currently participating in a nation-wide water sampling program, the outcome of which could require the City and other municipalities to upgrade their water system to comply with new federal requirements. The City has not yet been advised that it will be necessary to make any improvements or upgrades to its System, but the City anticipates that it could be required to improve the filtration system used for its water supply. The cost of such improvements is unknown to the City at this time. 24 Other Financing Arrangements In the current fiscal year, the City plans to enter into capital lease agreements not to exceed $400,000 for the purchase of operating equipment. The lease agreements include non-appropriation funding language; therefore, the City is ncX obligated to make lease payments beyond the current fiscal year. Pension Fund �I j The City participates in two pension plans for its employees. The Texas Municipal Retirement System(TMRS), t an agent multi-employer defined contribution plan,covers all eligible employees except firefighters. Firefighters are covered by the Beaumont Firemen's Relief and Retirement Fund, a single-employer defined benefit plan. Both plans are created under Texas statues which establish each plan's provisions. The City's contributions to the pension plans are actuarially determined and result in contribution rates that over time remain level as a percent of payroll. For fiscal year 2002,the City contributed 14% of covered payroll for police officers and 10%of covered payroll for other eligible employees (excluding firefighters) to TMRS with those employees contributing 7% and 5%, respectively. The City's unfunded pension obligation for this plan totaled$27,337,420 at December 31,2002,which will be amortized over twenty-five years. i Under the Firefighter's Relief and Retirement Fund, the City contributes 13% and firefighters contributed 13% of t covered payroll for fiscal year 2003. The unfunded pension obligation for the firefighters totaled $20,144,534 at December 31,2002 and will be amortized over 10 years. Collective Bargaining Police officers and firemen employed by the City have collective bargaining rights under the Texas Fire and Police Employees Relations Act. Neither the police officers nor the firemen have the right to strike, but under the labor agreements firemen may submit any issues not resolved by negotiation to binding arbitration, while the policemen may submit such issues to a factfinder with a referendum election finally determining all unresolved issues. The current labor agreement with police officers expires September 30, 2004. Negotiations are underway for a new agreement. The current labor agreement with firefighters expires September 30,2005. Litigation The City is a defendant in various lawsuits and is aware of pending claims arising in the ordinary course of its municipal and enterprise activities, certain of which seek substantial damages. That litigation includes lawsuits claiming damages which allege that the City caused personal injuries and wrongful deaths, lawsuits and claims alleging discriminatory hiring and promotional practices and certain civil rights violations; and various other liability claims. The status of such litigation ranges from an early discovery stage to various levels of appeal of judgments both for and against the City. The City estimates that as of January 1, 2004, liability for pending litigation should not exceed$825,000. The City is also aware of claims based upon alleged personal injuries, property damages and violations of civil rights laws or federal environmental laws or regulations which have not been asserted in litigation. The City intends to defend itself vigorously against the suits and claims;however, no prediction can be made, as of the date hereof,with respect to the liability of the City for such claims or the final outcome of such suits. In the opinion of the City,it is improbable that the lawsuits now outstanding and the claims now pending against the City could become final in a time and manner so as to have a material impact upon the City or its ability to repay the Bonds. Risk Management/Self Insurance The City has retained all liability risk which includes,but is not limited to, torts, statutory causes of action, contract claims and errors and omissions. Transactions related to these risks are recorded in the City's General Liability Fund. Contributions are made to this fund by all appropriate City funds based on the amounts needed for prior and current claims and to establish a reserve. The General Liability Fund had net current assets as of June 30, 2004, of $1,110,000. However, there can be no assurance that the City may not experience claims or suffer losses substantially in excess of the balance in the fund from time to time. 25 Under the laws of the State of Texas, most claims for torts are limited to $250,000 per person and $500,000 per incident. As of August 1, 2004, the City estimated the liability for claims that are probable and that can be reasonably estimated is approximately$352,000. Therefore,to the extent that amounts in the General Liability Fund are not sufficient, the City may find it necessary to use current revenues or to incur additional indebtedness in order to satisfy such claims and losses which may,either individually or in the aggregate,be significant. The City has purchased commercial property and casualty insurance on its real property and associated improvements with a deductible of$100,000 per occurrence. Subject to the deductible, the insurance provides for payment of replacement cost. The City retains all risks associated with the employee indemnity health program up to $150,000 per person. Risks associated with workers' compensation are retained by the City up to $500,000 per incident. The City purchases commercial insurance to cover losses beyond the retained risk. Transactions related to employee health claims (including the prescription drug program), workers' compensation claims, dental insurance premiums and the administration of these programs are recorded in the Employee Benefits Fund. Contributions are made to this fund by all appropriate City funds based on the amounts needed for prior,current and estimated future claims. As of June 30,2004,the City estimated its liability for claims incurred in the fund to be$1,853,247. On the same date,the fund had a balance of$2,588,000. LEGAL MATTERS Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings held incident to the authorization and issuance of the Bonds,including a certified copy of the approving opinion of the Attorney General of the State of Texas as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas,to the effect that the Bonds are valid and binding obligations of the City under the Constitution and the laws of the State of Texas. The City will also furnish the approving legal opinion of Orgain, Bell &Tucker, L.L.P., Bond Counsel, to the effect that,based upon an examination of such transcript,the Bonds are valid and binding obligations of the City under the Constitution and laws of the State of Texas and to the effect that interest on the Bonds, including accrued } original issue discount, is excludable from gross income for federal income tax purposes under existing law. See "Tax Exemption" and "Tax Accounting Treatment of Original Issue Discount Bonds" below. The legal opinion of Bond Counsel will further state that taxable property within the City is subject to the levy of ad valorem taxes within the limits prescribed by law in order to pay the Bonds and interest thereon. Bond Counsel has participated in the preparation of the Official Statement, but such firm has not undertaken independently to verify any of the information contained therein, except that,in its capacity as Bond Counsel, such firm has reviewed the information describing the Bonds in the Official Statement to verify that such description conforms to the provisions of the Ordinance. No person is entitled to rely upon such firm's limited participation as an assumption of responsibility for,or an expression of any kind with regard to,the accuracy or completeness of any of the information contained herein. The legal fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent upon the sale and delivery of the Bonds. The legal opinion will be printed on the definitive Bonds. Tax Exemption In the opinion of Orgain,Bell &Tucker,L.L.P.,Bond Counsel, (i)interest on the Bonds,including accrued original issue discount, is excludable from gross income for federal income tax purposes under existing law and (ii) the Bonds are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds will not be subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the book-income(current-earnings)item for corporations. The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds, to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of certificate proceeds and the source of repayment of Bonds,limitations on the investment of certificate proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of Certificate proceeds be paid periodically to the United States and a requirement that the City file an information report with the Internal Revenue Service. The City has covenanted in the Ordinance that it will comply with these requirements. 26 I� I� The opinion of Bond Counsel will assume continuing compliance with the covenants of the Ordinance pertaining to f! those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition, will rely on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the Ordinance or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds,including accrued original issue discount,could become taxable from the date of delivery of the Bonds,regardless of the date on which the event causing such taxability occurs. ill The Code also imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corporation" (other than any S corporation,regulated investment company,REIT,or REMIC),if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. The "Superfund Revenue Act of 1986" also imposes an additional .12% "environmental tax" on the alternative minimum taxable income of a corporation in excess of the$2,000,000. Generally, for taxable years beginning in 1987, 1988 or 1989, a corporation's alternative minimum taxable income includes 50% of the amount by which a corporation's "adjusted net book income" exceeds the corporation's alternative minimum taxable income." For later taxable years, a fl' corporation's alternative minimum taxable income will be based on its"adjusted current earnings." Because interest on tax-exempt obligations, such as the Bonds, is included in a corporation's "adjusted net book income" and "adjusted current earnings," ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Except as stated above and as set forth below under the heading "Tax Accounting Treatment of Original Issue Discount Bonds",Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of,receipt of interest on,or disposition of,the Bonds. Under the Code, taxpayers are required to report on federal income tax returns the amount of tax-exempt interest, such as interest on the Bonds,received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. In addition,certain foreign corporations doing business in the United States may be subject to the new"branch profits tax" on their effectively-connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Tax Accounting Treatment of Original Issue Discount Bonds The initial public offering prices for certain Bonds (the "Original Issue Discount Bonds")are less than the principal amounts of such Bonds. In the opinion of Bond Counsel,under existing law and based upon the assumptions herein after stated: (a) The difference between (i) the amount payable at the maturity of each Original Issue Discount Certificate and(ii)the initial offering price to the public of each such Certificate constitutes original issue discount with respect to such Certificate in the hands of an owner who has purchased such Certificate at the initial offering price in the initial public offering of the Bonds;and (b) Such initial owner is entitled to exclude from gross income(as defined in Section 61 of the Code)an amount of income with respect to such Certificate equal to that portion of the amount of such original issue discount allocable to the period that such Certificate continues to be owned by such owner. In the event of the redemption,sale or other taxable disposition of such Certificate prior to stated maturity,however, the amount realized by such owner in excess of the basis for such Certificate in the hands of such owner(adjusted upward by the portion of the original issue discount allocable to the period for which such Certificate was held by such initial owner) is includable in gross income. Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Bonds under the caption "Tax Exemption" generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Certificate held by an owner who purchased such Certificate at the initial offering price in the initial public offering of the Bonds,and should be considered in connection with the discussion in this portion of the Official Statement. 27 Under existing law, the original discount on each Original Issue Discount Certificate is accrued daily to the stated maturity thereof(in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Certificate for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to the sum of the issue price plus the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity(determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less the amount payable as current interest during such accrual period on such Bonds. The foregoing opinion is based on the assumptions, that (a) the Underwriter has purchased the Bonds for contemporaneous sale to the general public and not for investment purposes, (b) all of the Original Issue Discount Bonds have been offered, and a substantial amount of each maturity thereof has been sold to the general public in arm's-length transactions for a cash price (and with no other consideration being included) equal to the initial offering prices thereof stated on the cover page of this Official Statement, and (c) the respective initial offering prices of the Original Issue Discount Bonds to the general public are equal to the fair market value thereof. Neither the City nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. No-Litigation Certificate The City will furnish the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by both the Mayor and City Clerk,to the effect that no litigation of any nature is then pending or threatened,either in state or federal courts, contesting or attacking the Bonds;restraining or enjoining the issuance, execution, or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceedings for the issuance,execution or delivery of the Bonds;or affecting the validity of the Bonds. CONTINUING DISCLOSURE OF INFORMATION In the Ordinance, the City has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under the headings "SELECTED FINANCIAL INFORMATION," "DEBT STATEMENT," "TAX DATA," "SELECTED FINANCIAL DATA," "ADMINISTRATION OF THE CITY," and in Appendix "B". The City will update and provide this information within six months after the end of each fiscal year. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to the Texas Municipal Advisory Council, 3 the state information depository ("SID") designated 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, as amended and in effect from time to time (the "Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not commissioned or are not available by the required time, the City will provide unaudited financial statements when and if they become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix "B" or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year, beginning March 31,2005,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. 28 Material Event Notices p' The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds,if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7)modifications to rights of holders of the Bonds; (8)calls; (9)defeasances;(10)release, substitution,or sale of property securing repayment of the Bonds; and (11) rating changes affecting the Bonds. Neither the Bonds nor the Ordinance makes 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 NRMSIR or the Municipal Securities Rulemaking Board("MSRB ). Availability of Information From NRMSIRs and SID The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of and beneficial owners of the Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and has been approved as such by the SEC staff. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177,Austin,Texas 78768-2177,and its telephone number is 512/476-6947. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations,condition,or prospects or agreed to update any information that is provided,except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, of its continuing disclosure agreement or from any statement made pursuant to its agreement. Holders or beneficial owners of Bonds may seek as their sole remedy a writ of mandamus to compel the City to comply with its agreement. No default by the City with respect to its continuing disclosure agreement shall constitute a breach of or default under the Ordinance for purposes of any other provision of the Ordinance. Nothing in this paragraph is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The City's undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions. The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements, a change in law,or a change in the identity, nature, status or type of operations of the City if, but only if(i)the agreement, as so amended, would have permitted an underwriter to purchase or sell the Bonds in the offering made hereby 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 amount of the outstanding Bonds consent to such amendment or(b)a person unaffiliated with the City(such as nationally recognized bond counsel)determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, and the City may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent the Underwriters from purchasing the Bonds in the offering described herein in compliance with the Rule. If the City amends the agreement,it has agreed to include with any financial information or operating data next 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. 29 Audited Financial Report of the City The City presently requires that an annual audit be performed by an independent public accounting firm in accordance with generally accepted auditing standards for governmental units. The most recent audit,and additional financial information are available for public inspection, or copies may be obtained by written request, to the extent permitted by law, addressed to the City Clerk, with such fee, if any, for copies as may from time to time be authorized by the City. Compliance With Prior Undertakings The City has made a continuing disclosure agreement and has compiled in all material respects with its prior continuing disclosure agreements made in accordance with the Rule. GENERAL CONSIDERATIONS Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the City. The summaries of the ordinances, statutes,resolutions, and other related documents are included herein subject to all the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. RBC Dain Rauscher Inc. is employed by the City as its Financial Advisor to perform certain professional services for the City, including compiling of this Official Statement, for a fee to be computed on each separate issuance of indebtedness,contingent upon such indebtedness,such as the Bonds actually being issued,sold and delivered. Certification as to Official Statement At the time of payment for and delivery of the Bonds,the Underwriter will be furnished a certificate executed by an appropriate official of the City, acting in his official capacity, to the effect that to the best of his knowledge and belief. (a) the descriptions and statements pertaining to the City contained in its Preliminary and final Official Statements, on the respective dates of such statements, on the date of sale of the Bonds of the bid therefor, and on the date of delivery of the Bonds did not and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (b) as of the date of delivery of the Bonds, there have been no material adverse changes in the City's financial condition and affairs since the date of the Preliminary and final Official Statements. Such certificate shall not cover any information contained in APPENDIX A to the p Preliminary Official Statement and final Official Statements relating to taxing jurisdictions other than the City, or stated to have been obtained from sources other than City records or to information supplied to the City by the Underwriter for inclusion into the Preliminary and final Official Statements. In rendering such certificate the person executing the certificate may state that he has relied in part on his examination of the records of the City relating to matters within his own area of responsibility, and his discussions with, or Bonds or correspondence signed by, certain other officials, employees, consultants and representatives of the City as to matters not within his area of responsibility. Updating of Official Statement The City will keep the Official Statement current by amendment or sticker to reflect material changes in the affairs of the City and, to the extent that information comes to its attention, to the other matters described in the Official Statement,until the delivery of the Bonds to the Underwriter. CONCLUDING STATEMENT To the extent that any statements made in this Official Statement involve matters of opinion or estimates, whether or not expressly stated to be such, they are made as such and not as representations of fact or certainty and no representation is made that any of these statements have been or will be realized. Information in this Official Statement has been derived by the City from official and other sources and is believed by the Issuer to bd accurate f and reliable. Information other than that obtained from official records of the City has not been independently confirmed or verified by the Issuer and its accuracy is not guaranteed. Neither this Official Statement nor any statement that may have been made orally or in writing is to be construed as or as part of a contract with the original purchasers or subsequent owners of the Bonds. 30 This Official Statement was duly authorized and approved by the City Council of The City of Beaumont, Texas as of the date specified on the first page hereof. /s/ Evelyn Lord ° Mayor The City of Beaumont,Texas ATTEST: /s/ Rose Ann Jones City Clerk The City of Beaumont,Texas 31 i APPENDIX A Economic and Demographic Characteristics THE CITY OF BEAUMONT General The Third Congress of the Republic of Texas chartered Beaumont on December 16, 1838. Beaumont, however, came of age January 10, 1901, when the first great oil well in the world, the Anthony F. Lucas Gusher, blew in at Spindletop. At the turn of the century the population was 8,500; within 30 days after the discovery of oil at Spindletop,the population exploded to 30,000 people. With a population of 113,866, Beaumont is the major city in an area with more than 395,090 residents. The City of Beaumont, the county seat of Jefferson County is located ninety miles east of Houston and approximately 35 miles north of the Gulf of Mexico on the banks of the Neches River. The area is a natural resource basin producing oil, gas sulphur and salt; a healthy agricultural economy includes rice, soybeans, blueberries,crawfish,wheat,corn,grain,sorghum and livestock. Financing in the Beaumont area is available from a number of sources. Beaumont's financial community is strongly behind economic development efforts and demonstrates flexibility and creativity in meeting corporate needs for new facilities and business expansion. Banks represented in Beaumont are as follows: Bank One, N.A.; Hibernia National Bank; Lamar Bank; Bank of America, National Association; Gulf Coast Bank; South Trust Bank, Texas State Bank and Wells Fargo Bank Texas,N.A. The following information has been derived from various sources, including the Texas Almanac, Texas Municipal Reports, U.S. Census data, City of Beaumont Chamber of Commerce, "2003 Sales and Marketing Management Survey and Buying Power";Texas Bureau of Labor Statistics and City officials. While such sources are believed to be reliable,no representation is made as to the accuracy thereof. -Beaumont- -Major Employers- According to the Beaumont Chamber of Commerce, the following is a listing of some of the largest firms in the area,in terms of employment and relevant product and employment data. Name Product Employment Beaumont Independent School District School district 2,927 CHRISTUS St.Elizabeth Hospital Hospital 2,600 U.S.Postal Encoding Center Encoding center 1,400 Lamar University University 1,700 Memorial Hermann Baptist Hospital 1,200 City of Beaumont City 1,300 Huntsman Corporation Petrochemical manufacturing 1,325 ExxonMobil Oil Corporation Petrochemical manufacturing 1,250 County of Jefferson County 1,285 West Teleservices Corp. Call center 1,200 -Beaumont,Port Arthur,Orange MSA- -Major Employers- Name Product Employment E.I. duPont Sabine River Works Petrochemical manufacturing 2,160 Bayer Corporation Synthetic rubber manufacturing 1,420 Huntsman Corporation Petrochemical manufacturing 1,365 Federal Bureau of Prisons Federal prison 1,006 Westvaco Paper mill 1,000 Motiva Oil refinery 990 Texas Department Criminal Justice Mark stiles state prison 894 Premcor Refinery Oil refinery 800 Petrocon Refinery 750 ISP(formerly Ameripol Synpol Corp.) Synthetic rubber manufacturing 367 Source: City of Beaumont Chamber of Commerce,City of Beaumont. -Port of Beaumont- Beaumont's Neches River deep-water ship channel is maintained by the Corps of Engineers at a minimum cargo depth of 40 feet and width of 400 feet. The Port of Beaumont maintains complete facilities to handle a variety of cargo including, but not limited to, forest products, grains,project cargo, military, bagged goods, aggregate, metals and wood chips. The Port of Beaumont completed port improvements of$28 million authorized by voters in 1997. Projects in the expansion program included modernization of the port's bulk grain elevator, construction of a new general cargo wharf to benefit military and other shippers and initial development of two port properties. In 2001, the Port of Beaumont's cargo was up 14 percent over the previous year. Total cargo was 2,826,905 tons, and revenue cargo,which includes all tonnage except bulk grain,exceeded 1.7 million tons. As of August 31, 2001,The Port has incurred costs of approximately$12,269,182 on capital improvement projects relating to Port expansion. Anticipated completion costs of approximately$11,038,000 will be funded during future years from bond revenues. -Lamar University- Lamar University is a regional,comprehensive university and a member of the Texas State University System. The Texas State University System consists of five universities including Lamar,Angelo State University, Sam Houston State University, Southwest Texas State University and Sul Ross State University. In addition, three two-year institutions belong to the System-Lamar State College-Port Arthur, Lamar State College-Orange and the Lamar Institute of Technology. Lamar University is located in Beaumont-the industrial center of Southeast Texas. The university's assets to area industry include the faculty, division of continuing education, research centers, computer center and the Gray Library with over a million volumes. Lamar University has over 9,646 students and 512 faculties. Lamar University is accredited by the Commission on Colleges of the Southern Association of Colleges and Schools to award degrees at the associate, baccalaureate, master's and doctoral levels. Several of the university's colleges and degree programs are accredited a well. Lamar offers eight undergraduate (bachelor's) degrees in 61 fields of study,ten master's degrees in 30 fields and two doctoral degrees(engineering and deaf education). q -Building Permits- (Source: The City of Beaumont) Commercial Residential Number of Number of a Year Permits Value Permits Value f 1993 264 $20,385,846 241 $21,947,590 1994 267 42,449,464 152 15,361,265 1995 310 54,888,652 135 12,534,264 1996 312 66,970,817 179 14,240,087 1997 254 44,994,846 179 19,478,736 1998 287 57,494,510 276 29,706,765 1999 349 86,719.87 283 31,627,775 2000 441 67,175,157 295 33,398,956 2001 123 83,388,703 269 N/A 2002 109 105,059,108 202 30,258,516 2003 56 25,955,137 254 41,023,182 -City and County SMSA Statistics- The following are various statistical analyses of the City of Beaumont, Jefferson County, and the Beaumont-Port Arthur Standard Metropolitan Statistical Area extracted from "Sales & Marketing Management - 2003 Survey of Buying Power";Copyright-2003 Sales&Marketing Management Survey of Buying Power: further reproduction is forbidden. e Jefferson Beaumont- The City County Port Arthur SMSA Population 114.5 254.5 58.0 %by Age Group % 18-24 10.4 10.4 10.1 %25-34 13.2 13.3 12.1 %35-49 21.1 22.2 19.4 %50-Over 28.6 28.7 29.5 Number of Households 44.9 94.3 22.0 Retail Sales($1,000's) Total Retail Sales $2,168,852 $3,666,872 $ 729,039 Food 176,048 331,118 73,815 Eating and Drinking Places 174,663 278,933 82,023 General Merchandise 304,890 557,827 215,193 Furniture,Furnishings,Appliances 121,224 148,996 9,944 Automotive 551,062 1,089,581 149,007 Effective Buying Income Total Effective Buying Income("EBI")($1,000's) $1,920,928 $3,978,788 $ 725,110 Median Household EBI 31,075 32,665 25,576 %.Household EBI $20,000 to$34,999 24.0 23.6 23.9 $35,000-$49,999 16.5 17.7 16.4 $50,000 and Over 27.8 28.7 18.9 Buying Power Index 0.0573 0.0843 0.2210 -Growth Indicators- (Source: Beaumont Chamber of Commerce) 1950 1960 1970 1980 1990 2000 Electric Meters(a) 28,312 39,285 42,835 44,859 53,310 52,374 Gas Meters 23,078 34,509 35,295 36,391 35,315 28,891 Water Meters 20,883 32,357 37,975 41,423 44,844 48,000 Telephones 24,118 56,155 74,463 103,045 61,023 87,104 Population 94,014 119,175 117,548 118,102 114,323 113,866 (a) Provided by Entergy Corporation C I APPENDIX B-AUDITED FINANCIAL STATEMENTS OF THE CITY City of Beaumont, Texas • K- Comprehensive Annual Financial Report For the Year ended September 30, 2003 Prepared by the Finance Department Max S. Duplant, CPA Finance Officer Paula Labrie, Controller Peggy Rhame,Accountant Janice Ridley,Accountant Andrea Deaton, Budget Officer Kandy Daniel, Treasurer Carol Wilson, Fiscal Assistant On the Cover Riverfront Park t t, Av 11-T W *� Photo by Carol MIson I s ' : M City of Beaumont January 9, 2004 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Beaumont: It is our pleasure to submit for your information the Comprehensive Annual Financial Report(CAFR) of the City of Beaumont as of and for the year ended September 30,2003.This report was prepared by the Finance Department, in accordance with the City Charter, and in compliance with State law, to provide citizens, investors, grantor agencies and other interested parties with reliable financial information about the City. The report consists of management's representations concerning the finances of the City of Beaumont.Consequently,management assumes full responsibility forthe completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Beaumont has established a comprehensive internal control framework that is designed both to protect the government's assets from loss,theft,or misuse and to compile sufficient reliable information for the preparation of the City of Beaumont's financial statements in conformity with generally accepted accounting principles(GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Beaumont's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management,we assert that,to the best of our knowledge and belief; this financial report is complete and reliable in all material respects. The City of Beaumont's financial statements have been audited by Cook Shaver Parker&Williams, P.C.,a firm of licensed certified public accountants.The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Beaumont for the fiscal year ended September 30, 2003, are free of material misstatement. The independent audit involved examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Beaumont's financial statements for the fiscal year ended September 30,2003, and that they are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. E u� Finance Department • (409) 880-3789 • Fax (409) 880-3132 P.O. Box 3827 • Beaumont, Texas 77704-3827 No. 7 SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTY OF JEFFERSON § We, the undersigned officers of THE CITY OF BEAUMONT, TEXAS (the "City"), in connection with the issuance and delivery of the following described revenue bonds(the 'Bonds"): THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS,SERIES 2004, dated September 1,2004, aggregating$17,000,000, do hereby certify, as of the date set forth below, the following: 1. We officially executed and signed the Bonds by manually signing or causing facsimiles of our manual signatures to be imprinted or lithographed on each of the Bonds, and we hereby adopt such facsimile signatures as our own, respectively, and declare that such facsimile signatures constitute our signatures the same as if we have manually signed each of the Bonds. 2. The Bonds are substantially in the form, and have been duly executed and signed in the manner,prescribed in the ordinance authorizing the issuance of such Bonds. 3. At the time we so executed and signed the Bonds we were, and at the time of executing this certificate we are,the duly chosen, qualified and acting officers authorized to execute the Bonds and execute and deliver this certificate, and we hold the offices set forth below opposite our signatures. 4. No litigation of any nature has been filed or is now pending or threatened, which contests or attacks the validity of the Bonds; which would restrain or enjoin the issuance or delivery of the Bonds; which would restrain or enjoin the levy and/or collection and/or pledge of revenue or funds from which the Bonds are payable, or which would in any other manner affect the provisions made for their payment or security; or which in any manner questions the proceedings or authority concerning the issuance of the Bonds. 5. Neither the corporate existence nor the boundaries of the City are being contested; no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute, and deliver the Bonds or would affect the title of the undersigned to their respective offices; and no authority or proceedings for the issuance, execution or delivery of the Bonds have been repealed,rescinded or revoked. 6. No additional bonds, certificates, warrants or other indebtedness have been issued by the City since the date of the City's General Certificate submitted to the Attorney General of the State of Texas in connection with his approval of the Bonds. 7. The seal which has been impressed, or placed in facsimile, upon each of the Bonds is the legally adopted, proper and only official seal of the City, and such official seal is impressed on this certificate. 8. The information contained in the General Certificate dated August 17,2004, is still true and correct. SIGNED AND SEALED as of 2004. Signatures Title of Office MAYOR,THE CITY OF BEAUMONT,TEXAS CITY CLERK THE CITY OF BEAUMONT,TEXAS (S E. LIU 2 y 1' -2- THE STATE OF TEXAS § COUNTY OF JEFFERSON § BEFORE ME, the undersigned Notary Public, on this day personally appeared Evelyn Lord and Rose Ann Jones, known to me to be the persons whose names are subscribed to the attached and foregoing instrument, and who executed such instrument in my presence, and who acknowledged to me that such instrument was executed by them for the purposes and in the capacities stated therein. WITNE�S MY HAND AND SEAL OF OFFICE this � day of A o .�^ Q r' ,2004. NOTARY PUBLIC, STATE OF TEXAS (SEAL) ♦N���H I"�. LANCE FOX g®` NOTARY PUBLIC may STATE OF TEXAS 4rEOFtEi My Comm.EYpins 10-22-2005 -3- Section 7 l V � � n FRj�_11 ATTORNEY GENERAL OF TEXAS GREG ABBOTT September 16, 2004 THIS IS TO CERTIFY that the City of Beaumont, Texas (the "Issuer")has submitted to me The Ci�of Beaumont, Texas,Waterworks and Sewer System Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), in the aggregate principal amount of $17,000,000,for approval. The Bonds are dated September 1,2004,numbered R-1 through R-21, and were authorized by Ordinance No. 04068 passed on August 17, 2004 (the "Ordinance"). In connection therewith, the Issuer has additionally submitted to me for review a Debt Service Reserve Fund Policy Agreement dated as of September 16, 2004 (the"Agreement"). 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 Bonds. 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 Bonds have been issued in accordance with law and are valid and binding special obligations of the Issuer. (2) The Bonds,together with the Parity Bonds,are equally and ratably payable from and secured by a first lien on the Net Revenues collected and received from the operation and ownership of the Issuer's System. (3) The owner of the Bonds shall never have the right to demand payment of the Bonds from any funds raised or to be raised by taxation. POST OFFICE BOX 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-2100 WWW.OAG.STATE.TX.US An Equal Employmen!Oppar!uni!y Employer • Prin!ed on Rrryded Paper The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 - $17,000,000 -Pa e2 - Therefore, the Bonds are approved and, pursuant to section 1502.064 of the Government Code, the Agreement is also approved. Attorney neral of the State of Texas No.42299 Book No.2004C MAA 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: The City of Beaumont Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 numbered R-1/R-21. of the denomination of $ various, dated September 1, 2004, 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 16th day of September, 2004, under Registration Number 68949. Given under my hand and seal of office, at Austin, Texas, the 16th day of September, 2004. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora, 11 Bond Clerk ❑X Assistant Bond Clerk in the office of the Comptroller of the State of Texas,do hereby certify that, acting under the direction and authority of the Comptroller on the 16th day of September. 2004, 1 signed the name of the Comptroller to the certificate of registration endorsed upon the: The City of Beaumont Texas Waterworks and Sewer System Revenue Bonds, Series 2004, numbered R-1/R-21. ed September 1. 2004, and that in signing the certificate of registration I used the following si na re: IN NESS WHEREOF I have ex cuted this certificate this the 16th day of September. 2004. 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 68949. GIVEN under my hand and seal of office at Austin,Texas,this the 16th day of September. 2004. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas Section 8 Form 80384; Information Return for Tax-Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) OMB No.1545-0720 (Rev. November 2000) ► See separate Instructions. Department of the Treasury Caution: If the issue price is under 5100,000, use Form 8038-GC. Internal Revenue service Reporting Authority If Amended Return, check here ► ❑ 1. Issuer's name 2 Issuer's employer identification number City of Beaumont,Texas �D 0 0 0 2 7 3 Number and street(or P.O. box if mail is not delivered to street address) Room/suite 4 Report number 801 Main Street 3 2004-01 5 City,town, or post office, state,and ZIP code 6 Date of issue Beaumont,TX 77701 September 1692004 7 Name of issue 8 CUSIP number City of Beaumont,Texas Waterworks&Sewer System Revenue Bonds,Series 2004 074561 DX6 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 Lance Fox,Bond Attorney ( 409 )838-6412 . Type of Issue (check applicable box(es) and enter the issue rice) See instructions and attach schedule 11 ❑ Education . . . . . . . . . . . . . . . . . . . . . . . . . 11 12 ❑ Health and hospital . . . . . . . . . . . . . . . . . . . . . 12 13 ❑ Transportation . . . . . . . . . . . . . . . . . . . . . . . 13 14 ❑ Public safety. . . . . . . . . . . . . . . . . . I . . . . . . . 14 15 1:1 Environment(including sewage bonds) . 15 16 ❑ Housing . . . . . . . . . . . . . . . . . . . . . . . . . 16 17 E5 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . 17 17,227,701.95 18 ❑ Other. Describe 00- 18 19 If obligations are TANS or RANs, check box lo- El If obligations are BANS, check box ► ❑ 20 If obligations are in the form of a lease or installment sale, check box ► ❑ Description of Obli ations. Complete for the entire issue for which this form is bein q filed. (a)Final maturity date (b)Issue price (c)Stated redemption (d)Weighted (e)Yield price at maturity average maturity 21 09/0102028 $ 17,227,701.95 $ 17,000,000.00 19.143 years 4.791871 % ' Uses of Proceeds of Bond Issue (including underwriters' discount 22, Proceeds used for accrued interest . . . . . . 22 25,007.50 23 Issue price of entire issue (enter amount from line 21, column (b)) . . 23 17,227,701.95 24 Proceeds used for bond issuance costs(including underwriters' discount) 24 A. . 25 Proceeds used for credit enhancement . . . . . . . . 25 26 Proceeds allocated to reasonably required reserve or replacement fund 26 27 Proceeds used to currently refund prior issues . . . . . . . 27 28 Proceeds used to advance refund prior issues . . . . . . . . 28 29 Total (add lines 24 through 28). . . . . . . . . . . . . . . . . 329,680.92 30 Nonrefundin roceeds of the issue (subtract line 29 from line 23 and enter amount he 16,898,021.03 Description of Refunded Bonds (Complete this part only for refunding bonds. 31 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . ► years 32 Enter the remaining weighted average maturity of the bonds to be advance refunded . . . ► years 33 Enter the last date on which the refunded bonds will be called . . . . . . . . . ► 34 Enter the date(s) the refunded bonds were issued ► , Miscellaneous 35 Enter the amount of the state volume-cap allocated to the issue under section 141(b)(5) 35 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract(see instructions) 36a b I Enter the final maturity date of the guaranteed investment contract ► 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a b If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► ❑ and enter the name of the issuer ► and the date of the issue Do- 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(111)(small issuer exception),check box . . . ► ❑ 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . . . . . . . . . . . ► ❑ 40 If the issuer has identified a hedge, check box . . . . . . . . . . . . . . . . . . . . . . . Under penalties of perjury,I declare that I have examined this return and accompanying schedules and statements,and to the best of my knowledge Sign and belief,they are true,correct,and complete. Here 5'-/6-1,-7 ' Signature of issuer's uthorized representative Date 'Type or print name and title For Paperwork Reduction Act Notice, see page 2 of the Instructions. cat. No.637735 Form 8038-G (Rev. 11-2000) Section 9 No. 10 OFFICIAL STATEMENT CERTIFICATE We, the undersigned officers of THE CITY OF BEAUMONT, TEXAS (the "City"), acting solely in our respective official capacities, hereby certify with respect to that issue of"The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004" in the principal amount of$17,000,000 (the "Bonds") as follows: That to the best of our knowledge and belief: (a) the descriptions and statements pertaining to the City contained in its Preliminary and final Official Statements, on the respective dates of such statements, on the date of sale of the Bonds, and on the date of delivery of the Bonds, did not and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made,not misleading; and (b) as of the date of delivery of the Bonds, there have been no material adverse changes in the City's financial condition and affairs since the date of the Preliminary and final Official Statements. It is expressly stipulated that this certificate does not cover any information contained in Appendix A to the Preliminary and Final Official Statements relating to taxing jurisdictions other than the City, or stated to have been obtained from sources other than the City records or to information supplied to the City by the Underwriters of the Bonds for inclusion in the Preliminary and Final Official Statements. In rendering this certificate, we have relied in part on our examination of records of the City relating to matters within our respective areas of responsibility, and our discussions with, or certificates or correspondence signed by, certain other officials, employees, consultants and representatives of the City as to matters not within our respective areas of responsibility. EXECUTED on this day of September, 2004,the date of delivery of and payment for the Bonds. THE CITY OF BEAUMONT,TEXAS �3Nin eta' By: � X14 Mayor (SEAL) // i City Clerk ty Section 10 No. 11 NO-DEFAULT CERTIFICATE THE STATE OF TEXAS § COUNTY OF JEFFERSON § THE CITY OF BEAUMONT § We, the undersigned Mayor and City Clerk, respectively, of The City of Beaumont, Texas (the "City"), do hereby make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 (the 'Bonds"), now in the process of issuance. We certify that the City is not in default as to any covenant, condition or obligation contained in any ordinance authorizing the issuance of its outstanding bonds and certificates of obligation. WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY this l� day of September, 2004. Mayor, The ity of Beaumont, Texas C3i�p %%t City Clerk, The City o eaumont, Texas } c kseasare Section 11 No. 12 September 16, 2004 Mayor and City Council The City of Beaumont 801 Main Street Beaumont,Texas 77704 Gentlemen: This opinion is being rendered to you in connection with the sale by The City of Beaumont, Texas (the "City") of its $17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004 (the 'Bonds"), issued pursuant to the terms of an ordinance adopted by the City Council of the City on August 17, 2004 (the "Ordinance"). Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. I have acted as City Attorney in connection with the issuance, sale and delivery of the Bonds and have examined the Constitution and laws of the State of Texas, the Ordinance and certain certificates and other documents of representatives of the City and of certain other public officials, and have examined such other records and documents and have made such other investigation as deemed appropriate for the purposes of this opinion. Based upon the foregoing and subject to the qualifications set forth below, I am of the opinion that (i) the Ordinance has been duly authorized, adopted, executed and delivered by the City and constitutes a legal, valid and binding obligation of the City enforceable in accordance with its terms, and (ii) no litigation of any nature has been filed or is now pending to restrain or enjoin the issuance or delivery of the Bonds or which would affect the legal provisions made for their payment or security, or in any manner questioning the validity of the Bonds or the proceedings or authority pertaining to the issuance of the Bonds. The opinion expressed above is qualified to the extent that enforceability of the Ordinance may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws of general application in effect from time to time relating to or affecting the enforcement of creditors' rights. Yours very truly, r , //a� L e Nichols, City Attorney The City of Beaumont,Texas Section 12 ORGAIN , BELL & TUCKER , L. L. P. ATTORNEYS AT LAW P. O. BOX 1 751 LANCE FOX OTHER OFFICES PARTNER BEAU MONT, TEXAS 77704- 1751 HOUSTON - THE WOODLANDS EXTENSION 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: Icf @Obt.com TELEPHONE (409) 838-64 1 2 SILSBEE FAX (409) 838-6959 www.obt.com No.13 September 16, 2004 Re: $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds,Series 2004 The City of Beaumont,Texas 801 Main Street Beaumont, Texas 77701 RBC Dain Rauscher,Inc. Dallas,Texas Gentlemen: This opinion is being rendered to The City of Beaumont, Texas (the "City") and RBC Dain Rauscher, Inc. (the "Underwriter") in connection with the sale of the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds") issued pursuant to the terms of an ordinance adopted by the City Council of the City on August 17, 2004 (the "Ordinance"). Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. In our capacity as Bond Counsel,it is our opinion that the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. We further certify that we have reviewed the information appearing in the Official Statement under the captions "THE BONDS", "SELECTED PROVISIONS OF THE ORDINANCE," "LEGISLATION AND REGULATION," "CONTINUING DISCLOSURE OF INFORMATION" (except for the paragraph entitled"Compliance with Prior Undertakings"), "LEGAL MATTERS-Legal Opinions," and "APPENDIX C -FORM OF LEGAL OPINION," solely to determine whether such information fairly and accurately summarizes the provisions of the law, documents and other matters referred to therein. This letter is to further advise you that the Underwriter is hereby authorized to rely upon the opinion that we have delivered in our capacity as Bond Counsel regarding the legality and validity of Page 2 the Bonds, the same as if such opinion were addressed to the Underwriter. Yours very truly, ORGAIN,BELL & TUCKER,L.L.P. D ciao, -� -f-� �f �-• p Section 13 f� TX DISCLOSURE OF GUAR., FUND NONMMCIPAnoN F61C event the insurer is unable to In the Financial Guaranty Insurance company fulfill its contractual obligation under 125 Park Avenue this policy or contract or application or New York,NY 10017 certificate or evidence of coverage, the T 212.312.3000 T 800.352.0001 policyholder or certificateholdeir is not protected by an insurance guaranty fund or Municipal Bond Debt Service other solvency protection arrangemerrc. Reserve Fund Policy Issuer: The City of Beaumont,Texas Policy Number: 04010589 Control Number: 0010001 Bonds: Waterworks and Sewer System Revenue Premium: $27,478.97 Bonds,Series 2004,together with any Maximum Amount• $1,373,948.44 parity obligations issued under the ' authorizing document,as amended and supplemented,and secured by the same debt service reserve fund Paying Agent: Wells Fargo Bank Texas,N.A., Termination Date: September 1,2028 Houston,Texas Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy,hereby unconditionally and irrevocably agrees to pay the paying agent named above or its successor, as paying agent for the Bonds (the "Paying Agent"), for the benefit of Bondholders,that portion(not to exceed the Maximum Amount set forth above) of the amount required to pay principal and interest(but not any prepayment premium)on the Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. No payment shall be due hereunder for any event of Nonpayment that occurs after the Termination Date set forth above. Financial Guaranty will make such payment to the Paying Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment, whichever is later. Upon such disbursement, Financial Guaranty shall become entitled to reimbursement therefor(together with interest thereon) all as provided in the Debt Service Reserve Fund Policy Agreement between the Issuer and Financial Guaranty dated as of the Effective Date of this Policy. The Maximum Amount shall be automatically reinstated when and to the extent that the Issuer repays amounts disbursed hereunder, but shall not be reinstated to the extent of amounts received by Financial Guaranty constih ti,,n in-r—f r)n amounts disbursed to the Paying Agent pursuant to this Policy. Financial Guaranty shall provide Notice to the Paying Agent of any reinstatement of any portion of the Maximum Amount within one Business Day of such reinstatement. This Policy is non-cancelable for any reason, including the failure of the Issuer to reimburse Financial Guaranty for any payment made hereunder. As used herein,the term"Bondholder"means, as to a particular Bond,the person other than the Issuer who, at the time of Nonpayment,is entitled under the terms of such Bond to payment thereof. "Due for Payment" FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9008(12/94) Page 1 of 2 F6IC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800-352.0001 Municipal Bond Debt Service Reserve Fund Policy means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond, the stated date for payment of interest. "Nonpayment' in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the Paying Agent for payment in full of all principal and interest Due for Payment on such Bond and includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from the Paying Agent for the Bonds to Financial Guaranty or from Financial Guaranty to the Paying Agent,as the case may be. "Business Day" means any day other than a Saturday, Sunday or a day on which the Paying Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President Effective Date: September 16,2004 Authorized Representative U.S.Bank Trust National Association acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9008(12194) Page 2 of 2 Section 14 No. 15 FEDERAL TAX CERTIFICATE I, the undersigned officer of The City of Beaumont, Texas (the "City"), make this certification for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on City's Water and Sewer System,Revenue Bonds, Series 2004 (the "Obligations"), which are being issued in the aggregate principal amount of $17,000,000 and delivered simultaneously with the delivery of this certificate. I do hereby certify as follows in good faith on the date of issue of the Obligations: 1. Responsible Officer. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the City. I am the officer of the City charged, along with other officers of the City, with responsibility for issuing the Obligations. 2. Code and Regulations. I am aware of the provisions of Sections 148, 149 and 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations (the "Regulations") heretofore promulgated under Sections 148, 149 and 150 of the Code. This certificate is being executed and delivered pursuant to Sections 1.148-0 through 1.148-11, 1.149(b)- 1, 1.149(d)-1, 1.149(g), 1.150-1 and 1.150-2 of the Regulations. 3. Definitions. The capitalized terms used in this certificate (unless otherwise defined) that are defined in the Ordinance authorizing the issuance, award and sale of the Obligations dated August 17, 2004 (the "Ordinance") shall for all purposes hereof have the meanings therein specified. All such terms defined in the Code or the Regulations shall for all purposes hereof have the same meanings as given to those terms in the Code and the Regulations unless the context clearly requires otherwise. 4. Reasonable Expectations. The facts and estimates that are set forth in this certificate are accurate. The expectations that are set forth in this certificate are reasonable in light of such facts and estimates. There are no other_facts or estimates that would materially change such expectations. In connection with this certificate, the undersigned has to the extent necessary reviewed the certifications set forth herein with other representations of the City as to such accuracy and reasonableness. The undersigned has also relied, to the extent appropriate, on representations set forth in the certificate of RBC Dain Rauscher, Inc., in its capacity as the City's financial advisor, attached hereto as Exhibit "A". The undersigned is aware of no fact, estimate or circumstance that would create any doubt regarding the accuracy or reasonableness of all or any portion of such document. 5. Description of Governmental Purpose. The City is issuing the Obligations pursuant to the Ordinance for the purposes of paying for (a) cost of construction of authorized improvements, renovations, upgrades, expansions and repairs to the City's waterworks and sewer -2- system, as described more fully in the Ordinance and(b)the costs of issuance of the Obligations. 6. Amount and Use of Proceeds of the Obligations. The sales proceeds from the issuance of the Obligations will be $17,227,701.95. Such amount represents the stated redemption price at maturity (excluding accrued interest for those Obligations the interest on which is paid at least once annually) of the Obligations, equal to $17,000,000.00, plus a premium of$449,213.35, less a discount of $221,511.40. No portion of the purchase price of any of the Obligations is provided by the issuance of any other issue of obligations. The sales proceeds will be expended as follows: (a) the amount of$117,901.95 will be disbursed to pay th underwriter's discount, (b) the amount of$109,300.00 will be used to pay the premium for the municipal bond insurance policy, (c) the amount of$27,478.97 will be used to pay the premium for the debt service reserve fund surety policy, (d) the amount of$75,000.00 will be used to pay other costs of issuance, and (c) the amount of$16,898,021.03 will be retained by the City and disbursed to pay or reimburse the costs of acquisition and purchase of the Project. The aggregate amount of the costs of acquisition and purchase of the Project is anticipated to be not less than such amount. Any costs of the Project not financed out of original or investment proceeds of the Obligations will be financed out of the City's available funds. Other than to the extent of preliminary expenditures (i.e., issuance costs and similar costs that are incurred prior to commencement of acquisition and purchase of the Project), no portion of the amount retained by the City out of the proceeds of the Obligations will be disbursed to reimburse the City for any expenditures made by the City prior to the date that is 60 days before the date hereof. Except for an amount that does not exceed 5% of the sales proceeds of the Obligations (and that is directly related to capital expenditures financed by the Obligations), the City will only expend proceeds of the Obligations for (a) costs that would be chargeable to the capital accounts of the Project if the City's income were subject to federal income taxation and (b) interest on the Obligations in an amount that does not cause the aggregate amount of interest paid on all of the Obligations to exceed that amount of interest on the Obligations that is attributable to the period that ends on the later of (i) the date that is three years from the issue date of the Obligations or(ii)the date that is one year after the date on which the Project is placed in service. 7. Pre-issuance Accrued Interest. The City will receive from the Purchaser on the issuance date of the Obligations the amount of $35,007.50 representing accrued interest on the Obligations from September 1, 2004, through the date of delivery. Such amount will be deposited in the Debt Service Fund, and will be disbursed on March 1, 2005, to pay interest on the Obligations. 8. Use of Investment Proceeds. The best estimate of the City is that investment proceeds resulting from the investment of any proceeds of the Obligations pending expenditure of such proceeds for costs of the Project will be retained by the City and used to pay or reimburse Project costs in addition to those described in Paragraph 6 above. 9. No Replacement Proceeds. Other than amounts described herein, there are no amounts that have a sufficiently direct nexus to the Obligations or to the governmental purposes of the Obligations that the amounts would have been used for such purpose if the proceeds of the -3- Obligations were not used or to be used for such purpose. (a) No Sinking Funds. Other than to the extent of the Debt Service Fund and the Debt Service Reserve Fund, there is no other debt service fund, redemption fund, reserve fund, replacement fund, or similar fund reasonably expected to be used directly or indirectly to pay principal or interest on the Obligations. (b) No Pledged Funds. Other than amounts in the Debt Service Fund and the Debt Service Reserve Fund, and other than a pledge the net revenues of the City's waterworks and sewer system, there is no amount that is directly or indirectly, other than solely by reason of the mere availability or preliminary earmarking,pledged to pay principal or interest on the Obligations, or to a guarantor of part or all of the Obligations, such that such pledge provides reasonable assurance that such amount will be available to pay principal or interest on the Obligations if the City encounters financial difficulty. For purposes of this certification, an amount is treated as so pledged if it is held under an agreement to maintain the amount at a particular level for the direct or indirect benefit of the holders or the guarantor of the Obligations. (c) No Other Replacement Proceeds. There are no other replacement proceeds allocable to the Obligations because the City reasonably expects that the term of the Obligations will not be longer than is reasonably necessary for the governmental purposes of the Obligations. The Obligations would be issued to achieve the governmental purpose of the Obligations independent of any arbitrage benefit as evidenced by the expectation that the Obligations reasonably would have been issued if the interest on the Obligations were not excludable from gross income (assuming that the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate). (d) Weighted Average Maturity. The weighted average maturity of the Obligations will not be greater than 120 percent of the weighted average estimated economic life of the portion of the Project financed, determined in accordance with Section 147(b) of the Code. Such weighted average estimated economic life is determined in accordance with the following assumptions: (a) The weighted average was determined by taking into account the respective costs of each asset financed by the Obligations, (b) the reasonably expected economic life of an asset was determined as of the later of the date hereof or the date on which such asset is expected to be placed in service (i.e., available for use for the intended purposes of such asset); (c) the economic lives used in making this determination are not greater than the useful lives used for depreciation under Section 167 of the Code prior to the enactment of the current system of depreciation in effect under Section 168 of the Code (i.e., the "mid-point lives") under the asset depreciation range ("ADR") system of Section 167(m) of the Code, as set forth in Revenue Procedure 83-35, 1985-1 C.B. 745, where applicable, and the "guideline lives" under Revenue Procedure 62-21, 1962-2 C.B. 418, in the case of structures; and (d) land or any interest therein has not been taken into account in determining the average reasonably expected economic life of such property. (e) No Net Operating Revenues. The City will not receive any amounts from any person in -4- respect to the Project or any portion of the Project that in the aggregate exceed on an annual basis the properly allocable portion of the ordinary and necessary expenses (within the meaning of section 162 of the Code and the regulations thereunder) directly attributable to the operation and maintenance of that portion of the Project in respect of which such amounts are received. For purposes of this paragraph 9(e), ordinary and necessary expenses do not include any general overhead or administrative expenses. 10. Yield on the Obligations. For purposes of this certificate, the yield on the Obligations is the discount rate that, when used in computing the present value as of the issue date of the Obligations, of all unconditionally payable payments of principal, interest and fees for qualified guarantees on the Obligations, produces an amount equal to the present value, using the same discount rate, of the aggregate issue price of the Obligations as of the issue date. For purposes of determining the yield on the Obligations, the issue price of the Obligations is the sum of the issue prices for each group of substantially identical Obligations. For each group of substantially identical Obligations, the issue price is the first price at which a substantial amount (i.e., 10%)is sold to the public(excluding bond houses,brokers, or similar persons or organizations acting in the capacity of underwriters and wholesalers). The issue.price (including accrued interest to the date of issue only) of the Obligations aggregated $17,227,701.95. The yield on the Obligations calculated in this manner, as shown in Exhibit "A" to this certificate,is 4.791871%. -5- 11. Temporary Periods and Yield Restrictions. (a) Pre-issuance Accrued Interest. The amount described in paragraph 7 represents accrued interest on the Obligations for a period not in excess of one year and will be expended within one year;therefore, such amount may be invested at an unrestricted yield. (b) Project. The City has incurred or will incur within 6 months of the date hereof a binding obligation to a third party which is not subject to any contingencies within the control of the City or a related party pursuant to which the City is obligated to expend at least 5% of the sales proceeds of the Obligations on the Project. The City reasonably expects that work on or acquisition of the Project will proceed with due diligence to completion and that the proceeds of the Obligations will be expended on the Project with reasonable dispatch. The City reasonably expects that 85% of the sales proceeds of the Obligations will have been expended on the Project prior to August 1, 2007. Any proceeds not expended prior to August 1, 2007, will be invested at a yield not "materially higher" than the yield on the Obligations, except as set forth in Paragraph 13 below. The City reasonably expects that any amount derived from the investment of moneys received from the sale of the Obligations and from the investment of such investment income will not be commingled with substantial other receipts or revenues of the City and will be expended prior to August 1, 2007, or one year after receipt of such investment income, whichever is later. Any such investment proceeds not expended prior to such date will be invested at a yield not "materially higher" than the yield on the Obligations, except as set forth in Paragraph 13 below. 12. Funds. (a) Debt Service Fund. Pursuant to the Ordinance the City has confirmed the debt service fund designated the "Waterworks and Sewer System Revenue Bond Interest and Sinking Fund" (i.e., the Debt Service Fund) which will be used primarily to achieve a proper matching of revenues and debt service on the Bonds, within each Bond Year. The revenues are anticipated to be sufficient to pay debt service each year on the Bonds. The Debt Service Fund will be depleted at least once each year except for a reasonable carryover amount not to exceed the greater of(a) one year's earnings on the Debt Service Fund or(b) one-twelfth of annual debt service. The City reasonably expects that any such revenues deposited in the Debt Service Fund will be disbursed within 13 months of the date of receipt of such revenues by the City. Any such amount not expended within such period will be invested at a yield not "materially higher" than the yield on the Bonds, except as set forth in paragraph 13 below. (b) Reserve Fund. The Reserve Fund confirmed in the Ordinance will be used to secure payment of debt service on the Bonds in the event that the monies in the Debt Service Fund are insufficient. The City will satisfy the Reserve Fund Requirement as defined in the Ordinance by purchasing one or more surety bond policies and, therefore, no funds are expected to be deposited in the Reserve Fund. Nevertheless, to the extent that the portion of the amount in deposit in the Reserve Fund allocable to the Bonds in the aggregate exceeds the least of 9a) ten -6- percent of the stated principal amount of the Bonds (or sale proceeds in the event that the amount of original issue discount exceeds two percent multiplied by the stated redemption price at maturity of the Bonds), (b) the maximum annual principal and interest requirements of the Bonds, and (c) 125 percent of average annual principal and interest requirements of the Bonds, such excess will be invested in obligations the yield on which is not in excess of the yield on the Bonds, except as set forth in paragraph 13 below. 13. Waiver of Minor Portion. Pursuant to section 1.148-9(g) of the Regulations, the City hereby elects to waive the minor portion available under section 1.148-9(f) of the Regulations. 14. Issue. There are no other obligations which,(a) are sold at substantially the same time as the Bonds (i.e., within 15 days), (b) are sold pursuant to the same plan of financing with the Bonds, and (c) will be paid out of substantially the same source of funds as the Bonds. 15. Compliance With Rebate Requirements. The City has covenanted in the Ordinance that it will take all necessary steps to comply with.the requirement that "rebatable arbitrage earnings" on the investment of the "gross proceeds" of the Bonds, within the meaning of section 148(f) of the Code be rebated to the federal government. Specifically,,the City will (a) maintain records regarding the investment of the "gross proceeds" of the Bonds as may be required to calculate such "rebatable arbitrage earnings" separately from records of amounts on deposit in the funds and accounts of the City which are allocable to other bond issues of the City or moneys which do not represent "gross proceeds" of any bonds of the City, (b) calculate at such intervals as may be required by applicable Regulations, the amount of"rebatable arbitrage earnings," if any, earned from the investment of the "gross proceeds" of the Bonds and (c) pay, not less often than every fifth anniversary date of the delivery of the Bonds and within 60 days following the final maturity of the Bonds, or on such other dates required or permitted by applicable Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the "gross proceeds" of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's-length and had the yield on the issue not been relevant to either party. 16. Not an Abusive Transaction. (a) General. No action taken in connection with the issuance of the Bonds is or will have the effect of (a) enabling the City to exploit, other than during an allowable temporary period, the difference between tax-exempt and taxable interest rates to obtain a material financial advantage (including as a result of an investment of any portion of the gross proceeds of the Bonds over any period of time, notwithstanding that, in the aggregate, the gross proceeds of the -7- Bonds are not invested in higher yielding investments over the term of the Bonds), and (b) overburdening the tax-exempt bond market by issuing more bonds, issuing bonds earlier, or allowing bonds to remain outstanding longer than is otherwise reasonably necessary to accomplish the governmental purposes of the Bonds, based on all the facts and circumstances. Specifically, (i) the primary purpose of each transaction undertaken in connection with the issuance of the Bonds is a bona fide governmental purpose; (ii) each action taken in connection with the issuance of the Bonds would reasonably be taken to accomplish the governmental purposes of the Bonds if the interest on the Bonds were not excludable from gross income for federal income tax purposes (assuming the hypothetical taxable interest rate would be the same as the actual tax-exempt interest rate on the Bonds); (iii) the proceeds of the Bonds will not exceed by more than a minor portion the amount necessary to accomplish the governmental purposes of the Bonds and will in fact not be substantially in excess of the amount of proceeds allocated to expenditures for the governmental purposes of the Bonds. (b) No Window Refunding. No portion of the Bonds has been structured with maturity dates the primary purpose of which is to make available released revenues that will enable the City to avoid transferred proceeds or to make available revenues that may be invested to be ultimately used to pay debt service on another issue of obligations. (c) No Sale of Conduit Loan. No portion of the gross proceeds of the Prior Bonds or the Bonds has been or will be used to acquire, finance, or refinance any conduit loan. 17. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the gross proceeds of the Bonds will not be used in a manner that would cause any of the Bonds to be an "arbitrage bond" within the meaning of section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 18. No Private Use, Payments or Loan Financing. (a) General. The City reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Bonds will cause either the "private business tests" or the"private loan financing test," as such terms are defined in the Regulations, to be met. (i) No portion of the proceeds of the Bonds will be used and no portion of the proceeds of the Prior Bonds has been used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) Any activity carried on by a person other than a natural person or a state of local governmental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the project financed by the Prior Bonds (the "Project") is treated as the direct use of the proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Bonds or the Prior Bonds as a result of ownership, actual or -8- beneficial use of the proceeds pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output-type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the Project. (ii) The City has not taken and will not take any deliberate action that would cause or permit the use of any portion of the Project to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Bonds remains outstanding (or until an opinion of nationally recognized bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax purposes of interest payable on the Bonds). For this purpose any action within the control of the City is treated as a deliberate action. A deliberate action occurs on the date the City enters into a binding contract with a nongovernmental person for use of the Project that is not subject to any material contingencies. (iii) No portion of the proceeds of the Bonds will be directly or indirectly used to make or finance a loan to any person other than a state or local,government unit. (b) Dispositions of Personal Property in the Ordinary Course. Dispositions of personal property components of the Project will occur in the ordinary course of an established governmental program and will satisfy the following requirements: (i) The weighted average maturity of the portion of the Bonds financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii) The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; (iii) Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv) The City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the Issuer reasonably expect to spend such amounts on governmental programs within 6 months from the date of commingling. -9- WITNESS MY HAND this day of September, 2004. THE CITY OF BEAUMONT, TEXAS By; Evelyn I,4 d,Mayor -10- EXHIBIT A CERTIFICATE OF FINANCIAL ADVISOR We, the undersigned, have acted as financial advisor to The City of Beaumont, Texas (the "City"), in connection with the sale and delivery of the City's Waterworks and Sewer System Revenue Bonds, Series 2004, in the aggregate amount of $17,000,000 (the " Obligations"). We hereby certify as follows: 1. I am the duly chosen, qualified and acting officer of the Financial Advisor for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate on behalf of the Financial Advisor. I am the officer of the Financial Advisor charged, along with other officers of the Financial Advisor, with the responsibility for issuing the Obligations. 2. The initial yield on the Obligations, based on an issue price (including accrued interest to the date of issue only) of$17,227,701.95 is not less than 4.791871 percent. For purposes of this certificate, the term "yield" means that yield which is computed as described in paragraph 10 of the No-Arbitrage Certificate to which this certificate is attached. No Underwriters' discount, issuance costs, or costs of carrying or repaying the Obligations have been taken into account for purposes of computing the yield on the Obligations. 3. We have worked closely with representatives of the City in structuring the financial terms of the Obligations. We hereby represent that to the best of our knowledge the statements set forth in paragraph 16 of the No-Arbitrage Certificate to which this certificate is attached, are true, accurate and complete. We hereby authorize the City to rely on the statements made herein in connection with making the representations set forth in the No-Arbitrage Certificate to which this certificate is attached and in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Obligations from the gross income of their owners. We hereby authorize Orgain, Bell &Tucker, L.L.P., to rely on this certificate for purposes of its opinion regarding the treatment of interest on the Obligations as excludable from gross income for federal income tax purposes. Capitalized terms used herein and not otherwise defined have the meaning ascribed to such terms in the No-Arbitrage Certificate to which this certificate is attached. EXECUTED this 16th day of September, 2004. RBC DAIN RAUSCHER,INC. By: d,, /, �/ Z, Title: Q A A 2 c. o -11- EXHIBIT "B" STATEMENT OF ELECTIONS REGARDING ARBITRAGE REBATE 1, the undersigned officer of The City of Beaumont, Texas (the "City"), execute this Statement of Elections for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the " Obligations"), which are being issued in the aggregate principal amount of$17,000,000 and delivered simultaneously with the delivery of this statement. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature; as such, I am familiar with the matters addressed herein and I am duly authorized to execute and deliver this statement. I am charged, along with others, with responsibility for issuing the Obligations. I acknowledge that each of the elections made below, if any, is irrevocable,unless otherwise stated below. DO NOT ELECT ELECT N/A X 1. To use actual facts to apply the provisions of paragraphs(e)through(m)of Section 1.148-7 of the regulations. Treas. Reg. § 1.148- 7(f)(2) X 2. To exclude earnings on a reasonably required reserve or replacement fund from the definition of "available construction proceeds" for purposes of the spending requirements. Treas. Reg. §1.148-7(i)(2). X 3. To treat the portion of the Obligations that is not a refunding issue as two, and only two separate issues, one of which (a) meets the definition of a construction issue and (b) is reasonably expected as of the date hereof to finance all of the construction expenditures to be financed by the Obligations. The amount of the issue price of the Obligations allocated to the separate construction issue is $ Treas. Reg. § 1.148- 7�)(1) -12- X 4. To pay a penalty (the "1-1/2% penalty") to the United States in lieu of the obligation to pay arbitrage rebate on available construction proceeds in the event that the Obligations fail to satisfy any of the semiannual spending requirements for the two-year rebate exception. Treas. Reg. § 1.148-7(k)(1). WITNESS MY HAND as of this day of September,2004. THE CITY OF BEAUMONT,TEXAS r Evelyn Lord, Mayor -13- Section 15 TX DISCLIOS M OF GUAR. FUND NONpAi nClW0N FDIC event the insursr is unable to f the obligation under Financial Guaranty Insurance Company fulfill its contractual wig 125 Park Avenue lication or York,N312-3000 New Yo , Y 10017 thlS poilcy or cOntraCt � application 9, the T w rk tificatehoidW certificate or evidence Of co"i'a9 not T 800.352.0001 policyholder or cer is fund protected by an insurance guaranty or other solvency protection arrangement. Municipal Bond New Issue Insurance Policy Issuer: The City of Beaumont,Texas Policy Number: 04010588 Control Number: 0010001 Bonds: $17,000,000.00 in aggregate principal Premium: $109,300.00 amount of Waterworks and Sewer System Revenue Bonds,Series 2004 Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company, in consideration of the payment of the premium and subject to the terms of this Policy,hereby unconditionally and irrevocably agrees to pay U.S. Bank Trust National Association or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above- described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment,whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent,in form reasonably satisfactory to it,of (i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and (ii) evidence, including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of the Bond,appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's rights thereunder,including the Bondholder's right to payment thereof. This Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason, including the payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein,the term`Bondholder"means, as to a particular Bond,the person other than the Issuer who, at the time of Nonpayment,is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a Bond,the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed FGIC is a registered service mark used by financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9000(10/93) Page 1 of 2 FGIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.312.3000 T 800.352.0001 Municipal Bond New Issue Insurance Policy in writing, or written notice by registered or certified mail,'from a Bondholder or a paying agent for the Bonds to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a day on which the Fiscal Agent is authorized by law to remain closed. In Witness Whereof, Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile'to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President l �% Effective Date: September 16,2004 uthorized�Repr U.S.Bank Trust National Association acknowledges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form 9000(10193) Page 2 of 2 FDIC Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.3123000 T 800.352.0001 Endorsement To Financial Guaranty Insurance Company Insurance Policy Policy Number: 04010588 Control Number: 0010001 It is further understood that the term"Nonpayment"in respect of a Bond includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. NOTHING HEREIN SHALL BE CONSTRUED TO WAIVE, ALTER, REDUCE OR AMEND COVERAGE IN ANY OTHER SECTION OF THE POLICY. IF FOUND CONTRARY TO THE POLICY LANGUAGE, THE TERMS OF THIS ENDORSEMENT SUPERSEDE THE POLICY LANGUAGE. In Witness Whereof, Financial Guaranty has caused this Endorsement to be affixed with its corporate seal and to be signed by its duly authorized officer in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representativW 1 1 President Effective Date: September 16,2004 Authorized Repr entative Acknowledged as of the Effective Date written above: Authorized Officer U.S.Bank Trust National Association,as Fiscal Agent FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. Form E-0002(10/93) Page 1 of 1 Section 16 ORGAIN , BELL & TUCKER , L. L. P. ATTORNEYS AT LAW P. O. BOX 1 751 LANCE FOX OTHER OFFICES BEAUMONT, TEXAS 77704- 1 75 1 PARTNER HOUSTON - THE WOODLANDS EXTENSION 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: Icf@obt.com TELEPHONE (409) 838-54 1 Z SILSBEE FAX (409) 838-6959 www.obt.com No.17 September 16, 2004 Re: $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds,Series 2004 Financial Guaranty Insurance Company 125 Park Avenue New York, NY 10017 Gentlemen: This letter is being delivered to you in connection with the issuance by The City of Beaumont, Texas (the "City")of its$17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004(the 'Bonds"),issued pursuant to the terms of an ordinance adopted by the City on August 17,2004. Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. We have acted as Bond Counsel to the City in connection with the issuance, sale and delivery of the Bonds. In our capacity as Bond Counsel, we have on this date delivered our opinion regarding the legality and validity of the Bonds,the Ordinance and certain other matters. This letter is to advise you that you are hereby authorized to rely upon such opinion the same as if it were addressed to you. Attached to this Opinion is an executed original of the Debt Service Reserve Fund Policy Agreement dated September 16, 2004, between the City and Financial Guaranty Insurance Company ("FGIC"). This Agreement has been entered into between the City and FGIC in connection with the issuance by FGIC of its Municipal Bond Debt Service Reserve Fund Policy (the "Reserve Policy"), which policy has been issued to satisfy the reserve fund requirements under the Ordinance. It is our opinion that the Debt Service Reserve Fund Policy Agreement has been duly authorized and executed by the City, and that the terms thereof are valid and enforceable against the City,except to the extent such enforcement may be limited by laws relating to bankruptcy,insolvency, reorganization, or moratorium or other similar laws affecting the rights of creditors, or the exercise of judicial discretion in accordance with the general principles of equity. Yours very truly, ORGAIN,BELL&TUCKER,L.L.P. nn Section 17 ORGAIN , BELL & TUCKER, L. L. P. ATTORNEYS AT LAW P. O. BOX 1 75 1 LANCE FOX OTHER OFFICES PARTNER BEAU MONT, TEXAS 77704- 1 75 I HOUSTON - THE WOODLANDS EXTEN51ON 1376 470 ORLEANS BUILDING, FOURTH FLOOR 77701 AUSTIN E-MAIL: ICf@obt,com TELEPHONE (409) 838-64 1 2 SILSBEE FAX (409) 838-6959 www.obt.com No. 18 September 16, 2004 Re: $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds,Series 2004 RBC Dain Rauscher,Inc. Dallas,Texas Gentlemen: This letter is being delivered to you in connection with the issuance by The City of Beaumont, Texas (the "City")of its$17,000,000 Waterworks and Sewer System Revenue Bonds,Series 2004(the 'Bonds"),issued pursuant to the terms of an ordinance adopted by the City on August 17,2004. Terms defined in the Ordinance are used in this opinion with the meanings assigned to them therein. We have acted as Bond Counsel to the City in connection with the issuance, sale and delivery of the Bonds. In our capacity as Bond Counsel, we have on this date delivered our opinion regarding the legality and validity of the Bonds,the Ordinance and certain other matters. This letter is to advise you that you are hereby authorized to rely upon such opinion the same as if it were addressed to you. Yours very truly, ORGAIN,BELL&TUCKER,L.L.P. Section 18 F C Financial Guaranty Insurance Company 125 Park Avenue New York,NY 10017 T 212.3123000 F 212.312.3093 September 16, 2004 The City of Beaumont RBC Dain Rauscher Inc., as Underwriter or as Representative of the Underwriters Re: $17,000,000.00 in aggregate principal amount of The City of Beaumont, Texas Waterworks and Sewer System Revenue Bonds, Series 2004 Ladies and Gentleman: I am Senior Counsel of Financial Guaranty Insurance Company ("Financial Guaranty"), and have been requested to render an opinion concerning the issuance by Financial Guaranty of its Municipal Bond New Issue Insurance Policy (the "Policy") and its Municipal Bond Debt Service Reserve Fund Policy (the "Reserve Policy") in connection with the issuance of the captioned obligations (the "Bonds"). I have examined such documents and records as I have deemed relevant for purposes of this opinion, including (a) the Certificate of Incorporation of Financial Guaranty, including all amendments thereto, (b) the amended By-laws of Financial Guaranty as in effect on the date hereof, (c) the certificate of authority issued to Financial Guaranty by the Superintendent of Insurance of the State of New York, (d) the certificate of authority issued to Financial Guaranty by the Commissioner of Insurance of the State of Texas, (e) the executed Policy, (f) the executed Reserve Policy and (g) the statements in the Official Statement dated August 17, 2004 relating to the Bonds (the "Official Statement") under the captions "BOND INSURANCE" and "DEBT SERVICE RESERVE FUND POLICY'. On the basis of the foregoing, it is my opinion that: (1) Financial Guaranty is a stock insurance corporation validly existing and in good standing under the laws of the State of New York and qualified to do business therein and is licensed and authorized to issue its financial guaranty insurance policies under the laws of the State of Texas. (2) The Policy and the Reserve Policy are valid and binding upon Financial Guaranty and enforceable in accordance with their respective terms, subject to applicable laws affecting creditors' rights generally. (3) Financial Guaranty, as an insurance company, is not eligible for relief under the Federal Bankruptcy Laws. Any proceedings for the liquidation, conservation or -F6- IC September 16, 2004 Page 2 rehabilitation of Financial Guaranty would be governed by the provisions of the Insurance Law of the State of New York. (4) The statements described above in the Official Statement relating to Financial Guaranty, the Policy and the Reserve Policy accurately and fairly present the summary information set forth therein and do not omit any material fact with respect to the description of Financial Guaranty relative to the material terms of the Policy or the Reserve Policy or the ability of Financial Guaranty to meet its obligations under the Policy or the Reserve Policy. Very truly yours, r Isa�sel Guerra Senior Counsel 04010588 04010589 Section 19 NO. 20 PAYING AGENT/REGISTRAR'S RECEIPT The undersigned duly authorized representative of WELLS FARGO BANK, N.A., the paying agent/registrar for the following described bonds: THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004, in the principal amount of $17,000,000, certifies that said bonds have been delivered to the purchaser, RBC Dain Rauscher, Inc., and that the purchase price in the amount of $ 17,035,007.50(cons isting of $17,000,000.00 in principal, plus a premium of $-0-, plus accrued interest of $35,007.50) has been received on behalf of the City. EXECUTED AND DELIVERED this 16th day of September, 2004. WELLS FARGO BANK, N.A. By: u Title: Section 20 No. 21 CERTIFICATE AS TO DEBT SERVICE SCHEDULE This Certificate is executed and delivered with regard to the $17,000,000 The City of Beaumont, Texas, Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), which are being delivered to and purchased by the Underwriter on the date hereof. Capitalized terms used below shall have the meaning assigned to them in that certain Ordinance adopted by the City Council of the City of Beaumont, Texas, on August 17, 2004, authorizing the issuance of the Bonds and other matters related thereto (the "Ordinance"). The undersigned hereby certifies that the Debt Service Schedule attached hereto as Exhibit "A" (herein referred to as the "Debt Service Schedule") shows all outstanding bonds, including the Bonds, of the City that are payable in whole or in part from the Net Revenues of the City's waterworks and sewer system. EXECUTED this day of September, 2004. THE CITY OF BEAUMONT, TEXAS By: Name: Evelyn tord Title: Mayor City of Beaumont, Texas Waterworks&Sewer System Debt Adjustable Rate Rev.Ref.Bonds, Reveune Bonds, Revenue Bonds, Revenue Bonds, Series 1998 Series 2000 Series 2002* Series 2004 Total 2005 2,684,987.50 1,536,173.76 4,970,000.00 840,180.00 10,031,341.26 2006 2,685,162.50 1,532,736.26 4,924,500.00 840,180.00 9,982,578.76 2007 2,680,162.50 1,538,986.26 4,880,250.00 1,040,180.00 10,139,578.76 2008 2,685,587.50 1,534,298.76 4,826,500.00 1,032,680.00 10,079,066.26 2009 2,681,387.50 1,534,298.76 4,779,000.00 1;024,867.50 10,019,553.76 2010 2,681,675.00 1,533,673.76 4,726,250.00 1,016,742.50 9;958,341.26 2011 2,680,925.00 1,542,423.76 4,658,250.00 1,008,305.00 9,889,903.76 2012 2,683,875.00 1,539,673.76 4,601,500.00 999,555.00 9,824,603.76 2013 3,706,286.26 5,048,750.00 990,492.50` 9,745,528.76 2014 3,701,911.26 4,933,500.00 986117.50 9,621,528.76 2015 3,693,473.76 4,817,750.00 981,117.50 9,492,341.26 2016 3,685,661.26 4,695,000.00 970,492.50 9,351,153.76 2017 3,702,031.26 4,539,500.00 960,192.50 9,201,723.76 2018 3,719,975.00 4,374,250.00 954,592.50 9,048,817.50 2019 3,739,250.00 4,204,250.00 946,092.50 8,889,592.50 2020 3,774,750.00 4,008,750.00 938,717.50 8,722,217.50 2021 6,525,000.00 931,117.50 7,456,117.50 2022 5,850,000.00 923,292.50 6,773,292.50 2023 5,175,000.00 920,242.50 6,095,242.50 2024 2,921,367.50 2,921,367.50 2025 2,932,562.50 2,932,562.50 2026 2,936,900.00 2,936,900.00 2027 2,940,537.50 2,940,537.50 2028 2,938,237.50 2,938,237.50 21,463,762.50 42,015,603.88 92,538,000.00 32,974,762.50 188,992,128.88 *Interest rate set at the maximum of 15%. Average Debt Service: 7,874,672.04 Maximum Debt Service: 10,139,578.76 Section 21 Section 22 No Text 108 No. 23 CERTIFICATE FOR TEXAS BOND REVIEW BOARD The undersigned officials of The City of Beaumont, Texas (the "City"") hereby execute -this, Certificate-in connection with the issuance of the City's Waterworks and Sewer System Revenue Bonds, Series 2004 (the "Bonds"), in the principal amount of $17,000,000, and hereby certify the following: 1. Name of Bond Issue. The name of this issue of Bonds is $17,000,000 THE CITY OF BEAUMONT, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004. 2. (a) Par Amount. The par amount of the issue is $17,000,000. (b) Bond Premium. The amount of the bond premium for this issue is $-0-. (c) Original Issue Discount. The amount of the original issue discount is $-0-. 3. Dated Date. The dated date of the Obligations is September 1, 2004. 4. Closing Date. The expected and anticipated closing date is September 16, 2004. 5. Maturity Schedule. The maturity amounts and coupon rates for the Obligations is as follows: Year of Principal Interest Maturity Amount Rate. 2007 $ 200, 000 6 . 250% 2008 $ 205, 000 6. 250 2009 $ 210, 000 6. 250% 2010 $ 215, 000 6. 250% 2011 $ 220, 000 6. 250% 2012 $ 225, 000 6. 250% 2013 $ 230, 000 6. 250% 2014 $ 240, 000 6 . 250% 2015 $ 250, 000 6. 250% 2016 $ 255, 000 6 . 000% 2017 $ 260, 000 6 . 000% 2018 $ 270, 000 5 . 000% 2019 $ 275, 000 4 . 500 2020 $ 280, 000 4 . 500% 2021 $ 285, 000 4 . 500 2022 $ 290, 000 4 . 500% 2023 $ 300, 000 4 . 625% 2024 $2, 315, 000 4 . 700% 2026 $4 , 990, 000* 4 . 750% 2027 $2, 680, 000 4 . 750% 2028 $2, 805, 000 4 . 750% *Denotes a Term Bond. 6. Call Provisions. The Bonds maturing on and after September 1, 2015 are subject to redemption prior to maturity on September 1, 2014 or any date thereafter. 7. Mandatory Redemption Provisions. The Bonds maturing on September 1, 2026, are subject to mandatory redemption prior to maturity in the amounts and on the dates as follows: Date: Amount: September 1, 2025 $2,435,000 September 1, 2026 $2,555,000 8. Debt Service Schedule. Attached hereto as Exhibit "A" and incorporated herein by reference is a debt service schedule for the Bonds. 9. Derivative Products. There were no derivative products used in connection with the issuance of the Bonds. 10. Refunded Bonds. The proceeds of the Bonds are not being used to refund any other outstanding bonds. 11. Pledge. The Bonds are payable solely from and are secured by a pledge of and first lien on the Net Revenues of the City's waterworks and sewer system. 12. Credit Enhancement. Payment of the bonds is insured by a municipal bond insurance policy issued by Financial Guaranty Insurance Company. 13. Ratings. The Ratings for the Bonds are Aaa by Moody's and AAA by Standard & Poor. 14. Type of Sale. The Bonds were sold pursuant to competitive bidding. 15. Pricing. The pricing for the Bonds was done pursuant to competitive bidding that took place on August 17, 2004. 16. Purchaser. The purchaser of the Bonds is RBC Dain Rauscher, Inc. 17. Official Statement. Attached hereto is the Official Statement for the Bonds. 18. Costs of Issuance. Attached hereto as Exhibit "B" and incorporated herein by reference is a schedule of the best estimate of the City of the costs of issuance of the F ends ?n the event the final costa of issuance are significantly different than frorfi ►he following estimate, the City hereby certifies that it will submit the changes directly to the Texas Bond Review Board. -2- 19. Financing Participants. The following participants were involved in the issuance of the Obligations: Financial Advisor RBC Dain Rauscher, Inc. Bond Counsel Orgain, Bell &Tucker, L.L.P. Paying Agent/Registrar Wells Fargo Bank, N.A. Underwriter RBC Dain Rauscher, Inc. [The remainder of this page has intentionally been left blank. Signature page follows.] -3- WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY OF BEAUMONT, TEXAS,this day of S P40-.4A .52004. Mayor, ITY OF BEAUMONT,TEXAS City Clerk,CITY OF BEAUMONT,TEXAS (SEAL) r� t aoeaa' W EXHIBIT"B" Service Firm One-Time Fee Annual Fee Bond Rating Moody's $8,000 -0- Standard & Poor's $8,500 -0- Other General Costs of Issuance -0- $50,000 Specialized Costs of Issuance NONE -0- -0- Credit Facility NONE -0- -0- Bond Insurance FGIC $109,300 -0- Total Underwriting Spread $-0- Did underwriter pay rating fee(s)? No Did underwriter pay bond insurance fee? Yes Participants Firm Financial Advisor RBC Dain Rauscher, Inc. Bond Counsel Orgain, Bell &Tucker, L.L.P. Paying Agent/Registrar Wells Fargo Bank, N.A. Underwriter RBC Dain Rauscher, Inc. Section 23 .> ;. 4< " - t ; } ;t REGISTERED REGISTERED �,�(sltltiiY NUMBER STATE OF TEXAS •a AW AIKE114 F7� COUNTY OF JEFFERSON °E1 �1 ����k Citp of oeaumont, Tenn waterWorko aub *ewer opotem Rebenue SERIES 2004 Yr` INTERESTRATE: MATURITY DAZE: DATED DATE: CUSIP: September 1, 2004 ;. st' REGISTERED OWNER: PRINCIPAL AMOUNT: D O L LA R S �s •, a,}Fit" t >. The City of Beaumont, 'Texas (the "City") promises to pay, but solely from certain Net Interest on this bond is payable by check on March 1 and September I,beginning on March 1,2005, Revenues as hereinafter provided,to the Registered Owner identified above,or registered assigns,on mailed to the registered owner of record as shown on the books of registration kept b the Registrar P g g g g• g• P Y g• < the maturity date specified above, upon presentation and surrender of this bond at the principal as of the fifteenth day of the month next preceding each interest payment date. Any accrued �.'• °�tfl!tx: corporate trust office of Wells Fargo Bank, N.A., Houston, Texas (the "Registrar"), the principal interest due at maturity shall be paid upon presentation and surrender of this Bond at the principal uf� ryry#�F�s sir amount identified above,payable in any coin or currency of the United States of America which on corporate trust office of the Registrar. �- §': the date of payment of such principal is legal tender for the payment of debts due the United States REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET of America, and to pay, solely from such Net Revenues, interest thereon at the rate shown above, FORTH ON THE REVERSE HEREOF,WHICH PROVISIONS SHALL HAVE THE SAME FORCE ,. calculated on the basis of a 3E0 day year of twelve 30 day months, from the later of September 1, AND EFFECT AS IF SET FORTH AT THIS PLACE. .- 2004,or the most recent interest payment date to which interest has been paid or duly provided for. ttlti a ry7 . r•r IN WITNESS WHEREOF, this bond has been signed with the manual or facsimile signature of the Mayor and countersigned with the manual or facsimile signature of the City Clerk, and the official seals ¢ of the City has been duly imp::essed, or placed in facsimile, on this bond. _ AUTHE;VTICATION CERTIFICATE — ql THE CITY OF BEAUMONT,TEXAS t ¢ �e + It is hereby certified that this bond has been delivered pursuant to the Bald Ordinance described 1111 '. in the text of this Bard. F ' # Wells Fargo Bank, N.A. >tl, Houston, Texas e. By Au thorized Si g nature Il/llt fi T q� W Date of A uthentication: City Clerk Mayor s. .v.. . .. .., :. ^S.. ,,,.-„ W. .,....r ..., .. .w,..�: r -::,.:;Y: :ar...: ,,:.,,.u. w... ...r ,-.. .. 'ar.. ,.. ,. a ✓" ,,^ .:r° r,' r.� `'E' .,r' ^,, •.� �i �",.�G • ''e r, ,:,,... ,_.:� ,r ^a �..:{',r"., „a.. .r, -.<c_, m ,r. h.....N.., •rr a..-: ..r ,r! *... ., >r r...= _.r rr. a' -s-..: ��.:.:�!:..:.p ir. -..,-.,./ rr .:- :. `'` e Y .'.,m. ' I IIS 110,D ix one.1eJuly auth,He d issue ofannds aggngenmg S17.000.000(the-BonJx').issued for the P.W,eer mviding TTre Paying Agvm Ielll wlvvl for,edM,M.k.J.l.orhy M,y h,,e.cMMY nnteetet.,.I.in ranJOm xclLStiam.y principulumounl 1'umis w(i)limwc,lh,cxp.n.urn.nP.ir.nlavaion anJ nla,d improvvmenuwthc Citv.wevmorkxan0 sewerxvs,em.andf ill payinF allcov. ol'Term ponds.yual to thcaggregarc principal.noun ol'such Term lL+nJsw MnWecmd.snuil call.u,h Term llonJs lies rtllvmption on the el'i.xuaneeul',M1c lk+nJ..pursu.n,toannrdinanWdopwdhYtc CiYCOM,iI..August 17,2N4(t,-Or inanLti).undi.a Mancewl,h whcduled momleory rVWcmption dale,and shall give noGCC OI'wch ink pl;on in ucmrdunu:with NC IL+nJONv+.Tneprincipulamoum of the authorin ofChMle,150'.T'esu.(iuvemmcm CWe,main mdaf.andall mnnapplicahlclaw. Term Bonds rvaluired to Fe mundworily ndv,.meJ xh:sll be rcduerd by the principal annum nf'Term BunJx wn;ch.m ka l JS Jays prior w If• T'IIISBONDANDAI,LOF1*1 IC BONDS OF TI I IS SERIES arc spn'ialo hlig;vionsoflhe CRY.Me wgaher xilh the Cirvs ouumnding mandatory nelention dmeshull hove txrn leiiverd w the ReFivmr lo,cmal1winnor shulih...been olpiuwll.nWe—d wJ rcrlprcvi,u.ly WeLlwnrkx ale Sewer Sysem Re—R,lunding Bend,.Se,iex 1998.te Cily-,—su mg Wecrworkx and Scwcr Sy—Revenue Re. cr Wild egehen a nemIMry netnnlion rryuimmmt. IunJing Bonds Scrie.1999.the City's ouuunJin f W:rtmworks m,d Sewer System Revrnue BOWS Series 20N.and the City's ou,xmnding NOTICE Of ANY REDEMPTION shall M given a le.0 thirty 1301 days prior to Ik da,e f ixnl Im redemption M1v lust class marl. Watt kxand Se.e1S),e.Ad,Muahlc R,e RevrnwHe.d..Smio2N2,.rcaxm ILywd mtubly payable from Md.wund by,r.w In— aJdrcssdIn tlnregiskrdownn of cxh aond toMredeemedinwMic or in pan at,he:ufJrvs.shownon the M,ok.nlrcFi.trmion kept hy,lw ,he-Ne Rev :,ollcud anJ rte vd teethe Ci,v lieem th,nP,mrion andowrxrshipofthow properties lk;litiV>.improv tc Vuipmen Rein—When Bond..orponiorts themrt'nave Men ealld larreJvmDtiu unJ Jac provision ha.nttm nc,JcwnJWmthe vmuthe prl'neipol rifhu anJ POU'cr.mnstitutiang the wawrwor4 unJ.wv,r.ys„mol'thcC irywhich an Jclind in the Ordin.n,a.tM-Sy.tem".which redegeJ shalikpayahw solely l'wm,k fullspmvidcd lbrrcdempti,,n and imcrcxt which wvWeotmviw;unrucnn the lumx,n,s Nu Hev,nuv�an nyuinJ a,Mwt asiJc f'nr.ne Pl,egedto,M1L'OaymvmtofYM1i,.wricx,lNml..the ouu.wWing bends and alladJidunW bed.. c,ileJnt'orrvWemPtonsMllnmminm,un tNdu,c fixW frnJcmp,inn. vu,don.parity therewith.in the ln,ttext anJ SinkinF FUnJand the RamcFUnJ rcyuir,JwMmaintaitx:d for the pavmcm ofall such bonds. THIS BOND ISTRANSFERABLE Mlyupon p—emiunends ,enderut the principal w,,M.e tru nRic.,te RCgiurar.duly :,flax mantuuydevrilwW+u+J proved lur in une.vnjvvrmma r�+tr;ainnxunJlimibdonx impo.vd by tnc0rdimulce.TnfxBare anJmeuriLSnf rnJUrscd l'o:tmrtxf+ar xmmpaniVW by an a.xignmLmt duly CxccuHW Mthr«gixknlowner orhisauthnri<d epmxenmtive.suhievvwtM which it ix.p rt..felt,,with the i.I : t--n,laYMfexrle1Y nn—eh Nn Revenues and In nelmn inMFled...x or eeneml tmm and eendilio s ol't,Ordinance. obligmien of the City."17111:I IOLDLR Of T111 S OBLIGATION IS NOT ENTITLED TO DEMAND PA YM ENT OF THIS OBLIGATION , THE BONDS ARE EXCHANGEABLE.,to Mi-inel err Mec,mmlliW.1'the Regierm er benJ.in the prineipulamoumol'S5.N) OUT OF ANY MONEY RAISED By TAXATION, o inkgml multiple trnml:suhjq In 1k.nand en m..,ol'tk Ordmenee. PIIECITY HASRLSLRVLDTHERIGHT'TO ISSUE ADDITIONAL PARITY REVENUE BONDS.xubim,w Oe mtriaion.and elv THIS BOND.xh.11.1 be valid or.bli,,enY In,any p ne,rM muted manvkn,lit uml,r rheONin.ntt unl,..this fi—,iffier Iimim,urnxwn,ained in the ONirunw.which shallM,ywllymd mutely pay.M1le lmm.and.WUnxl hyalirst lien on and pldF,of t,aforcwid (i)ix rcguvred M Uw COmpuollerofPehlieA=mM,Ittee Sel-17x.y by rtyiem,umw•nilieatemm,MWmallixN helel-6)LS:mtrnhgd Nu R—uvs in,M.eunc man rant tnth,.vmv a:thi.BOdaMlksvrusol which i,isa Pan b,'th,Repistr.rbY duevtcclnionol'theauNemigion Wniliuntc rndorsW hL•nvn. THE CITY RESERVES THE RIGHT.,itxtoption.mrdwmtc Bond,kvingrtad m.neilies,.oral,.ScptLmba 1.2015.in wh.i m THE REGISTEREDOWNERol'thm Be.d.hYueIMunW h,rcol'.ackrrowl egvs anJ agnvrsm kMUnJ by.lute,krm.anJ enndi,ieen. in pan.on Nepl..1 1.2014.e,My Jaw tcru111.inim,gml multiples ol'E5,ON.e.a priecol'M,plus clued intmee w to de,t fixed wr oft,Ordinance. reevmp,inn.Reli-renuwi.m:uk,otMONinanW l'm mmPlnc Jvv;H mncvm;nFthcmarmerdnW inglhe Bonds. THE CITY hae Mend;nt eOrditwae—itwill m all time—i&a 1egalI,,1ee;f1e,[_6tmr lixtMlL,d—d will cause nntixnf BONDSmuturing in thcycm2(126 Uh,'Tvmm l3Pndi'l annlm wF,lc„tee nunda,ory ndgption prior to ma,urinin,hcamount..ndon arty Chmgcol rcgistrm toMmaild:ouMrcFistcrN ownm. the Jax'..avout Mleew.ata priw,ywf wtkprineilx,lamoun;to Mr,Jwmd Pluxnc,ywd in,cratw,he dvmption Ja,c: IT IS HEREBY cenitiLW.rand are mvc..Id,h t this Bend My het duly and validly i.we land&Ifiv d:0.1 all mu.eenditiunsunJ ,hung n,.iled or IF—toll prfonned,to exist all w be done prtnukm weer in the i.suoneeand delivmol'tis Bond ha.c Men perti,nned. JERM BONDS DUF 1e—IN,,l 101, .nd have NM,don,in—dwee with law:that the bend..of Nix xrivsN no,exanvW any smwwry limialion:Met,Pro Wwn Ien M,n fYdt made leer the p.e.,of principal Me!in.nst...hi,Mnd and all oft,Mnds nl this uric.by the ef,a id lien,,.and pledge nr,he Nn Scpkmbe,1.2025 S2.435-N0 R,v,•nc,::ai tr Svsu..m. ORDAIN, BELL Ev TUCKER,L.L.P. ATTORNEYS AT LAW 470 ORLEANS STREET BEAUMONT,TEXAS))701 _P`Mher 16,20 THE CITY HAS RESERVED THE RIGHT TO ISSUEaJdi,innal parity Nnds and suNNimued lien mvenuenM1ligahync sufti,c,.the _ieji mnuin,d in the OrJiruncc.which may Msaund Ma licneen upmiq with.mxuberJin;ucanJ inl',rior,n.the lirn,rn the Nm kvrvvmuvs WEI[AVEAMCD,,Mndeoun..I till The Ciy,,l'Be...M.T.I.l the-Cite').in--ionwit an issue of revenue Nnds(th, Ming ponds. -0.,d:IdvscrikJ.s fi,lleex'.: ' HER OUR OPINION thee: IE CIIV OF BGUMONT,TE%AB.WA'f[H WORKS AND SEWER SYSTEM REVENUE BONDS,SERIES IT IS FURT 2004,in the E,MI enh.6,:WaUlple .1 S l 7.EXI dined Svq,glx11.2004. IU loosest nn to 0.wds iscxefud.Mefm glensinmm,fe,link l menme ux purpnvs Md,,iming lux:end The Bondsmtun.Mar intemt anJ m.v Mtmn mred ledexclungVW as10 u,in the Bela and in the ldinnew doped by the Ci, (2) The BUndsm nt•piva viry Mnd-witin rein aningul't,CaW,.anJ inwnstonik pond.i.mx whjvvt Councilofthc Utv on AUgux,17.2UW.aa,Mri<ingtkir, Wlt,-ONinanvc).TheBntWxmckingissucd lbrthe puryn.eeellinuning eeth atcme individualxo mrp,re •scy,ta m tM B,,mis will NincluJd in impronms,nu,o to C;NSx.terworksamlwwmly Ec, —fieIlvd,wrt.Winte Ordinal 'he"adju.nWc.ncnimamringy"„fa enr,.6nn(oter EEM.ny S mr_F,,n.rcgulatcJ invastmrnlcomp.nY. W'EIIAVLAMED.sbendInuw1 In,thepeTn1e.rrtmduring onoptnkl,wM resplel.tolepliry and,llidi.,fthe Bonds e,khe ROT,REMIC or FASIT)NerWrpawsofa,mputing i.eletnaivemin;mum elliMilitY, ONinet Mdm to C—itutkm.nd ell,fte SellefTe—under which to Cin;s Ming.<a homemle einol'tc Selle'Tem..nd also lhr ,he pMM,a nl nnJvring an oPWM it lelpnx w thcex,lus;on nfinw,xt on the Bodx Ire,gins cane le,kWemj lee.,m pe ,sw In Providing w,h EE we he,,rclicd on epnen sefth.CilY w it mped ee allele within t,k...IWge,,Ithc Ci,y Inweh eMleity we h.ve examine rclevm,pmvis;,,nsnfteCe—lium and laws oft,State ofTCS.Wfiwble pmvis .efts lnwnal which we hiv.M,indepeMMjyendive,and have assumed inn,.inning u,mpliancewith the a—name in to OnImee,M,E to peeM. RLNL..CUdeeef 1986...:unenled(,heC"e).mund,cix xss Traawn RTlhauns.nd pubinMd mfi.Ep ran,lnlenal Rev uc Srn inF le theta, xoI'Ihl CWewhieh.[Tell the cxclus ,gm. nleerim .t he B,,JS fix ree&f inmm,tax purp,wx.Hl h we have deemed relevant.a-11liPt Ilf—fled pnxeedingnftheCity C...4L,lthe City 1-i,ing w the iswanw el B1 mis.mtd othmn rcprvwm m,0.mmnd,okinam ,mp ae.liflh Citytieil_eeenplywith te-i,nb+;ng pwvnion.ofthe Online—ill— m vial EwNw hi n the kn,wledg,ur control.1 to City.M,which we rely:and ee.mntmenxMmJWMern Md inammrntc aeNri. n the Bawd.�muld beeome in eletble in 911,inene,l'mmthe kee"Inrig;pal defiv,rv,ngmdles.Mte Jae In which to evrnt ea mg.o,h mE; rckuing u,the i.wancc 1teBands.inel.din.e„xttmd BlM.Tk tmnwlip,mN.i.arsili dmpi.efeenein MVWdin6 el'thcCi,Y nelM Cu...il ef'te City:npra:scnu,ivasofte.CllYmea+tm PUbli,olticials:are otm anilidlb-1 Meing w to etnri-ieen and ixwanccol Ioa"'P—MME above,we 11Mm MoPiniun ant MY 11WCml..ow ns kxal 1. nwy111m mulnng In-he nWipmf to Bamdx.W'cMv,notinvgiga,al or verified origimsl moWx:Jini'rccord..dauor n,kr menial.WChav,mLenM1dany1l,nMihEity Inv .nor dispositionnfthc Bends ,m , suitmpttv wtc firunei;J mnditknurcyabili,u'snl'tc Cily"the dneln—tame in mnnm;un wih de-1 oflhe finds. xyt H,I=,;fte Bme.xhould be axmc tin t eOwn,tship oI'm ,nMt ohiigeli vwlt in mllakml fed,mlisxnmcuva:nn.,- BASED ON SUCI I EXAMINATION.IT IS OUR OPINION thin: 4urnWsto limvtcial ivtiw,onN life inwmnwmtd pmpa,yatW v,..,ry inwmrxcmmpani�ti utsm,ihS vnrp,mti,,mwit SuMdmPwrCgniny dpmfits individwl rtvipicn.nf Social Ss;aritY nr RaiiraxW Rvvirvmmal,I+,petits.anJ,vp.yen who maYNJevmd whav nd or nlin dI.&-tdne to purchase e,een,M,exempUIIigM; .,.1.l,ti,nm.W,elinli,nign en"nelionx A,ing N..A—intheUnitdSee- (1) The Ordirm Md the lk d..c rte evWid and leg.11y binding obligationsof to Ci,y in neenldma,wit the maYkxubjeew,Nnvw'EMMRh Mnliu ee”nn tareltiuivcly.mnn�W auning and pmliu l wleemg el emP,in—web as imnestnn nmmlvMd mmlitkms tma+l:eywp,wttc a muchwfile,m ml,M limi,d by lows selling wMk,MeY. toB.&L FOr thewruuom.Mldm oft,BurW.shoulJcn wb tcir fax dviw, ,,therm.,,, •.eel"invertingm the Hn—. iL ncY rttrtfmticu nn omens ummotcramilm law.aflixtingthc righciot'c Nimnor te,s,rciunf Th"pinion.xt lirM aMvearc hasdo exiling lawnwhich ix suhjwtwchangc.Suchopinenxm luMmh.wennourknowlcJ• 1 jdh:ial Ji.,rawnln4clxxJ:m,ew;trey mcml prim:;plvznl iyuiry;and lucuaxul'lk6ue hcrmC Wcawm nnJUtYwuphucorxu—hieh k-Nevi-ef tortlk rmY'Ixuol'cirwm.unLV„hm mvy haxul4rwm, ('--) TM Bnn&and all nuLSUndingw and sLwm.y.,emr,vrnuc Mnd.hm,u,li+rc,,r h,rcalin issud onapmity wourakmwn orw .,fleet any dram any law the mlY hmcekr We.­,Murmv�clT rive, tle—it we payable Enm and m,t,WEMalimlllmuntc^NetRwrnuvs'nceiv xland mllmdby to City Youn wly. Isom the npma,,,nanJOwn,mhipnftk-S)skm'...delitxJ.ndprovideJ in tk ONtawl. ORDAIN,BELL&TUCKER,L.L.P. STATF,MENTOFINSURANCE Financial Guammv Inwranw Compam(•Financial Gu:vantv-1 has is.0 dagMicy mnmining,h,foilowingpmvisinn.wi,h ngxct w TheCityol'Bewmont(Jeliirwn C,,untYl.Toyv WecwurksanJ Sewer System R,vrnu,ponds.Mrivsz0lu ItM'fmJs").weh p,fiLY kingon sloe teprimipW Niee,li Well,Fay BMIL N.A_w peying 2VM(the-Plying Agvmi): hsiwnckN Guamn,y kn•Iw unc,,ditu+nully are irrcvac:tlYagrcLS w pay Iixdi.Mmgrntw tc BondMlJvn Wt p+nion.I'tc principal„l'ad inknst on tc Bonds bleb isthcn due I'urpaymvmUaJ.bleb tk i.wcroftc f,rW<Ithc"Iswvi I.hall Mvc failLW n,pruvi&-.Duc fixpayrtnmt mean.,yvit rv'1xvv,o Prineipal,,rwemkd v:JUe(it'apPliwhkl.tested meuritydak tmuJ'.or tedaeamwhich t,wmesNll have km,dulycalld for mmWeam xiNing land rcdemgionandduvs'rat relirwunyglirndas:a+n which,k p:,vmrnmlPrin'm.l ax ezrgJ valw(il'lpplictle)ol't,Bnndx i.Jue by rvmx+nnl'mll fix rdmnPMrnlmkrtan n,wJatsxy sinking lumf nWgmion),x,ckrmen nrmhmdvanvmem N'Imuurity.and wit mplttw mklm.tcsu6.edacfi,ryym tofxuch inkrcrt. Upon rwcip,nl'tcl,ph,mW urkley4Phicnmiv nwhxxiuvmtk wnlinnd in writing.nrx wehy.girt,dorcrniE dmail,fromaBondholdm or t,Paying Ag,n,w Finarxial GummuylhmtcrttluircJpavmrnt ofprincipW.acmetW valu,ax inter>tl:uupplieaFlelhu.m,thttm made by,hell., he Paving AIMEE.FiMeeial Geneentyon t,due decuf weh PkInMe el wnbinone EMzi s da-Y 1111 rmcipt.laxiw ofsuch nonpayment whiesevm i,low,will mak,a depmi,ufl'Md,in with U.S.EMIL rrWit Nah,,W Asvxieion.nrie.nvvxwxas ill agmu(k-1 iswl AFeni)..ulli,ivm,w mak mtM portion oi'wcrnpaymrnt inn Pail by tk Issuer.Up,,p— Inn wte•Fiswl Agentofevidrnce wi.facwry wit oft,Bondholder's right tprw uvv wen paymcm and any app.,psi;netinstrum,ntsol.sxifnmmt myuinJto vLrst.11 nlsuch BOnJNIJ,r'x right to wcl,p:n min Fimm:ul G ,:kFixul AF ill Jivhuma:weh.noun.tcllonJMWCr.w AsuwJhmein,k krm-0.mJNUkr-mwnxtk P,noneetkrthan toIssumor,heMrtoxer(xlul'M+nd pmc„d.whoethc,ima;nl'nnnPaymvm nla Bamdhrn,itl,d oinks the kemx,,l such Bell! paynene the,-L The WIiq is m,mmmclwble I,,,MY axyn. FINANICAL G UARANTY INSURANCE COMPANY AS9/G.1'.4Ex'T Fnr 1.1w rcrei d Ill,um4•n dlxr bmI&­jg; en✓mafrruma ePI—prin,ornpe+wme.addreu.an✓:ip 1a,fT free) (PI-1 el Seelols,ca11N m r pmxr efL•a/aipn o)T frr,) Net i bmNam/v!lrlgb,11l.nrlr.urWhenbvirrerm'ablvrortnirmes andapp.inv ar _ nunfrwi✓bnmlun the blab keprJ"ge—non dl,mf..xirhfullpoxer nJsubnimuonmtlrpremues. D:I T/in: xignumr,Guarunrrr✓: \'OTl('h”sixwrun•must d.•xaaunrrr✓bva memherfirm ujt,,\'a•w)'or45soek f_,clwnJ;e or o commercial bon4or slurs rompanv. Reginrmd-_ :\'OTICE:Th,signaun•above must eorrcspo,Wro the prune ufrhr regisrrrrdowneras-shown on,lx/rr n/rhii baWin e,vn/wrrirvlur. -hen y.1,,awn.-1-g,menr e,h—R,x hassarver. Section 24 Ms. Deri Ward September 10, 2004 Page 2 In addition, RBC Dain has purchased optional insurance from Financial Guaranty Insurance Company ("Financial Guaranty"). Based on the information provided by FGIC, the following monies will separately be wired by RBC Dain as indicated below: RBC Dain will wire the insurance premium in the amount of$109,300.00 prior to closing to: JPMorgan Chase Bank Routing/Transit No. 021000021 Branch and Account No. 904951812 For Credit to Financial Guaranty Insurance Company Premium Account FGIC Policy#04010588 Contact: Anna Gaffney 212-312-3067 ***Please indicate Policy Number on wire*** In addition, the City has purchased a Surety Bond from Financial Guaranty. Based on the information provided by Financial Guaranty,the following monies will separately be wired by the City as indicated below. If I may be of further assistance, please do not hesitate to contact me at 713-651-3370. Sincerely, Frank J. Ildebrando Managing Director cc: Brenda Davis-RBC Dain Rauscher Inc. Lance Fox-Orgain, Bell &Tucker, L.L.P. Kandy Daniel -City of Beaumont Anna Gaffney-Financial Guaranty Insurance Company Ryan O'Hara—RBC Dain Rauscher Inc. Tara Thurkettle—RBC Dain Rauscher Inc. Section 25 Section Zs ADDENDUM TO OFFICIAL STATEMENT DATED AUGUST 17, 2004 $1790009000 THE CITY OF BEAUMONT, TEXAS WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 This Addendum serves to correct the following data shown in the Maturity Table (Maturities 2027 and 2028) on the cover page of the aforementioned Official Statement, as well as, the addition of information regarding the Reserve Surety Policy found under "DEBT SERVICE RESERVE FUND POLICY" on page 6 of the Official Statement. PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES $12,010,000 Serial Bonds Initial CUSIP Initial CUSIP Principal Maturity Interest Reoffering Nos. Principal Maturity Interest Reoffering Nos. Amount September 1 Rate Yield(a) 074561 Amount September 1 Rate Yield(a) 074561 $ 200,000 2007 6.25% 2.1200% DX 6 $ 270,000 2018(b) 5.000% 4.2000% EJ 6 205,000 2008 6.25 2.5200 DY 4 275,000 2019(b) 4.500 4.3000 EK 3 210,000 2009 6.25 2.8500 DZ 1 280,000 2020(b) 4.500 4.4300 EL 1 215,000 2010 6.25 3.0800 EA 5 285,000 2021(b) 4.500 4.5300 EM 9 220,000 2011 6.25 3.3200 `EB 3 290,000 2022(b) 4.500 4.6200 EN 7 225,000 2012 6.25 3.5100 EC 1 300,000 2023(b) 4.625 4.7000 EP 2 230,000 2013 6.25 3.7000 ED 9 2,315,000 2024(b) 4.700 4.7500 EQ 0 240,000 2014 6.25 3.8300 EE 7 ******** ***** **** **** **** 250,000 2015(b) 6.25 3.9000 EF 4 ******** ***** **** **** **** 255,000 2016(b) 6.00 4.0000 EG 2 2,680,000 2027(b) 4.750 4.8900 ET 4 260,000 2017(b) 6.00 4.1000 EH 0 2,805,000 2028(b) 4.750 4.9200 EU 1 $4,990,000 Term Bond,Due September 1,2026(b)(c)Interest Rate 4.75%(Yield$98.390)(a)CUSIP No.074561 ES6 (a) The initial yields will be established by and are the sole responsibility of the Underwriters, and may subsequently be changed. (b) The Bonds maturing on or after September 1,2015 are subject to redemption,at the option of the City,at the par value thereof plus accrued interest,in whole or in part,on September 1,2014,or any date thereafter. (c) Subject to mandatory redemption by lot or other customary random selection on September 1 in the years and in the amounts set forth herein under the caption "THE BONDS - Redemption of the Bonds -Mandatory Redemption." Please attach the enclosed sticker to the cover page of all Official Statements. In addition, please replace page 6 with the attached page 6, then follow with the addition of pages 6a and 6b to each Official Statement received under separate cover. L 7 OFFICIAL STATEMENT DATED AUGUST 17,2004 IT IS ANTICIPATED THAT ON THE DELIVERY DATE FOR THE BONDS,BOND COUNSEL WILL RENDER AN OPINION THAT INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS. SEE "LEGAL MATTERS - TAX EXEMPTION" HEREIN FOR A DISCUSSION OF BOND COUNSEL'S OPINION, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. The City will not designate the Bonds as qualified tax-exempt obligations for financial institutions. NEW ISSUE RATINGS: Moody's Investors Service,Inc.(Financial Guaranty Insured)............"Aaa" Standard&Poor's Ratings Services(Financial Guaranty Insured).."AAA" $17,000,000 THE CITY OF BEAUMONT, TEXAS (A political subdivision of the State of Texas located within Jefferson County) WATERWORKS AND SEWER SYSTEM REVENUE BONDS, SERIES 2004 Dated: September 1,2004 Principal of and interest on The City of Beaumont, Texas $17,000,000 Waterworks and Sewer System Revenue Bonds, Series 2004 a (the "Bonds")are payable by Wells Fargo Bank Texas,N.A., the paying agent/registrar(the "Registrar"). Interest on the Bonds will accrue from September 1, 2004 and be payable on March 1 and September 1 of each year, commencing March 1, 2005, to the registered owners appearing on the registration books of the Registrar on the 15th day of the month preceding each interest payment 1 date(the"Record Date"). See"THE BOND - ,' on September 1, 2014 or any date thereafter, at a price equal to the principal amount thereof plus laccrued interest to the dat ttof redemption. The Bonds are special obligations of The City of Beaumont,Texas the"City") of the Net Revenues (hereinafter defined) of the City's waterworks and sanitary payable solely from a first lien D D pledges tary sewer system. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OR GENERAL OBLIGATION OF THE CITY AND ARE NOT PAYABLE FROM FUNDS RAISED OR TO BE RAISED BY TAXATION. The liens on Net Revenues securing the Bonds are on a parity with the liens !, securing the City's outstanding Prior Lien Bonds (as defined in the Ordinance). See "THE BONDS - Source of Payment." The 1 proceeds of the Bonds will be used to finance the expansion, repair, renovation and related improvements to the waterworks and sewer system and to pay certain costs incurred in connection with the issuance of the Bonds. (See "THE BONDS - Use of t Proceeds.") Payment of principal of and interest on the Bonds as the same become due and payable is insured by a municipal bond insurance policy to be issued by Financial Guaranty Insurance Company simultaneously with the delivery of the Bonds. I Financial Guaranty Insurance Cotnpanv PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES $12,010,000 Serial Bonds Initial CUSIP Initial CUSIP Principal Maturity Interest Reoffering Nos. Principal Maturity Interest Reoffering Nos, Amount September 1 Rate Yield(a) 074561 Amount September 1 Rate Yield(a) 074561 $ 200,000 2007 6.25% 2.1200% DX 6 $ 270,000 201M) 5.000% 4.2000% EJ 6 205,000 2008 6.25 2.5200 DY 4 275,000 2019(b) 4.500 4.3000 EK 3 210,000 2009 6.25 2.8500 DZ 1 280,000 2020(b) 4.500 4.4300 EL 1 215,000 2010 6.25 3.0800 EA 5 285,000 2021(b) 4.500 4.5300 EM 9 220,000 2011 6.25 3.3200 EB 3 290,000 2022(b) 4.500 4.6200 EN 7 225,000 2012 6.25 3.5100 EC 1 300,000 2023(b) 4.625 4.7000 EP 2 230,000 2013 6.25 3.7000 ED 9 2,315,000 2024(b) 4.700 4.7500 EQ 0 240,000 2014 6.25 3.8300 EE 7 250,000 2015(b) 6.25 3.9000 EF 4 ******* ***** **** **** **** 255,000 2016(b) 6.00 4.0000 EG 2 2,680,000 2027(b) 4.750 4.8900 ET 4 260,000 2017(b) 6.00 4.1000 EH 0 2,805,000 2028(b) 4.750 4.9200 EU 1 $4,990,000 Term Bond,Due September 1,2026(b)(c)Interest Rate 4.75%(Yield$98.390)(a)CUSIP No.074561 ES6 (a) The initial yields will be established by and are the sole responsibility of the Underwriters,and may subsequently be changed. (b) The Bonds maturing on or after September 1,2015 are subject to redemption,at the option of the City, at the par value thereof plus accrued interest,in whole or in part,on September 1,2014,or any date thereafter. (c) Subject to mandatory redemption by lot or other customary random selection on September 1 in the years and in the amounts set forth herein under the caption"THE BONDS-Redemption of the Bonds-Mandatory Redemption." The Bonds are being issued pursuant to the Constitution and laws of the State of Texas and provisions of an ordinance (the "Ordinance")adopted by the City Council(the"City Council")of the City on August 17,2004. The Bonds are offered when,as and if issued, subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Orgain,Bell &Tucker, L.L.P.,Beaumont,Texas, Bond Counsel for the City, as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. See "LEGAL MATTERS." The Bonds are expected to be available for delivery on or about September 16, 2004. USE OF INFORMATION IN OFFICIAL STATEMENT For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission (the "Rule"), this document constitutes an Official Statement of the District with respect to the Bonds that has been "deemed final" by the City as of its date except for the omission of no more than the information permitted by the Rule. No dealer, broker,salesman or other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement, and,if given or made,such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without notice,and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the condition of the City or other matters described herein since the date hereof. TABLE OF CONTENTS Page page USE OF INFORMATION IN OFFICIAL Water and Sewer Rates.........................................16 STATEMENT........................................................1 Historical Operations of the System................. 18 INTRODUCTORY STATEMENT................................3 SELECTED PROVISIONS OF THE ORDINANCE..18 SALE AND DISTRIBUTION OF THE BONDS..........3 Definitions............................................................18 Sale of the Bonds....................................................3 Pledge and Source of Payment.............................19 Prices and Marketability.........................................3 Bond Covenants....................................................19 Securities Laws.......................................................3 Financial Statements.............................................21 Municipal Bond Ratings.........................................4 ADMINISTRATION OF THE CITY..........................22 BOND INSURANCE......................................................4 Mayor and City Council.......................................22 Payments Under the Policy....................................4 Administration......................................................22 Financial Guaranty Insurance Company................5 Consultants............................................................23 Financial Guaranty's Credit Ratings......................6 LEGISLATION AND REGULATION........................23 OFFICIAL STATEMENT SUMMARY........................7 Affecting the City's Operations............................23 INTRODUCTION.........................................................10 Affecting the Tax Base.........................................24 THE BONDS.................................................................10 OTHER CONSIDERATIONS......................................24 Special Obligations...............................................10 Future Bond Issues.............................................. 24 Description............................................................10 Other Financing Arrangements...........................:25 Redemption of the Bonds.....................................10 Pension Fund........................................................25 Paying Agent/Registrar........................................11 Collective Bargaining...........................................25 Successor Paying Agent/Registrar.......................11 Litigation...............................................................25 Source of Payment................................................11 Risk Management/Self Insurance........................25 Authority for Issuance..........................................12 LEGAL MATTERS......................................................26 Use of Proceeds....................................................12 Legal Opinions................................................. 26 Legal Investments in Texas..................................12 Tax Exemption................. ........... .. 26 ........................ Remedies in the Event of Default........................12 Tax Accounting Treatment of Original INVESTMENT AUTHORITY AND INVESTMENT Issue Discount Bonds..................................27 OBJECTIVES OF THE CITY.............................13 No-Litigation Certificate......................................28 Legal Investments.................................................13 CONTINUING DISCLOSURE OF INFORMATION 28 Investment Policies...............................................13 Annual Reports.....................................................28 CITY REVENUE DEBT Material Event Notices.........................................29 Debt Statement......................................................14 Availability of Information From Debt Service Schedule..........................................15 NRMSIRs and SID......................................29 THE SYSTEM...............................................................16 Limitations and Amendments Description of the System....................................16 Audited Financial Report of the City...................30 Compliance With Prior Undertakings..................30 Certification as to Official Statement...................30 GENERAL CONSIDERATIONS................................30 Updating of Official Statement............................30 Sources and Compilation of Information.............30 CONCLUDING STATEMENT...................................30 APPENDIX A—Economic And Demographic Characteristics APPENDIX B—Excerpts from Comprehensive Annual Financial Report APPENDIX C—Form of Legal Opinion APPENDIX D—Specimen of Financial Guaranty Insurance Policy i 2 INTRODUCTORY STATEMENT Information contained in this Official Statement, including Appendix B, has been obtained from The City of Beaumont, Texas (the "City") in connection with the offering by the City of its Waterworks and Sewer System Revenue Bonds,Series 2004(the"Bonds")identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts of revenues from the City's waterworks and sewer system and other sources, is intended to show recent historic information, and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. SALE AND DISTRIBUTION OF THE BONDS Sale of the Bonds i After requesting competitive bids for the Bonds, the City has accepted the bid resulting in the lowest net interest cost, which bid was tendered by a syndicate lead by RBC Dain Rauscher Inc. ("Underwriters") to purchase the Bonds bearing the interest rates shown under "MATURITY SCHEDULE" at a price of the par value thereof, plus accrued interest to the date of delivery. The net effective interest rate on the Bonds was 4.818715% as calculated pursuant to Section 1204.005,Texas Government Code. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriters on or before the respective dates of delivery of the Bonds stating the prices at which a substantial amount of each maturity of each series of the Bonds has been sold to the public. For this purpose,the term"public" shall not include any bondhouse, broker or similar person acting in the capacity of underwriters or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriters at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriters. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriters after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended,in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities acts of any jurisdiction. The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such jurisdictions. For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, shall constitute a"Final Official Statement" of the Ciiy with respect to the Bonds, as such term is defined in Rule 15c2-12 of the Securities and Exchange Commission. I 3 F Municipal Bond Ratings In connection with the sale of.the Bonds, the City has made application to Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Rating Corporation ("S&P") for a rating and the ratings of"Aaa" and "AAA", respectively, have been assigned to the Financial Guaranty Insured Bonds. An explanation of the significance of such ratings may be obtained from Moody's and S&P. The ratings reflect only the view of Moody's and S&P and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that they will not be revised downward or withdrawn entirely by Moody's and/or S&P, if, in the judgment of Moody's and S&P, circumstances . so warrant. Any such downward revision or withdrawal of the ratings on one or both series of the Bonds may have an adverse effect on the market price of the Bonds. BOND INSURANCE Financial Guaranty has supplied the following information for inclusion in this Official Statement. No representation is made by the issuer or the underwriter as to the accuracy or completeness of this information. Payments Under the Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds (the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal or accreted value(if applicable)of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the issuer of the Bonds (the "Issuer"). Financial Guaranty will make such payments to U.S.Bank Trust National Association,or its successor as its agent (the "Fiscal Agent"), on the later of the date on which such principal, accreted value or interest (as applicable) is due or on the business day next following the day on which Financial Guaranty shall have received notice(in accordance with the terms of the Policy)from an owner of Bonds or the trustee or paying agent(if any)of the nonpayment of such amount by the Issuer. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal, accreted value or interest (as applicable) due for payment and evidence, including any j appropriate instruments of assignment,that all of such owner's rights to payment of such principal,accreted value or interest(as applicable)shall be vested in Financial Guaranty. The term"nonpayment"in respect of a Bond includes any payment of principal, accreted value or interest (as applicable) made to an owner of a Bond which has been i recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final,nonappealable order of a court having competent jurisdiction. Once issued, the Policy is non-cancellable by Financial Guaranty. The Policy covers failure to pay principal (or accreted value, if applicable) of the Bonds on their stated maturity dates and their mandatory sinking fund redemption dates, and not on any other date on which the Bonds may have been otherwise called for redemption, accelerated or advanced in maturity. The Policy also covers the failure to pay interest on the stated date for its payment. If the Bonds are accelerated or become subject to mandatory redemption, Financial Guaranty will be obligated to pay principal (or accreted value, if applicable) and interest on the originally scheduled principal (including mandatory sinking fund redemption) and interest payment dates. Upon such payment, Financial Guaranty will become the owner of the Bond, appurtenant coupon or right to payment of principal or interest on such Bond and will be fully subrogated to all of the Bondholder's rights thereunder. The Policy does not insure any risk other than Nonpayment by the Issuer, as defined in the Policy. Specifically, the Policy does not cover: (i)payment on acceleration, as a result of a call for redemption(other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; (ii)payment of any redemption,prepayment or acceleration premium; or(iii) nonpayment of principal (or accreted value, if applicable) or interest caused by the insolvency or negligence or any other act or omission of the trustee or paying agent,if any. As a condition of its commitment to insure Bonds,Financial Guaranty may be granted certain rights under the Bond documentation. The specific rights, if any, granted to Financial Guaranty in connection with its insurance of the Bonds may be set forth in the description of the principal legal documents appearing elsewhere in this Official Statement,and reference should be made thereto. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. I 4 I In the event that Financial Guaranty is unable to fulfill its obligations under the Policy, the policy lr,;>1der. bondholder is not protected by an insurance guaranty fund or other solvency protection arrangement. Financial Guaranty Insurance Company Financial Guaranty, a New York stock insurance corporation, is a direct, wholly-owned subsidiary rif Corporation, and provides financial guaranty insurance for public finance and structured finance obligaatiiaons. Financial Guaranty is licensed to engage in financial guaranty insurance in all 50 states,the District of Columbia and the Commonwealth of Puerto Rico and, through a branch, in the United Kingdom. Financial Guaranty is a ,ix+[c]ly- owned subsidiary of FGIC Corporation,a Delaware corporation. On December 18, 2003, an investor group consisting of The PMI Group, Inc. ("PMI"), affiliates of The Bla,:.kstone Group L.P. ("Blackstone"),affiliates of The Cypress Group L.L.C. ("Cypress")and affiliates of CIVC Partnu,rs LT, ("CIVC") acquired FGIC Corporation (the "FGIC Acquisition") from a subsidiary of General Electric iIZapilt Corporation("GE Capital"). PMI,Blackstone,Cypress and CIVC acquired approximately respectively, of FGIC Corporation's common stock. FGIC Corporation paid GE Capital approximately and ;n 3 million in pre-closing dividends from the proceeds of dividends it, in turn, had received from Financial Guaranil:y, and GE Capital retained approximately$234.6 million in liquidation preference of FGIC Corporation's con,,ertiib]le participating preferred stock and approximately 5% of FGIC Corporation's common stock. Neither Ff,;I][C Corporation nor any of its shareholders is obligated to pay any debts of Financial Guaranty or any claims under any insurance policy,including the Policy,issued by Financial Guaranty. Financial Guaranty is subject to the insurance laws and regulations of the State of New York, where it is dornieleid,, including Article 69 of the New York Insurance Law("Article 69"), a comprehensive financial guaranty insurance statute. Financial Guaranty is also subject to the insurance laws and regulations of all other jurisdictions in which it is licensed to transact insurance business. The insurance laws and regulations, as well as the level of generally authority that may be exercised by the various insurance regulators, vary by jurisdiction, but insurance companies to maintain minimum standards of business conduct and solvency, to meet certain fin nic;ial tests, to comply with requirements concerning permitted investments and the use of policy forms and premium hates and to file quarterly and annual financial statements on the basis of statutory accounting principles ("SAP") an,d other reports. In addition, Article 69, among other things, limits the business of each financial guaranty insurer„ including Financial Guaranty,to financial guaranty insurance and certain related lines. For the six months ended June 30,2004,and the years ended December 31,2003 and December 31,2002,Financial Guaranty had written directly or assumed through reinsurance, guaranties of approximately $27.1 billion, $42,4 billion and $47.9 billion par value of securities, respectively (of which approximately 60%, 79% and 81%, respectively, constituted guaranties of municipal bonds), for which it had collected gross premiums of approximately$162.9 million, $260.3 million and$232.6 million,respectively. For the six months ended June 30, 2004, Financial Guaranty had reinsured, through facultative arrangements, approximately 0.1% of the risks it had written. As of June 30, 2004, Financial Guaranty had net admitted assets of approximately$2.935 billion, total liabilities of approximately $1.793 billion, and total capital and policyholders' surplus of approximately $1.142 billion„ determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. The unaudited financial statements of Financial Guaranty as of June 30, 2004, and the audited financial statements of Financial Guaranty as of December 31, 2003 and December 31,2002, which have been filed with the Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs"),are hereby included by specific reference in this Official Statement. Any statement contained herein under the heading "BOND INSURANCE," or in any documents included by specific reference herein, shall be modified or superseded to the extent required by any statement in any document subsequently filed by Financial Guaranty with such NRMSIRs,and shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. All financial statements of Financial Guaranty (if any) included in documents filed by the Issuer with the NRMSIRs subsequent to the date of this Official Statement and prior to the termination of the offering of the Bonds shall be deemed to be included by specific reference into this Official Statement and to be a part hereof from the respective dates of filing of such documents. 5