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HomeMy WebLinkAboutOrdinance 4624ORDINANCE NO. 4 6 2 4 AN ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF NOT TO EXCEED $35,000,000 OF SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004, BY THE CITY OF FAYETTEVILLE, ARKANSAS FOR THE PURPOSE OF FINANCING A PORTION OF THE COST OF IMPROVEMENTS TO THE CITY'S WASTEWATER TREATMENT, SEWERAGE AND RELATED FACILITIES; AUTHORIZING THE EXECUTION AND DELIVERY OF A SUPPLEMENTAL TRUST INDENTURE PURSUANT TO WHICH THE SERIES 2004 BONDS WILL BE ISSUED AND SECURED; AUTHORIZING THE EXECUTION AND DELIVERY OF AN OFFICIAL STATEMENT PURSUANT TO WHICH THE SERIES 2004 BONDS WILL BE OFFERED; AUTHORIZING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT PROVIDING FOR THE SALE OF THE SERIES 2004 BONDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE AGREEMENT; AND PRESCRIBING OTHER MATTERS RELATING THERETO WHEREAS, the City Council of the City of Fayetteville, Arkansas (the "City") has determined that there is a great need for a source of revenue to finance the costs of acquisition, construction, reconstruction, extension, improving and equipping of wastewater treatment plants, sewerage and related facilities (the "Project"); and WHEREAS, the City is authorized and empowered under the provisions of the Constitution and laws of the State of Arkansas, including particularly Amendment 62 to the Constitution of the State of Arkansas ("Amendment 62") and Arkansas Code Annotated (1998 Repl. & 2003 Supp.) Sections 14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), to issue and sell its capital improvement bonds to finance the costs of various capital improvements such as those comprising the Project, which capital improvement bonds may be secured by and payable from the receipts of the special city-wide sales and use tax authorized by the Local Government Bond Act; and WHEREAS, pursuant to the provisions of Ordinance No. 4327 of the City, adopted and approved on August 7, 2001 (the "Election Ordinance"), there was submitted to the qualified electors of the City the question of the issuance of not to exceed $125,000,000 in aggregate principal amount of capital improvement bonds pursuant to Amendment 62 and the Local Government Bond Act to finance the Project improvements described in the Election Ordinance, said bonds to be secured by a pledge of and lien upon all of the receipts of a special city-wide sales and use tax levied at the rate of three-quarters of one percent (0.75%) pursuant to the Local Government Bond Act (the "Sales and Use Tax"); and WHEREAS, at a special election held November 6, 2001, a majority of the qualified electors of the City voting on the question approved the issuance of said capital improvement bonds (and the corresponding levy of the Sales and Use Tax and the pledge of Sales and Use Tax receipts to the payment of the capital improvement bonds); and WHEREAS, pursuant to such authority, the City has previously issued its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), in order to provide for the funding of initial portions of the Project; and WHEREAS, as authorized under the provisions of Amendment 62 and the Local Government Bond Act and as approved by the qualified electors of the City, the City has now determined to issue and sell its Sales and Use Tax Capital Improvement Bonds, Series 2004, in the principal amount of not to exceed $35,000,000 (the "Series 2004 Bonds"), in order to provide additional funding for portions of the Project; and WHEREAS, the Series 2004 Bonds will be issued and secured by the Sales and Use Tax receipts on a parity basis with the Series 2002 Bonds; and WHEREAS, the City has made arrangements for the sale of the Series 2004 Bonds to Stephens Inc., Fayetteville, Arkansas (the "Underwriter"), pursuant to the terms of a Bond Purchase Agreement between the City and the Underwriter (the "Bond Purchase Agreement') in substantially the form presented to and before this meeting; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF FAYETTEVILLE, ARKANSAS: Section 1: Under the authority of the Constitution and laws of the State of Arkansas, including particularly Amendment 62 to the Constitution of the State of Arkansas and the Local Government Bond Act, there is hereby authorized the issuance of bonds of the City to be designated as "Sales and Use Tax Capital Improvement Bonds, Series 2004" (the "Series 2004 Bonds"). The Series 2004 Bonds shall be issued in the original aggregate principal amount of not to exceed Thirty -Five Million Dollars ($35,000,000), shall mature not later than December 31, 2009, and shall bear interest at the rates specified in the Bond Purchase Agreement. The all inclusive cost of the Series 2004 Bonds to the City, including the interest rates bome by the Series 2004 Bonds and the costs of issuance and any bond insurance premium funded with proceeds of the Series 2004 Bonds, will not exceed 3.00%. The proceeds of the Series 2004 Bonds will be utilized to finance a portion of the cost of the acquisition, construction, reconstruction, extension, improving and equipping of the Project, to establish a debt service reserve for the Series 2004 Bonds or purchase a surety bond for reserve purposes, to pay a premium for bond insurance, if deemed economically beneficial, and to pay printing, underwriting, legal and other expenses incidental to the issuance of the Series 2004 Bonds. The Series 2004 Bonds shall be issued in the forms and denominations, shall be dated, shall be numbered, shall mature, shall be subject to redemption prior to maturity, and shall contain such other terms, covenants and conditions, all as set forth in that certain Trust Indenture dated as of June 1, 2002 (the "Original Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Trust Indenture (the "First Supplemental Indenture," and together with the Original Indenture, the "Indenture") to be entered into by the City and the Trustee in substantially the form submitted to this meeting. 2 • 0 The Mayor is hereby authorized and directed to execute and deliver the Series 2004 Bonds in one or more series, each series to be in substantially the form thereof contained in the First Supplemental Indenture submitted to this meeting, and the City Clerk is hereby authorized and directed to execute and deliver the Series 2004 Bonds and to affix the seal of the City thereto, and the Mayor and City Clerk are hereby authorized and directed to cause the Series 2004 Bonds to be accepted and authenticated by the Trustee. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Kutak Rock LLP, Little Rock, Arkansas ("Bond Counsel'), in order to complete the Series 2004 Bonds in substantially the form contained in the First Supplemental Indenture submitted to this meeting, with such changes as shall be approved by such persons executing the Series 2004 Bonds, their execution to constitute conclusive evidence of such approval. Section 2: In order to pay the principal of and interest on the Series 2004 Bonds as they mature or are called for redemption prior to maturity, there is hereby pledged all of the receipts of the Sales and Use Tax levied by the Election Ordinance. As permitted under the Indenture, such pledge is made on a parity basis with the existing pledge of receipts of the Sales and Use Tax securing the payment of the Series 2002 Bonds. The levy and collection of the Sales and Use Tax shall continue until such time as the Series 2002 Bonds and Series 2004 Bonds are no longer outstanding or sufficient funds are on deposit with the Trustee under the Indenture to redeem the Series 2002 Bonds and Series 2004 Bonds in full. The City covenants and agrees that all receipts from the Sales and Use Tax will be accounted for separately as special funds on the books of the City, and receipts of said Sales and Use Tax will be deposited and will be used solely as provided in the Indenture. Section 3: To prescribe the terms and conditions upon which the Series 2004 Bonds are to be executed, authenticated, issued, accepted, held and secured, the Mayor is hereby authorized and directed to execute and acknowledge the First Supplemental Indenture, and the City Clerk is hereby authorized and directed to execute and acknowledge the First Supplemental Indenture and to affix the seal of the City thereto, and the Mayor and the City Clerk are hereby authorized and directed to cause the First Supplemental Indenture to be accepted, executed and acknowledged by the Trustee. The First Supplemental Indenture is hereby approved in substantially the form submitted to this meeting, including, without limitation, the provisions thereof pertaining to the pledge of Sales and Use Tax receipts and the terms of the Series 2004 Bonds. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the First Supplemental Indenture in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the First Supplemental Indenture, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the First Supplemental Indenture in substantially the form authorized to be executed is on file with the City Clerk and is available for inspection by any interested person.) Section 4: There is hereby authorized and approved a Preliminary Official Statement of the City, including the cover page and appendices attached thereto, relating to the Series 2004 Bonds. The Preliminary Official Statement is hereby "deemed final' by the City within the meaning of U.S. Securities and Exchange Commission Rule 15c2-12. The distribution of the Preliminary Official Statement is hereby approved. The Preliminary Official Statement, as F amended to conform to the terms of the Bond Purchase Agreement, including Exhibit A thereto, and with such other changes and amendments as are mutually agreed to by the City and the Underwriter, is herein referred to as the "Official Statement," and the Mayor is hereby authorized to execute the Official Statement for and on behalf of the City. The Official Statement is hereby approved in substantially the form of the Preliminary Official Statement submitted to this meeting, and the Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Official Statement in substantially the form of the Preliminary Official Statement submitted to this meeting, with such changes as shall be approved by such persons, the Mayor's execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Preliminary Official Statement is on file with the City Clerk and is available for inspection by any interested person.) Section 5: In order to prescribe the terms and conditions upon which the Series 2004 Bonds are to be sold to the Underwriter, the Mayor is hereby authorized and directed to execute a Bond Purchase Agreement on behalf of the City, to be dated as of the date of its execution (the "Bond Purchase Agreement"), by and between the City and the Underwriter, and the Bond Purchase Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Underwriter and Bond Counsel in order to complete the Bond Purchase Agreement in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Bond Purchase Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Bond Purchase Agreement in substantially the form authorized to be executed is on file with the City Clerk and is available for inspection by any interested person.) Section 6: In order to provide for continuing disclosure of certain financial and operating information with respect to the Sales and Use Tax and the City in compliance with the provisions of Rule 15c2-12 of the U. S. Securities and Exchange Commission, the Mayor is hereby authorized and directed to execute a Continuing Disclosure Agreement to be dated as of the date of its execution (the "Continuing Disclosure Agreement"), by and between the City and the Trustee, and the Mayor is hereby authorized and directed to cause the Continuing Disclosure Agreement to be executed by the Trustee. The Continuing Disclosure Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Continuing Disclosure Agreement in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Continuing Disclosure Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Continuing Disclosure Agreement in substantially the form authorized to be executed is on file with the City Clerk and is available for inspection by any interested person.) Section 7: 1n order to secure lower interest rates on the Series 2004 Bonds, the Underwriter has proposed that the City consider the purchase of a policy of bond insurance with a portion of the proceeds of the Series 2004 Bonds, which policy would guarantee the payment 13 • 0 of the principal of and interest on the Series 2004 Bonds when due. If deemed economically advantageous by the Mayor, upon the advice of the Underwriter, the Mayor is hereby authorized to execute an insurance commitment and to do any and all things necessary to accomplish the delivery of a bond insurance policy with respect to the Series 2004 Bonds. Section 8: The Mayor and City Clerk, for and on behalf of the City, are hereby authorized and directed to do any and all things necessary to effect the issuance, sale, execution and delivery of the Series 2004 Bonds and to effect the execution and delivery of the First Supplemental Indenture, the Bond Purchase Agreement, the Official Statement, the Continuing Disclosure Agreement and a Tax Regulatory Agreement relating to the tax exemption of interest on the Series 2004 Bonds, and to perform all of the obligations of the City under and pursuant thereto. The Mayor and the City Clerk are further authorized and directed, for and on behalf of the City, to execute all papers, documents, certificates and other instruments that may be required for the carrying out of such authority or to evidence the exercise thereof. Section 9: Kutak Rock LLP, Little Rock, Arkansas, is hereby appointed to act as Bond Counsel on behalf of the City in connection with the issuance and sale of the Series 2004 Bonds. Section 10: The provisions of this Ordinance are hereby declared to be severable, and if any section, phrase or provision shall for any reason be declared to be illegal or invalid, such declaration shall not affect the validity of the remainder of the sections, phrases or provisions of this Ordinance. Section 11: All ordinances, resolutions and parts thereof in conflict herewith are hereby repealed to the extent of such conflict. PASSED and APPROVED this 5`h day of October, 2004. FAYETTEVILLE; - By: ATTEST: By:Qy� SONDRA SMITH, City Clerk NAME OF FILE: Ordinance No. 4624 CROSS REFERENCE: Item # Date Document 1 09/17/04 memo to mayor & City Council 2 draft ordinance 3 Staff Review 4 draft copy of Bond Purchase Agreement 5 draft copy of Ex. A Maturity Schedule draft copy of Ex. B Proposed Form of Bond Counsel 6 approving Opinion draft copy of Ex. C Proposed Form of Bond Counsel 7 Supplemental Opinion 8 draft copy of Continuing Disclosure Agreement draft copy of Ex. A Notice to Repositiories regarding 9 Financial Information draft copy of Ex. B List of National Recognized Municipal Securities Information Repositories at the time of execution and delivery of the Continuing Disclosure Agreement 10 11 draft copy of First Supplemental Trust Indenture 12 draft copy of Ex. A. to First Supplemental Trust Indenture draft copy of Preliminary Official Statement Dated October 13 2004. draft copy of Appendix A Proposed Form of Bond Counsel 14 Opinion draft copy of First Supplemental Trust Indenture dated May 15 112004 draft copy of Preliminary Official Statement Dated April 16 2004. draft copy of Bond Purchase Agreement Dated April 17 2004 draft copy of Escrow Deposit Agreement Dated May 18 2004 19 draft copy of Continuing Disclosure Agreement 20 Affidavit of Publication 21 memo to Steve Davis 22 copy of letter to Gordon Wilbourn w/attachments 23 24 25 NOTES: y'Ferl le DEPARTMENTAL CORRESPONDENCE TO: Mayor Dan Coody and Department Directors &%s d/P THROUGH: Hugh Earnest, Chief Administrative Officer �, FROM: Steve Davis, Finance & Internal Services Direct°4+��y`^ DATE: September 17, 2004 SUBJECT: 2004 Sales & Use Bond Issue (WSIP) Recommendation Staff recommends City Council adopt an ordinance that authorizes the issue of up -to $35 million of Sales and Use Tax Capital Improvement Bonds, Series 2004 (2004 Bond Issue) with an all -in financing cost not -to -exceed 3%. The debt service for the 2004 Bond Issue to be paid for with proceeds from the Y4% sales and use tax approved by the voters on November 6, 2001. Discussion The City issued $25 million in Sales Tax Bonds to fund initial expenses for engineering and right-of- way acquisition for the wastewater system improvement project (WSIP). The original maturity for the Sales and Use Tax Capital Improvement Bonds, Series 2002 (2002 Bonds) was on orbefore June 15 2007. The 2002 Bonds contained a mandatory redemption provision which requires that all sales tax proceeds be used to pay principal after the semi-annual interest payments requirement has been met. Based on the City's growth in sales tax over the past two+ years, the Trustee is predicted to have sufficient revenues to fully pay the 2002 Bond Issue in December, 2004. Once the Trustee receives enough money to pay the 2002 Bonds the Trustee must notify to State to stop collection of the sales tax. In order to continue the 1/a% sales and use tax, the City must have debt outstanding. This 2004 Bond Issue will secure this voter approved sales tax to provide funds to complete the project. The Wastewater System Improvement Project is on schedule and on budget. The Arkansas Soil & Water Conservation Commission (ASWCC) must issue a finding of no significant environmental issue (FONSI) permit before the City can begin advertising for construction bids on the WSIP Project. It is expected that the ASWCC will issue a FONSI on the east line work in the very near future. This $35 million 2004 bond issue will reduce the loan proceeds needed from ASWCC from $100 million to no -less -than $65 million. These funds, along with the loan from ASWCC, will be used over the next 24-36 months to pay all of the construction cost of the WSIP. Budget Impact This action does not impact the project budget for the $125 million Wastewater System Improvements Project, it realigns the project funding between the ASWCC revolving loan program and the market based bond market. Financing costs for the blended the revolving loan program and market based bond issues remain f3% for this project. KUTAK ROCK LLP DRAFT 09/17/04 ORDINANCE NO. AN ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF NOT TO EXCEED $35,000,000 OF SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004, BY THE CITY OF FAYETTEVILLE, ARKANSAS FOR THE PURPOSE OF FINANCING A PORTION OF THE COST OF IMPROVEMENTS TO THE CITY'S WASTEWATER TREATMENT, SEWERAGE AND RELATED FACILITIES; AUTHORIZING THE EXECUTION AND DELIVERY OF A SUPPLEMENTAL TRUST INDENTURE PURSUANT TO WHICH THE SERIES 2004 BONDS WILL BE ISSUED AND SECURED; AUTHORIZING THE EXECUTION AND DELIVERY OF AN OFFICIAL STATEMENT PURSUANT TO WHICH THE SERIES 2004 BONDS WILL BE OFFERED; AUTHORIZING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT PROVIDING FOR THE SALE OF THE SERIES 2004 BONDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE AGREEMENT; AND PRESCRIBING OTHER MATTERS RELATING THERETO. WHEREAS, the City Council of the City of Fayetteville, Arkansas (the "City") has determined that there is a great need for a source of revenue to finance the costs of acquisition, construction, reconstruction, extension, improving and equipping of wastewater treatment plants, sewerage and related facilities (the "Project"); and WHEREAS, the City is authorized and empowered under the provisions of the Constitution and laws of the State of Arkansas, including particularly Amendment 62 to the Constitution of the State of Arkansas ("Amendment 62") and Arkansas Code Annotated (1998 Repl. & 2003 Supp.) Sections 14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), to issue and sell its capital improvement bonds to finance the costs of various capital improvements such as those comprising the Project, which capital improvement bonds may be secured by and payable from the receipts of the special city-wide sales and use tax authorized by the Local Government Bond Act; and WHEREAS, pursuant to the provisions of Ordinance No. 4327 of the City, adopted and approved on August 7, 2001 (the "Election Ordinance"), there was submitted to the qualified electors of the City the question of the issuance of not to exceed $125,000,000 in aggregate principal amount of capital improvement bonds pursuant to Amendment 62 and the Local Government Bond Act to finance the Project improvements described in the Election Ordinance, said bonds to be secured by a pledge of and lien upon all of the receipts of a special city-wide sales and use tax levied at the rate of three-quarters of one percent (0.75%) pursuant to the Local Government Bond Act (the "Sales and Use Tax"); and WHEREAS, at a special election held November 6, 2001, a majority of the qualified electors of the City voting on the question approved the issuance of said capital improvement 10-66929.1 bonds (and the corresponding levy of the Sales and Use Tax and the pledge of Sales and Use Tax receipts to the payment of the capital improvement bonds); and WHEREAS, pursuant to such authority, the City has previously issued its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), in order to provide for the funding of initial portions of the Project; and WHEREAS, as authorized under the provisions of Amendment 62 and the Local Government Bond Act and as approved by the qualified electors of the City, the City has now determined to issue and sell its Sales and Use Tax Capital Improvement Bonds, Series 2004, in the principal amount of not to exceed $35,000,000 (the "Series 2004 Bonds"), in order to provide additional funding for portions of the Project; and WHEREAS, the Series 2004 Bonds will be issued and secured by the Sales and Use Tax receipts on a parity basis with the Series 2002 Bonds; and WHEREAS, the City has made arrangements for the sale of the Series 2004 Bonds to Stephens Inc., Fayetteville, Arkansas (the "Underwriter"), pursuant to the terms of a Bond Purchase Agreement between the City and the Underwriter (the "Bond Purchase Agreement") in substantially the form presented to and before this meeting; NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Fayetteville, Arkansas that: Section 1. Under the authority of the Constitution and laws of the State of Arkansas, including particularly Amendment 62 to the Constitution of the State of Arkansas and the Local Government Bond Act, there is hereby authorized the issuance of bonds of the City to be designated as "Sales and Use Tax Capital Improvement Bonds, Series 2004" (the "Series 2004 Bonds"). The Series 2004 Bonds shall be issued in the original aggregate principal amount of not to exceed Thirty -Five Million Dollars ($35,000,000), shall mature not later than December 31, 2009, and shall bear interest at the rates specified in the Bond Purchase Agreement. The all inclusive cost of the Series 2004 Bonds to the City, including the interest rates bome by the Series 2004 Bonds and the costs of issuance and any bond insurance premium funded with proceeds of the Series 2004 Bonds, will not exceed 3.00%. The proceeds of the Series 2004 Bonds will be utilized to finance a portion of the cost of the acquisition, construction, reconstruction, extension, improving and equipping of the Project, to establish a debt service reserve for the Series 2004 Bonds or purchase a surety bond for reserve purposes, to pay a premium for bond insurance, if deemed economically beneficial, and to pay printing, underwriting, legal and other expenses incidental to the issuance of the Series 2004 Bonds. The Series 2004 Bonds shall be issued in the forms and denominations, shall be dated, shall be numbered, shall mature, shall be subject to redemption prior to maturity, and shall contain such other terms, covenants and conditions, all as set forth in that certain Trust Indenture dated as of June 1, 2002 (the "Original Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Trust Indenture (the "First Supplemental Indenture," and together with the Original Indenture, the "Indenture") to be entered into by the City and the Trustee in substantially the form submitted to this meeting. 10-66929.1 2 The Mayor is hereby authorized and directed to execute and deliver the Series 2004 Bonds in one or more series, each series to be in substantially the form thereof contained in the First Supplemental Indenture submitted to this meeting, and the City Clerk is hereby authorized and directed to execute and deliver the Series 2004 Bonds and to affix the seal of the City thereto, and the Mayor and City Clerk are hereby authorized and directed to cause the Series 2004 Bonds to be accepted and authenticated by the Trustee. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Kutak Rock LLP, Little Rock, Arkansas ("Bond Counsel'), in order to complete the Series 2004 Bonds in substantially the form contained in the First Supplemental Indenture submitted to this meeting, with such changes as shall be approved by such persons executing the Series 2004 Bonds, their execution to constitute conclusive evidence of such approval. Section 2. In order to pay the principal of and interest on the Series 2004 Bonds as they mature or are called for redemption prior to maturity, there is hereby pledged all of the receipts of the Sales and Use Tax levied by the Election Ordinance. As permitted under the Indenture, such pledge is made on a parity basis with the existing pledge of receipts of the Sales and Use Tax securing the payment of the Series 2002 Bonds. The levy and collection of the Sales and Use Tax shall continue until such time as the Series 2002 Bonds and Series 2004 Bonds are no longer outstanding or sufficient funds are on deposit with the Trustee under the Indenture to redeem the Series 2002 Bonds and Series 2004 Bonds in full. The City covenants and agrees that all receipts from the Sales and Use Tax will be accounted for separately as special funds on the books of the City, and receipts of said Sales and Use Tax will be deposited and will be used solely as provided in the Indenture. Section 3. To prescribe the terms and conditions upon which the Series 2004 Bonds are to be executed, authenticated, issued, accepted, held and secured, the Mayor is hereby authorized and directed to execute and acknowledge the First Supplemental Indenture, and the City Clerk is hereby authorized and directed to execute and acknowledge the First Supplemental Indenture and to affix the seal of the City thereto, and the Mayor and the City Clerk are hereby authorized and directed to cause the First Supplemental Indenture to be accepted, executed and acknowledged by the Trustee. The First Supplemental Indenture is hereby approved in substantially the form submitted to this meeting, including, without limitation, the provisions thereof pertaining to the pledge of Sales and Use Tax receipts and the terms of the Series 2004 Bonds. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the First Supplemental Indenture in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the First Supplemental Indenture, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the First Supplemental Indenture in substantially the form authorized to be executed is on file with the City Clerk and is available for inspection by any interested person.) Section 4. There is hereby authorized and approved a Preliminary Official Statement of the City, including the cover page and appendices attached thereto, relating to the Series 2004 Bonds. The Preliminary Official Statement is hereby "deemed final' by the City within the meaning of U.S. Securities and Exchange Commission Rule 15c2-12. The distribution of the Preliminary Official Statement is hereby approved. The Preliminary Official Statement, as 10-66929.1 3 amended to conform to the terms of the Bond Purchase Agreement, including Exhibit A thereto, and with such other changes and amendments as are mutually agreed to by the City and the Underwriter, is herein referred to as the "Official Statement," and the Mayor is hereby authorized to execute the Official Statement for and on behalf of the City. The Official Statement is hereby approved in substantially the form of the Preliminary Official Statement submitted to this meeting, and the Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Official Statement in substantially the form of the Preliminary Official Statement submitted to this meeting, with such changes as shall be approved by such persons, the Mayor's execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Preliminary Official Statement is on file with the City Clerk and is available for inspection by any interested person.) Section 5. In order to prescribe the terms and conditions upon which the Series 2004 Bonds are to be sold to the Underwriter, the Mayor is hereby authorized and directed to execute a Bond Purchase Agreement on behalf of the City, to be dated as of the date of its execution (the "Bond Purchase Agreement"), by and between the City and the Underwriter, and the Bond Purchase Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Underwriter and Bond Counsel in order to complete the Bond Purchase Agreement in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Bond Purchase Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Bond Purchase Agreement in substantially the form authorized to be executed is on file with the City Clerk and is available for inspection by any interested person.) Section 6. In order to provide for continuing disclosure of certain financial and operating information with respect to the Sales and Use Tax and the City in compliance with the provisions of Rule 15c2-12 of the U. S. Securities and Exchange Commission, the Mayor is hereby authorized and directed to execute a Continuing Disclosure Agreement to be dated as of the date of its execution (the "Continuing Disclosure Agreement"), by and between the City and the Trustee, and the Mayor is hereby authorized and directed to cause the Continuing Disclosure Agreement to be executed by the Trustee. The Continuing Disclosure Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Continuing Disclosure Agreement in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Continuing Disclosure Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Continuing Disclosure Agreement in substantially the form authorized to be executed is on file with the City Clerk and is.available for inspection by any interested person.) Section 7. In order to secure lower interest rates on the Series 2004 Bonds, the Underwriter has proposed that the City consider the purchase of a policy of bond insurance with a portion of the proceeds of the Series 2004 Bonds, which policy would guarantee the payment 10-66929.1 4 of the principal of and interest on the Series 2004 Bonds when due. If deemed economically advantageous by the Mayor, upon the advice of the Underwriter, the Mayor is hereby authorized to execute an insurance commitment and to do any and all things necessary to accomplish the delivery of a bond insurance policy with respect to the Series 2004 Bonds. Section H. The Mayor and City Clerk, for and on behalf of the City, are hereby authorized and directed to do any and all things necessary to effect the issuance, sale, execution and delivery of the Series 2004 Bonds and to effect the execution and delivery of, the First Supplemental Indenture, the Bond Purchase Agreement, the Official Statement, the Continuing Disclosure Agreement and a Tax Regulatory Agreement relating to the tax exemption of interest on the Series 2004 Bonds, and to perform all of the obligations of the City under and pursuant thereto. The Mayor and the City Clerk are further authorized and directed, for and on behalf of the City, to execute all papers, documents, certificates and other instruments that may be required for the carrying out of such authority or to evidence the exercise thereof. Section 9. Kutak Rock LLP, Little Rock, Arkansas, is hereby appointed to act as Bond Counsel on behalf of the City in connection with the issuance and sale of the Series 2004 Bonds. Section 10. The provisions of this Ordinance are hereby declared to be severable, and if any section, phrase or provision shall for any reason be declared to be illegal or invalid, such declaration shall not affect the validity of the remainder of the sections, phrases or provisions of this Ordinance. Section 11. All ordinances, resolutions and parts thereof in conflict herewith are hereby repealed to the extent of such conflict. ADOPTED AND APPROVED THIS DAY OF , 2004. ATTEST: City Clerk (SEAL) APPROVED: Mayor 10-66929.1 W STAFF REVIEW FORM - NON -FINANCIAL OBLIGATION XX AGENDA REQUEST For the Fayetteville City Council Meeting of: October 5, 2004 FROM: Stephen Davis Finance & Internal Services Name Division Department ACTION REQUIRED: City Council approval of an ordinance authorizing the issuance of $35 million Sales tax Capital Improvements Bonds, Series 2004 for the Wastewater System Improvements Project at an all -in interest cost of 3% or less. SUMMARY EXPLANATION: This ordinance authorizes the Mayor and City Clerk to sign bond issue documents for a Sales and Use Tax Capital Improvement Bond, Series 2004. STAFF RECOMMENDATION: Approve the Ordinance. Received in Mayor's Office / / O O Division Head - Date Date I 9 Zo -atf /Date ' y Attorney Cross Reference: Department Director Date Previous Ord/Res#: d/ r Finance & Internal Services Dir. Date Orig. Contract Date: U' Orig. Contract Number: Chief inistratiiv1e Officer Date i, � [ New Item: Yes No Mayor I I BOND PURCHASE AGREEMENT [November] _, 2004 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2004 Ladies and Gentlemen: KUTAK ROCK LLP DRAFT 10/05/04 On the basis of the representations, warranties and agreements and upon the terms and conditions contained herein, the undersigned, Stephens Inc. (the "Underwriter"), hereby offers to enter into this Bond Purchase Agreement (this "Bond Purchase Agreement") with the City of Fayetteville, Arkansas (the "City") which, upon your acceptance of this offer, will be binding upon you and upon the Underwriter. Terms not otherwise defined herein shall have the same meanings as set forth in the Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on [November] _, 2004. 1. General. Upon the terms and conditions and in reliance upon the respective representations, warranties and covenants herein, the Underwriter hereby agrees to purchase from the City, and the City hereby agrees to sell to the Underwriter, all (but not less than all) of $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), at the purchase price (the "Purchase Price") of $ (equal to the par amount of the Series 2004 Bonds plus an offering premium of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2004, to the Closing Date (hereinafter defined). The Series 2004 Bonds shall be issued by the City pursuant to the provisions of the Constitution and laws of the State of Arkansas, including, particularly, Amendment 62 to the Constitution and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14-164-301 et seq. (the "Act"). The Series 2004 Bonds will constitute special and limited obligations of the City, secured solely by and payable solely from (1) a pledge of and lien on the receipts from a three-quarters of one percent (0.75%) city-wide sales and use tax (the "Sales and Use Tax") authorized under the Act and levied within the City pursuant to Ordinance No. 4327 of the City Council of the City which was adopted on August 7, 2001 (the "Election Ordinance"), which levy was approved by the voters of the City at a special election held November 6, 2001, and (2) moneys on deposit in I0-67123.2 the Revenue Fund, Bond Fund and the Debt Service Reserve Fund established by a Trust Indenture to be dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), all as more particularly described in the Indenture. The Series 2004 Bonds shall be issued and secured on a parity basis with the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"). The Series 2004 Bonds shall be issued and secured pursuant to Ordinance No. _ of the City Council of the City which was adopted on October , 2004 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2004 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2004 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). The proceeds of the Series 2004 Bonds will be utilized (i) to finance a portion of the costs of the Project (as defined in the Indenture), (ii) to fund a debt service reserve, and (iii) to pay the costs of issuance of the Series 2004 Bonds. The City will undertake, pursuant to a Continuing Disclosure Agreement to be dated as of the date of delivery of the Series 2004 Bonds (the "Continuing Disclosure Agreement"), to provide certain annual financial and operating information and notices of the occurrence of certain events, if material, as required by Section (b)(5)(i) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (the "Rule"). A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement (each hereinafter defined). The City is not in default with respect to any of its obligations under previous undertakings pursuant to the Rule. In order to ensure compliance with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the City will enter into a Tax Regulatory Agreement to be dated as of the date of delivery of the Series 2004 Bonds (the "Tax Regulatory Agreement"). 2. Bona Fide Public Offering. The Underwriter agrees to make a bona fide public offering of all of the Series 2004 Bonds at the offering prices set forth on the cover of the final Official Statement described below. 3. Delivery of Official Statement. (a) The City has previously provided the Underwriter with copies of its Preliminary Official Statement, including the cover page and the appendices thereto, dated October _, 2004, relating to the Series 2004 Bonds (the "Preliminary Official Statement"). As of its date, the Preliminary Official Statement is "deemed final" by the City for purposes of SEC Rule 15c2-12(b)(1). The Preliminary Official Statement, as amended to conform to the terms of this Bond Purchase Agreement, including Exhibit A hereto, and with such other changes and amendments as are mutually agreed to by the City and the Underwriter, is herein referred to as the "Official Statement." (b) The City agrees to deliver to the Underwriter, at such address as the Underwriter shall specify, as many copies of the final Official Statement dated 2 10-67123.2 [November] _, 2004, relating to the Series 2004 Bonds as the Underwriter shall reasonably request as necessary to comply with paragraph (b)(4) of the Rule (as defined above) and with Rule G-32 and all other applicable rules of the Municipal Securities Rulemaking Board. The City agrees to deliver such final Official Statement within seven (7) business days after the execution hereof. (c) The City hereby authorizes and approves the Preliminary Official Statement and the final Official Statement, consents to their distribution and use by the Underwriter and authorizes the execution of the final Official Statement by a duly authorized officer of the City. (d) The Underwriter shall give notice to the City on the date after which no participating underwriter, as such term is defined in the Rule, remains obligated to deliver final Official Statements pursuant to paragraph (b)(4) of the Rule. 4. City's Representation and Warranties. The City represents and warrants to the Underwriter that: (a) The City is a duly organized and existing political subdivision under the Constitution and laws of the State of Arkansas (the "State"). The City is authorized by the provisions of the Act to issue the Series 2004 Bonds for the purpose of financing a portion of the Project. (b) The City has the full legal right, power and authority (i) to adopt. the Election Ordinance levying the Sales and Use Tax, (ii) to adopt the Authorizing Ordinance authorizing the issuance of and sale of the Series 2004 Bonds, (iii) to enter into this Bond Purchase Agreement, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, (iv) to levy the Sales and Use Tax, (v) to issue, sell and deliver the Series 2004 Bonds to the Underwriter as provided herein, (vi) to pledge irrevocably the receipts of the Sales and Use Tax to the payment of the principal of, premium, if any, and interest on the Series 2002 Bonds and the Series 2004 Bonds, and (vii) to carry out and consummate all other transactions contemplated by each of the aforesaid documents, and the City has complied with all provisions of applicable law, including the Act, in all matters relating to such transactions. (c) The City has duly authorized (i) the execution and delivery of the Series 2004 Bonds and the execution, delivery and due performance of this Bond Purchase Agreement, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, (ii) the distribution and use of the Preliminary Official Statement and the execution, delivery and distribution of the final Official Statement, and (iii) the taking of any and all such actions as may be required on the part of the City to carry out, give effect to and consummate the transactions contemplated by such instruments. All consents or approvals necessary to be obtained by the City in connection with the foregoing have been received, and the consents or approvals so received remain still in full force and effect. 3 10-67123.2 (d) The Election Ordinance and the Authorizing Ordinance have been duly adopted by City Council of the City, are each in full force and effect and each constitutes the legal, valid and binding act of the City; and this Bond Purchase Agreement, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, when executed and delivered, will constitute legal, valid and binding obligations of the City, and this Bond Purchase Agreement, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement are enforceable against the City in accordance with their respective terms, except as enforceability thereof may be limited by bankruptcy, insolvency or other laws affecting creditors' rights generally. (e) When delivered to or at the direction of the Underwriter, the Series 2004 Bonds will have been duly authorized, executed, authenticated, issued and delivered and will constitute legal, valid and binding obligations of the City in conformity with the laws of the State of Arkansas, including the Act, and will be entitled to the benefit and security of the Authorizing Ordinance and the Indenture. (f) The City has duly approved and authorized the distribution and use of the Preliminary Official Statement and the execution, delivery and distribution of the Official Statement. (g) The information contained in the Preliminary Official Statement is, and as of the Closing Date such information in the final Official Statement will be, true and correct in all material respects, and the Preliminary Official Statement does not and the final Official Statement will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (h) If, at any time prior to the earlier of (i) receipt of notice from the Underwriter pursuant to Section 3(d) hereof that Official Statements are no longer required to be delivered under the Rule or (ii) 25 days after the Closing Date, any event occurs as a result of which the Official Statement, as then amended or supplemented, might include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the City shall promptly notify the Underwriter in writing of such event. Any information supplied by the City for inclusion in any amendments or supplements to the Official Statement will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Upon the request of the Underwriter therefor, the City shall prepare and deliver to the Underwriter, at the City's expense, as many copies of an amendment or supplement to the Official Statement which will correct any untrue statement or omission therein as the Underwriter may reasonably request. (i) Neither the adoption of the Authorizing Ordinance or the Election Ordinance, the execution and delivery of this Bond Purchase Agreement, the Series 2004 Bonds, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement or 4 10-67123.2 the Tax Regulatory Agreement, nor the consummation of the transactions contemplated herein or therein or the compliance with the provisions hereof or thereof will conflict with, or constitute on the part of the City a violation of, or a breach of or default under, (i) any statute, indenture, mortgage, commitment, note or other agreement or instrument to which the City is a party or by which it is bound, (ii) any provision of the Constitution of the State of Arkansas, or (iii) any existing law, rule, regulation, ordinance, judgment, order or decree to which the City (or the members of its City Council or any of its officers in their respective capacities as such) is subject. All consents, approvals, authorizations and orders of governmental or regulatory authorities, if any, which are required for the City's execution and delivery of, consummation of the transactions contemplated by, and compliance with the provisions of this Bond Purchase Agreement, the Authorizing Ordinance, the Election Ordinance, the Series 2004 Bonds, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 0) The City has never been in default at any time as to the payment of principal of or interest on any obligation which it has issued, including those which it has issued as a conduit for another entity, except as specifically disclosed in the Official Statement. (k) Except as is specifically disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, pending or, to the best knowledge of the City, threatened, which in any way questions the powers of the City referred to in subparagraph 4(b) above, or the validity of any proceeding taken by the City in connection with the issuance of the Series 2004 Bonds or the levy of the Sales and Use Tax, or wherein an unfavorable decision, ruling or finding could materially adversely affect the transactions contemplated by this Bond Purchase Agreement, or of any other document or instrument required or contemplated by the Series 2004 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2004 Bonds, the Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement or, to the knowledge of the City, which in any way questions the exclusion from gross income of the recipients thereof of the interest on the Series 2002 Bonds or the Series 2004 Bonds for federal income tax purposes or in any other way questions the status of the Series 2002 Bonds or the Series 2004 Bonds under federal or State of Arkansas tax laws or regulations. (1) Any certificate signed by any official of the City and delivered to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the truth of the statements therein contained. (m) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. 5 10-67123.2 (n) The collection history with respect to the Sales and Use Tax set forth in the Preliminary Official Statement under the caption entitled "HISTORICAL SALES AND USE TAX COLLECTIONS" is fair, accurate and complete. (o) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2004 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2004 Bonds to be includable in gross income for federal income tax purposes. 5. City's Covenants. The City covenants with the Underwriter as follows: (a) The City will cooperate with the Underwriter in qualifying the Series 2004 Bonds for offer and sale under the securities or Blue Sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that the City shall not be required to consent to suit or to service of process in any jurisdiction. The City consents to the use by the Underwriter in the course of its compliance with the securities or Blue Sky laws of the various jurisdictions of the documents relating to the Series 2004 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. (b) Prior to the earlier of (i) receipt of notice from the Underwriter pursuant to Section 3(d) hereof that final Official Statements are no longer required under the Rule or (ii) 25 days after the Closing Date, the City shall provide the Underwriter with such information regarding the City, Sales and Use Tax receipts, and the current financial condition and ongoing operations of the City, all as the Underwriter may reasonably request. 6. Closing. At 10:00 a.m. Fayetteville, Arkansas time on November 10, 2004, or at such other time and/or date as shall have been mutually agreed upon by the City and the Underwriter (the "Closing Date"), the City will deliver the Series 2004 Bonds, or cause the Series 2004 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2004 Bonds to be in definitive form duly executed by the City and authenticated by Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), together with the other documents hereinafter mentioned; and the Underwriter will accept such delivery and pay the Purchase Price of the Series 2004 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2004 Bonds shall be delivered to The Depository Trust Company in New York, New York, and the activities relating to the final execution and delivery of the Authorizing Ordinance, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2004 Bonds and the payment for the Series 2004 Bonds and the delivery of the certificates, opinions and other instruments as described in Section 8 of this Bond Purchase Agreement shall occur in the offices of Kutak Rock LLP, 425 West Capitol Avenue, Suite 1100, Little Rock, Arkansas ("Bond Counsel"), or at such other place as shall have been mutually agreed upon between the City and the Underwriter. The payment for the Series 2004 Bonds and simultaneous 6 10-67123.2 delivery of the Series 2004 Bonds to or at the direction of the Underwriter is herein referred to as the "Closing." 7. Underwriter's Right to Cancel. The Underwriter shall have the right to cancel its obligation to purchase the Series 2004 Bonds hereunder by notifying the City in writing or by telegram of its election to do so between the date hereof and the Closing, if at any time hereafter and prior to the Closing: (i) the House of Representatives or the Senate of the Congress of the United States, or a committee of either, shall have pending before it, or shall have passed or recommended favorably, legislation introduced previous to the date hereof, which legislation, if enacted in its form as introduced or as amended, would have the purpose or effect of imposing federal income taxation upon revenues or other income of the general character to be derived by the City or by any similar body under the Authorizing Ordinance or the Indenture or similar documents or upon interest received on obligations of the general character of the Series 2004 Bonds or the Series 2004 Bonds, or of causing interest on obligations of the general character of the Series 2004 Bonds, or the Series 2004 Bonds, to be includable in gross income for purposes of federal income taxation, and such legislation, in the Underwriter's opinion, materially adversely affects the market price of the Series 2004 Bonds; or (ii) a tentative decision with respect to legislation shall be reached by a committee of the House of Representatives or the Senate of the Congress of the United States, or legislation shall be favorably reported or rereported by such a committee or be introduced, by amendment or otherwise, in or be passed by the House of Representatives or the Senate, or recommended to the Congress of the United States for passage by the President of the United States, or be enacted or a decision by a federal court of the United States or the United States Tax Court shall have been rendered, or a ruling, release, order, regulation or official statement by or on behalf of the United States Treasury Department, the Internal Revenue Service or other governmental agency shall have been made or proposed to be made having the purpose or effect, or any other action or event shall have occurred which has the purpose or effect, directly or indirectly, of adversely affecting the federal income tax consequences of owning the Series 2004 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2004 Bonds to be included in gross income for purposes of federal income taxation, or imposing federal income taxation upon revenues or other income of the general character to be derived by the City or by any similar body under the Authorizing Ordinance or the Indenture or similar documents or upon interest received on obligations of the general character of the Series 2004 Bonds, or the Series 2004 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2004 Bonds; or (iii) legislation shall have been enacted, or actively considered for enactment with an effective date prior to the Closing, or a decision by a court of the United States shall have been rendered, the effect of which is that the Series 2004 Bonds, including any underlying obligations, or the Indenture, as the case may be, is not exempt from the registration, qualification or other requirements of the Securities Exchange Act of 1933, as 7 10-67123.2 amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (iv) a stop order, ruling, regulation or official statement by the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall have been issued or made or any other event occurs, the effect of which is that the issuance, offering or sale of the Series 2004 Bonds, including any underlying obligations, or the execution and delivery of the Indenture as contemplated hereby or by the Official Statement, is or would be in violation of any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (v) any event shall have occurred or any information shall have become known to the Underwriter which causes the Underwriter to reasonably believe that the Official Statement as then amended or supplemented includes an untrue statement of a material fact, or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; or (vi) there shall have occurred any outbreak of hostilities or any national or international calamity or crisis, including a financial crisis, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would materially adversely affect the market for or market price of the Series 2004 Bonds; or (vii) there shall be in force a general suspension of trading on the New York Stock Exchange, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would materially adversely affect the market for or market price of the Series 2004 Bonds; or (viii) a general banking moratorium shall have been declared by federal, New York or State authorities; or (ix) any proceeding shall be pending or threatened by the Securities and Exchange Commission against the City; or (x) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; or (xi) the New York Stock Exchange or other national securities exchange, or any governmental authority, shall impose, as to the Series 2004 Bonds or obligations of the general character of the Series 2004 Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of the Underwriter. 8. Conditions to Underwriter's Obligations. The obligation of the Underwriter to purchase the Series 2004 Bonds shall be subject (a) to the performance by the City of its 8 10-67123.2 • obligations to be performed hereunder at and prior to the Closing, (b) to the accuracy of the representations and warranties of the City herein as of the date hereof and as of the time of the Closing, and (c) to the following conditions, including the delivery by the City of such documents as are enumerated herein in form and substance satisfactory to the Underwriter: (a) The Series 2004 Bonds shall have been duly authorized, executed and delivered in the forms approved by the City in the First Supplemental Trust Indenture with only such changes therein as the Underwriter and the City shall mutually agree upon, which shall in all instances be as described in the final Official Statement; (b) At the time of Closing, (i) the Official Statement, this Bond Purchase Agreement, the Indenture, the Authorizing Ordinance, the Election Ordinance, the Continuing Disclosure Agreement and the Tax Regulatory Agreement shall be in full force and effect and shall not have been amended, modified or supplemented from the date hereof, except as may have been agreed to in writing by the Underwriter, (ii) the proceeds of the sale of the Series 2004 Bonds and other funds shall be deposited and applied as described in the Indenture, (iii) no default or event of default under the Indenture shall have occurred and be continuing, and (iv) no material adverse change affecting the City or the Sales and Use Tax shall have occurred, nor shall any development involving a prospective and material adverse change in, or affecting the business, financial condition, results of operations, prospects or properties of the City have occurred; (c) Receipt of fully executed originals of the First Supplemental Trust Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement at or prior to the Closing; (d) At or prior to the Closing, the Underwriter shall receive the following documents in such number of counterparts as shall be mutually agreeable to the Underwriter and Bond Counsel: (1) A final approving opinion of Bond Counsel, dated the Closing Date, in substantially the form set forth in Exhibit B hereto; (2) A supplemental opinion of Bond Counsel, addressed to the City, the Trustee and the Underwriter and dated the Closing Date, in substantially the form set forth in Exhibit C hereto; (3) The Official Statement executed by a duly authorized officer of the City; (4) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2004 Bonds; (5) Photocopies of the Series 2004 Bonds as executed and delivered; (6) A letter from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2004 Bonds have 9 10-67123.2 L been assigned a rating of no less than " the Closing Date; ", which rating shall be in effect as of (7) The certificate of the Finance and Internal Services Director of the City described in Section 212 of the Indenture; (8) A certificate, in form and substance satisfactory to the Underwriter, of the Mayor of the City, dated as of the Closing Date, to the effect that: (i) each of the City's representations, warranties and covenants contained herein are true and correct as of the Closing Date; (ii) the City has duly adopted the Authorizing Ordinance by all action necessary under the Act and the laws and Constitution of the State of Arkansas, and has duly authorized the execution, delivery and due performance of the Series 2004 Bonds, the First Supplemental Trust Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement, the Official Statement and this Bond Purchase Agreement; (iii) no litigation is pending, or to his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2004 Bonds or in any way affecting any authority for or the validity of the Series 2002 Bonds, the Series 2004 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2004 Bonds, the First Supplemental Trust Indenture, this Bond Purchase Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, as executed and delivered by the City, are in the form or in substantially the form approved for such execution by appropriate proceedings of the City; (v) since December 31, 2003, there has not been any material adverse change in the financial condition or, results of operations of the City whether or not arising in the ordinary course of business, other than as set forth in the Official Statement; (vi) neither the Authorizing Ordinance nor the Election Ordinance have been amended, modified or repealed as of the Closing Date, and the Authorizing Ordinance and the Election Ordinance remain in full force and effect; (vii) none of the proceedings of the City taken preliminary to the issuance of the Series 2004 Bonds, as certified in such certificate, including the levy of the Sales and Use Tax, have been in any manner repealed, amended or changed; (viii) the City has complied in all respects with the provisions of the Act and has full legal right, power and authority to levy the Sales and Use Tax and to issue the Series 2004 Bonds for the purposes stated in the Act and to enter into this Bond Purchase Agreement, to adopt the Authorizing Ordinance and the Election Ordinance, to issue, sell and deliver the Series 2004 Bonds as provided in this Bond Purchase Agreement, and to carry out and consummate all other transactions contemplated by this Bond Purchase Agreement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Continuing Disclosure Agreement and the Tax Regulatory Agreement; (ix) neither the Official Statement nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading; (x) to the best of his knowledge, no event affecting 10-67123.2 • 9 the City or the Sales and Use Tax has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is used that is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; (xi) the City is not then in default in the performance of any of the covenants, conditions, agreements or provisions contained in the Indenture; and (xii) the City is current as to all required deposits to the funds and accounts described in Article V of the Indenture; (9) An opinion of Kit Williams, Esq., City Attorney, dated the Closing Date and addressed to the Underwriter, Bond Counsel and the Trustee, to the effect that (i) the City is a duly organized and validly existing political subdivision and city of the first class, organized under the laws of the State of Arkansas, with full power and authority to adopt the Authorizing Ordinance and Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Series 2004 Bonds, the Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement and this Bond Purchase Agreement; (ii) the City has duly approved the Preliminary Official Statement and the Official Statement; (iii) the Authorizing Ordinance and the Election Ordinance have been duly adopted by the City by all action necessary under the Act and the laws and Constitution of the State of Arkansas, and each remains in full force and effect; (iv) the Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement and this Bond Purchase Agreement have been duly authorized, approved, executed and delivered by the City and, subject to the extent that the enforceability of the rights and remedies set forth therein may be limited by bankruptcy, insolvency or other laws affecting creditors' rights generally, constitute valid and binding agreements of the City enforceable in accordance with their terms; (v) the information in the Official Statement under the captions "THE PROJECT," "THE CITY" and "LEGAL MATTERS" (apart from financial or statistical data contained or incorporated therein, as to which no view need be expressed) is fair, accurate and complete and does not omit any matter which, in such counsel's opinion, for the purposes for which the Official Statement is to be used, should be included or referred to therein; (vi) excepting those matters discussed in the Official Statement, there is no action, suit or proceeding at law or in equity before or by any court, public board or body, pending or threatened, against or affecting the City, challenging the validity of the transactions contemplated by the Official Statement or the validity of the Series 2004 Bonds, the Sales and Use Tax, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement and, to the best of such counsel's knowledge, there is no investigation, pending or threatened, and no threatened action, suit or proceeding involving any of the matters hereinabove mentioned in this clause (vi); (vii) the adoption of the Authorizing Ordinance, the Election Ordinance, and the execution and delivery of the Indenture, the Continuing Disclosure Agreement, the Tax Regulatory Agreement and this Bond Purchase Agreement, and compliance with the provisions hereof and thereof, under the circumstances contemplated hereby and thereby, do not and will not in any material respect conflict with or constitute on 11 10-67123.2 the part of the City a breach of or default under any agreement or other instrument to which the City is a party or any existing law, regulation, court order or consent decree to which the City is subject; and (viii) based upon the examinations which such counsel has made as counsel to the City, which shall be specified, nothing has come to such counsel's attention which would lead such counsel to believe that the Official Statement (except for the financial statements and other financial data included in the Official Statement, as to which no view need be expressed) contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (10) Evidence that Federal Form 8038-G has been executed by the City and is ready for filing with the Internal Revenue Service. (11) Evidence that, except as disclosed in the Official Statement, all necessary approvals, whether legal or administrative, have been obtained from applicable federal, state and local entities and agencies; and (12) Such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter and Bond Counsel may reasonably request to evidence compliance by the City with legal requirements, the truth and accuracy, as of the time of Closing, of the representations of the City herein contained and the due performance or satisfaction by the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied. If the City shall be unable to satisfy the conditions to the obligations of the Underwriter contained in this Bond Purchase Agreement, or if the obligation of the Underwriter to purchase and accept delivery of the Series 2004 Bonds shall be terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase Agreement shall terminate and neither the Underwriter nor the City shall be under further obligation hereunder; except that the respective obligations to pay expenses, as provided in Section 12 hereof, shall continue in full force and effect. 9. Conditions to Obligations of the City. The obligations of the City hereunder are subject to the performance by the Underwriter of its obligations hereunder. 10. Survival. All representations, warranties and agreements of the City shall remain operative and in full force and effect, regardless of any investigations made by or on behalf of the Underwriter, and shall survive the Closing. The obligations of the City under Sections 1 I or 12 hereof shall survive any termination of this Bond Purchase Agreement by the Underwriter pursuant to the terms hereof. 11. Indemnification. The City, to the extent permitted by law, agrees to indemnify and hold harmless the Underwriter, each member, officer, director, partner or employee of the Underwriter and each person who controls the Underwriter within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as 12 10-67123.2 amended (collectively called the "Indemnified Parties"), against any and all losses, claims, damages, liabilities or expenses (including any legal or other expenses incurred by an Indemnified Party in connection with investigating any claims against an Indemnified Party and defending any actions) whatsoever caused by any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in the Official Statement or caused by any omission or alleged omission from the Official Statement of any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue or misleading statement or omission or alleged untrue or misleading statement or omission in the information contained in the Official Statement; provided, however, that the City shall not be liable to an Indemnified Party in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with written information furnished to the City by the Underwriter specifically for use therein. No Indemnified Parties shall be indemnified hereunder for any losses, claims, damages or liabilities resulting from the negligence of such Indemnified Parties. 12. Payment of Expenses. The City will pay or cause to be paid all reasonable expenses incident to the performance of its obligations under this Bond Purchase Agreement, including, but not limited to, expenses of mailing or delivery of the Series 2004 Bonds, costs of printing the Series 2004 Bonds, the Preliminary and final Official Statements, any amendment or supplement to the Preliminary or final Official Statement and this Bond Purchase Agreement, fees and disbursements of Bond Counsel, any fees charged by investment rating agencies for the rating of the Series 2004 Bonds, bond insurance premiums, if any, fees of the Trustee and any paying agent fees, and any fees and disbursements in connection with the qualification of the Series 2004 Bonds for sale under the securities or "Blue Sky" laws of the various jurisdictions and the preparation of "Blue Sky" memoranda. In the event this Bond Purchase Agreement shall terminate because of the default of the Underwriter, the City will, nevertheless, pay, or cause to be paid, all of the expenses specified above. The Underwriter shall pay all advertising expenses in connection with the public offering of the Series 2004 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2004 Bonds, including the fees and expenses of any counsel retained by the Underwriter. If the City defaults under this Bond Purchase Agreement, the Underwriter may bring whatever legal action it may have against the City to recover damages, if any, incurred by the Underwriter. 13. Notices. Any notice or other communication to be given to the City under this Bond Purchase Agreement may be given by delivering the same in writing to the Mayor at the address set forth above, and any notice or other communication to be given to the Underwriter under this Bond Purchase Agreement may be given by delivering the same in writing to Stephens Inc., 3425 North Futrall, Suite 201, Fayetteville, AR 72703, Attention: Mr. Dennis Hunt. 14. ' Nonassignability. This Bond Purchase Agreement is made solely for the benefit of the City and the Underwriter (including any successor or assign of the Underwriter), and no other person, including any purchaser of the Series 2004 Bonds, shall acquire or have any right hereunder or by virtue hereof. 15. Applicable Law. This Bond Purchase Agreement shall be governed by and construed in accordance with the laws of the State of Arkansas. 16. Counterparts. This Bond Purchase Agreement shall become effective upon your acceptance hereof and may be executed in counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. Very truly yours, STEPHENS INC. By: Authorized Representative Accepted and agreed to as of the date first above written: CITY OF FAYETTEVILLE, ARKANSAS Title: Mayor 14 10-67I23.2 EXHIBIT A MATURITY SCHEDULE (December 1) Principal Interest Maturity Amount Rate Price 2005 $ % % 2006 % % 2007 % % 2008 % % 2009 % % (with accrued interest on all Bonds from November 1, 2004) 10-67123.2 A-1 EXHIBIT B PROPOSED FORM OF BOND COUNSEL APPROVING OPINION Upon delivery of the Bonds in definitive form, Kutak Rock LLP, Little Rock, Arkansas, proposes to deliver its approving opinion in substantially the following form: November , 2004 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas $3550005000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance and sale by the City of Fayetteville, Arkansas (the "City"), a political subdivision of the State of Arkansas, of its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Bonds"). The Bonds are being issued pursuant to the provisions of the Constitution and laws of the State of Arkansas, including, particularly, Amendment 62 and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14-164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. _ of the City, duly adopted and approved on October , 2004 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of June 1, 2002, as supplemented and amended by a First Supplemental Trust Indenture dated as of November 1, 2004 (as supplemented and amended, the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"). Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the conditions for the issuance of parity debt by the City, the nature and extent of the security for the Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Bonds, and the terms upon which the Bonds are issued and secured. Reference is made to an opinion of even date herewith of Kit Williams, Esq., City Attorney, a copy of which is on file with the Trustee, with respect, among other matters, to the status and valid existence of the City, the power of the City to adopt the Election Ordinance and the Authorizing Ordinance and to enter into and perform its obligations under the Indenture, the I0fi7123.2 B-1 • 9 valid adoption of the Election Ordinance and the Authorizing Ordinance, and the due authorization, execution and delivery of the Indenture by the City, and with respect to the Indenture being enforceable upon the City. We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the City contained in the Election Ordinance, the Authorizing Ordinance and the Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly created and validly existing as a municipal corporation of the State of Arkansas. Pursuant to the Constitution and laws of the State of Arkansas, including, particularly, Amendment 62 and the Act, the City is empowered to adopt the Election Ordinance and the Authorizing Ordinance, to execute and deliver the Indenture, to perform the agreements on its part contained therein, and to issue the Bonds. 2. The Authorizing Ordinance has been duly adopted by the City and constitutes a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 3. The Indenture has been duly authorized, executed and delivered by the City and is a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 4. The Bonds have been validly authorized, executed, issued and delivered by the City and represent valid and binding special obligations of the City. The principal, premium, if any, and interest on the Bonds shall be payable from, and shall be secured by an assignment and pledge by the City to the Trustee of, the receipts of the Sales and Use Tax (as defined in the Indenture), subject to a parity pledge of such receipts securing the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2002, and any Additional Bonds and RLF Loan (as such terms are defined in the Indenture) issued hereafter. 5. The Sales and Use Tax receipts have been duly and validly assigned and pledged to the Trustee under the Indenture, and the Indenture creates, as security for the Bonds, a valid security interest in the Sales and Use Tax receipts. Under the laws of the State of Arkansas, including, particularly, Arkansas Code Annotated (2001 Repl. & 2003 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Bonds is and shall be prior to any judicial lien hereafter imposed on the Sales and Use Tax receipts to enforce a judgment against the City on a simple contract, and it is not necessary to file a Uniform Commercial Code financing statement in order to perfect a security interest in the Sales and Use Tax receipts. 6. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described in the preceding sentence assumes the accuracy of certain representations and compliance by the City with covenants designed to satisfy the requirements of the Internal Revenue Code of 1986, as amended, that must be met subsequent to the issuance 10-67123.2 B-2 of the Bonds. Failure to comply with such requirements could interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 7. The interest on the Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended, in connection with the offer and sale of the Bonds. It is to be understood that the rights of the registered owners of the Bonds and the enforceability of the Bonds, the Authorizing Ordinance and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Very truly yours, 1 o-67123.2 B-3 0 • EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November—, 2004 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas $355000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Bonds"). Except as otherwise defined herein, the terms used herein shall have the meanings prescribed for them in said opinion. We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the City contained in the Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. In addition to the documents specifically mentioned in the approving opinion, in connection with this opinion we have also examined: (a) An executed counterpart of the Bond Purchase Agreement dated [November] _, 2004 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Continuing Disclosure Agreement dated November _, 2004 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (c) An executed counterpart of the Tax Regulatory Agreement dated November _, 2004 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and 10-67123.2 C-1 (d) Portions of the Official Statement dated [November] , 2004, with respect to the Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2004 BONDS," "SECURITY FOR THE BONDS," "ESTIMATED SOURCES AND USES OF FUNDS," "THE SALES AND USE TAX," "DEFINITIONS OF CERTAIN TERMS," "SUMMARY OF THE INDENTURE," "SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT," "TAX EXEMPTION," and "APPENDIX A — Form of Opinion of Bond Counsel" (the "Relevant Captions") insofar as they relate to this opinion. Based on our examination, we are of the opinion, as of the date hereof and under existing law, as follows: I. The Bond Purchase Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Underwriter, the Bond Purchase Agreement constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 2. The Disclosure Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, the Disclosure Agreement constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. The Tax Regulatory Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, the Tax Regulatory Agreement constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 4. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture and the Continuing Disclosure Agreement, or conclusions of law and legal opinions, are true, accurate and correct summaries thereof in all material respects and do not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 5. The issuance of the Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and will not cause the Series 2002 Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. The enforceability of the respective obligations of the parties to the documents and other items described above, and the availability of certain rights and remedies provided for therein, may be limited by bankruptcy, receivership, insolvency, reorganization, moratorium, marshalling or other similar statutes or rules of law affecting creditors' rights and remedies, to general principles of equity and to the discretion of any court in granting any relief or issuing any order, whether the proceeding is considered a proceeding at law or equity. In particular, the right to l Ofi7123.2 C-2 r indemnification under any of the documents or other items described above may be limited by federal or state securities laws or by the public policy underlying such laws. This opinion is being rendered to you solely for your use and benefit and may not be relied upon in any manner, nor used, by any other person. Very truly yours, 10-67123.2 C-3 KUTAK ROCK LLP DRAFT 10/05/04 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement dated as of November_, 2004 (this "Agreement"), is executed and delivered by the City of Fayetteville, Arkansas (the "City") and Simmons First Trust Company, N.A., as trustee (the "Trustee"), in connection with the issuance of the City's $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Bonds"). The Bonds are being issued pursuant to the terms and provisions of Ordinance No. _ duly adopted by the City Council of the City on October _, 2004 (the "Authorizing Ordinance"), and a Trust Indenture dated as of June 1, 2002, as supplemented and amended by a First Supplemental Trust Indenture dated as of November 1, 2004 (as supplemented and amended, the "Indenture"), by and between the City and the Trustee. In connection with the issuance of the Bonds, the City and the Trustee agree as follows: Section 1. Purpose of this Agreement. This Agreement is being executed and delivered by the City and the Trustee for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with, and constitutes the written undertaking for the benefit of the Beneficial Owners of the Bonds required by, Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 under the Securities Act of 1934, as amended (17 C.F.R. Section 240.15c2-12) (the "Rule"). The City hereby represents that it has not failed to comply with any previous undertaking pursuant to the Rule. Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Financial Information" shall mean the annual financial information provided by the City pursuant to, and as described in, Sections 3 and 4 of this Agreement. "Arkansas State Repository" shall mean any public or private repository or entity as may be designated by the State of Arkansas as a state repository for the purpose of the Rule and recognized as such by the SEC. As of the date of this Agreement, there is no Arkansas State Repository. "Beneficial Owner" shall mean any person which has or shares the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees, depositories or other intermediaries. "Disclosure Representative" shall mean the City's Finance and Internal Services Director or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee from time to time. "Fiscal Year" shall mean the 12-month period used, at any time, by the City for accounting purposes, which may be the calendar year. "MSRB" shall mean the Municipal Securities Rulemaking Board established in accordance with the provisions of Section 1513(b)(1) of the 1934 Act. I0-67222.2 "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are set forth in Exhibit B hereto. "Participating Underwriter" shall mean Stephens Inc. "Repository" shall mean each National Repository and the Arkansas State Repository, if any. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as the same may be amended from time to time ("1934 Act"). "Sales and Use Tax" shall mean the three-quarters of one percent (0.75%) city-wide sales and use tax authorized under the Act which has been levied within the City pursuant to Ordinance No. 4327 adopted by the City on August 7, 2001, the collection of which tax commenced on April 1, 2002, as approved by the voters of the City. "Specified Events" shall mean any of the events with respect to the Bonds listed in Section 5(a) of this Agreement. Section 3. Provision of Annual Financial Information. (a) The City shall, not later than August 1 of each year, commencing August 1, 2005, provide to each Repository and to the Trustee its Annual Financial Information which is consistent with the requirements of Section 4 of this Agreement. The City's Annual Financial Information may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4(b) hereof, provided that the audited financial statements of the City may be submitted separately from the balance of its Annual Financial Information and later than the date required above for the filing of the Annual Financial Information if they are not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a material Specified Event under Section 5 of this Agreement. (b) If, on the date specified in subsection (a) for providing the Annual Financial Information to Repositories, the Trustee has not received a copy of the Annual Financial Information, the Trustee shall contact the Disclosure Representative to determine if the City is in compliance with subsection (a). (c) If the Trustee is unable to verify that the Annual Financial Information has been provided to the Repositories by the date required in subsection (a), the Trustee shall file a notice with the Repositories and the MSRB in substantially the form set forth in Exhibit A and as required by the Rule. (d) The City shall: 10-67222.2 2 (i) determine each year prior to the date for providing the Annual Financial Information the name and address of each Repository; and (ii) file a report with the Trustee certifying that the Annual Financial Information has been provided pursuant to this Agreement, stating the date it was provided, and listing all of the Repositories to which it was provided. Section 4. Content of Annual Financial Information. (a) The City's Annual Financial Information shall contain or incorporate by reference the following: (i) Receipts of the Sales and Use Tax for the latest Fiscal Year and for the four previous Fiscal Years, if available (ii) The City's audited financial statements for the prior Fiscal Year, prepared in accordance with accounting principles generally accepted in the United States ("GAAP") as such principles are modified by the governmental accounting standards promulgated by the Government Accounting Standards Board ("GASB") and by mandated principles of the State of Arkansas, if any, as in effect from time to time, which financial statements have been audited by such auditor as shall then be required or permitted by the laws of the State of Arkansas. If the City's audited financial statements are not available by the time its Annual Financial Information is required to be filed pursuant to Section 3(a) hereof, the Annual Financial Information shall contain the unaudited financial statements of the City, and the audited financial statements shall be filed in the same manner as the Annual Financial Information when they become available. (b) Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document has been incorporated by reference in a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City must clearly identify each such other document incorporated by reference. Section 5. Reporting of Specified Events. (a) This Section 5 shall govern the giving of notices of the occurrence of any of the following events with respect to the Bonds, if material: (1) Principal and interest payment delinquencies; (2) Non-payment related defaults; (3) Unscheduled draws on debt service reserves reflecting financial difficulties; 1ofi7222.2 CJ (4) Unscheduled draws on credit enhancements reflecting financial difficulties; (5) Substitution of any 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 Bondowners; (8) Bond calls; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds; and (11) Rating changes. (b) The Trustee, upon obtaining actual knowledge of the occurrence of any of the Specified Events, shall promptly inform the Disclosure Representative of any Specified Event that has occurred, and shall request that the City promptly notify the Trustee in writing whether to report the event pursuant to subsection (e). (c) If the City determines that the occurrence of a Specified Event is material to a Beneficial Owner of the Bonds, the Disclosure Representative shall promptly notify the Trustee in writing. Such notice shall instruct the Trustee to report the occurrence pursuant to subsection (e) below. (d) If the City determines that the occurrence of a Specified Event is not material, the Disclosure Representative shall so notify the Trustee in writing and instruct the Trustee not to report the occurrence pursuant to subsection (e) below. (e) If the Trustee has been instructed by the Disclosure Representative to report the occurrence of a Specified Event, the Trustee shall file a notice of such occurrence with each National Repository, or with the MSRB and the Arkansas State Repository. The Trustee shall not be obligated to report the occurrence of a Specified Event if there is no instruction to do so from the Disclosure Representative. Notwithstanding the foregoing: (i) notice of the occurrence of a Specified Event described in subsections (a)(1), (4) or (5) shall be given by the Trustee unless the Disclosure Representative gives the Trustee affirmative instructions not to disclose such occurrence; and (ii) notice of the Specified Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of 10-672222 Ll the underlying event is given to Beneficial Owners of affected Bonds pursuant to the Indenture. Section 6. Termination of Reporting Obligation. The City's obligations under this Agreement shall terminate if the City is no longer an "obligated person" within the meaning of the Rule. The City's obligations under this Agreement shall terminate upon the maturity, defeasance, prior redemption or payment in full of all of the Bonds. Section 7. Amendment; Waiver. Notwithstanding any other provision of this Agreement, the City and the Trustee may amend this Agreement (and the Trustee shall consent in its discretion, such consent not to be unreasonably withheld, to any amendment so requested by the City), and any provision of this Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel, reasonably acceptable to each of the City and the Trustee, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule taking into account any subsequent change in or official interpretation of the Rule. Section 8. Additional Information. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of occurrence of a Specified Event, in addition to that which is required by this Agreement. If the City chooses to include any information in any Annual Financial Information or notice of occurrence of a Specified Event in addition to that which is specifically required by this Agreement, the City shall have no obligation under this Agreement to update such information or include it in any future Annual Financial Information or notice of occurrence of a Specified Event. Section 9. Default. (a) In the event of a failure of the City to provide to the Repositories the Annual Financial Information as undertaken by the City in this Agreement, the Beneficial Owner of any Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the City to comply with its obligations to provide Annual Financial Information or notices under this Agreement. (b) Notwithstanding the foregoing, no Beneficial Owner of the Bonds shall have the right to challenge the content or adequacy of the information provided pursuant to Sections 3, 4 or 5 of this Agreement by mandamus, specific performance or other equitable proceedings unless the City shall have been given ninety (90) days' written notice by a Beneficial Owner of the Bonds to remedy the alleged inadequacy of the information provided and unless Beneficial Owners of Bonds representing at least 25% aggregate principal amount of outstanding.Bonds shall join in such proceedings. (c) A default under this Agreement shall not be deemed an Event of Default under the Trust Indenture, and the sole remedy under this Agreement in the event of any 10-67222.2 5 failure of the City or the Trustee to comply with this Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee. Article IX of the Indenture is hereby made applicable to this Agreement as if this Agreement were (solely for this purpose) contained in the Indenture. The Trustee shall have only such duties as are specifically set forth in this Agreement, and the City agrees to indemnify and save the Trustee, its officers, directors, employees and agents, harmless against any liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys' fees and expenses) of defending against any claim of liability, but excluding liabilities due to its own negligence or willful misconduct. Section 11. Beneficiaries. This Agreement shall inure solely to the benefit of the City, the Trustee and the Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 12. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. CITY OF FAYETTEVILLE, ARKANSAS By: Title: Mayor SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By:_ Title: 1own22.2 6 EXHIBIT A NOTICE TO REPOSITORIES REGARDING FINANCIAL INFORMATION NAME OF ISSUER: City of Fayetteville, Arkansas NAME OF BOND ISSUE: $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 DATE OF ISSUANCE: November—, 2004 NOTICE IS HEREBY GIVEN that the City of Fayetteville, Arkansas (the "City") has not yet provided Annual Financial Information with respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated as of November _, 2004, between the City and Simmons First Trust Company, N.A., as trustee. [The City anticipates that the Annual Financial Information will be filed by .1 Dated: SIMMONS FIRST TRUST COMPANY, N.A., as Trustee cc: City of Fayetteville Stephens Inc. A-] 10-67222.2 EXHIBIT B List of Nationally Recognized Municipal Securities Information Repositories at the time of execution and delivery of the Continuing Disclosure Agreement This list may change from time to time. The Agreement requires that information and notices be provided to each Repository. This list should be checked for changes each time information or notice is to be provided. A current list may be obtained from the Securities and Exchange Commission over the Internet at http://www.sec.pov/info/municinal/nrmsir.htm. Bloomberg Municipal Repository 100 Business Park Drive Skillman, NJ 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 E-mail: Munis@Bloomberg.com DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 E-mail: nrmsir@dpcdata.com Fr Interactive Data Attn: NRMSIR 100 William Street New York, New York 10038 Phone: (212) 771-6999 Fax: (212) 771-7390 (Secondary Market Information) (212) 771-7391 (Primary Market Information) Email NRMSIRaFTID.com Standard & Poor's J. J. Kenny Repository 55 Water Street 45`s Floor New York, NY 10041 Phone: (212) 438-4595 Fax: (212) 438-3975 Email: nrmsir—repository@sandp.com B-I 1ofi7222.2 n LJ KUTAK ROCK LLP DRAFT 10/05/04 CITY OF FAYETTEVILLE, ARKANSAS to SIMMONS FIRST TRUST COMPANY, N.A. as Trustee FIRST SUPPLEMENTAL TRUST INDENTURE Dated as of November 1, 2004 This First Supplemental Trust Indenture supplements and amends a Trust Indenture dated as of June 1, 2002, by and between the City of Fayetteville, Arkansas and Simmons First Trust Company, N.A., as Trustee. The Trust Indenture, as supplemented and amended hereby, secures the City's (i) $25,000,000 original principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2002, and (ii) $35,000,000 original principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2004. Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 10-67223.2 FIRST SUPPLEMENTAL TRUST INDENTURE THIS FIRST SUPPLEMENTAL TRUST INDENTURE dated as of November 1, 2004, by and between the CITY OF FAYETTEVILLE, ARKANSAS (the "City"), a city of the first class organized under and existing by virtue of the laws of the State of Arkansas, and SIMMONS FIRST TRUST COMPANY, N.A., as trustee (the "Trustee"), a national banking association organized under and existing by virtue of the laws of the United States of America and having its principal corporate trust office located in Pine Bluff, Arkansas; WITNESSETH: WHEREAS, the City presently owns a public water and sewer utility system (which system, together with all capital improvements thereto, is herein collectively called the "System") serving the residents of the City and its environs; and WHEREAS, pursuant to the provisions of Ordinance No. 4389 of the City, adopted and approved by the City Council on May 7, 2002, and in accordance with Amendment 62 to the Constitution of the State of Arkansas and the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2003) Sections 14-164-301 et seq.(as from time to time amended, the "Act"), the City has previously issued its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), for the purpose of financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping System wastewater treatment plants, sewerage and related facilities (the "Project"); and WHEREAS, the City and the Trustee have previously entered into a Trust Indenture dated as of June 1, 2002 (the "Original Indenture"), pursuant to which the Series 2002 Bonds were issued and secured; and WHEREAS, in order to secure additional funds to pay a portion of the costs of the Project, to fund a debt service reserve, and to pay legal and other expenses incidental to the issuance of sales and use tax capital improvement bonds for such purposes, it has been determined appropriate and necessary that the City authorize the issuance of its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), pursuant to the provisions of Amendment 62 and the Act, such Series 2004 Bonds to be payable from and secured by a pledge of the receipts of the Sales and Use Tax (as defined in the Original Indenture) on a parity with the pledge of Sales and Use Tax receipts securing the Series 2002 Bonds; and WHEREAS, the conditions for the issuance of Additional Bonds, as set forth in the Original Indenture, have been satisfied; and WHEREAS, the Series 2004 Bonds are to be dated, bear interest, mature and be subject to redemption as hereinafter in this First Supplemental Trust Indenture set forth in detail; and WHEREAS, the execution and delivery of this First Supplemental Trust Indenture and the issuance of the Series 2004 Bonds have been in all respects duly and validly confirmed, 10-672212 authorized and approved by Ordinance No. the City on October _, 2004; and adopted and approved by the City Council of WHEREAS, all things necessary to make the Series 2004 Bonds, when authenticated by the Trustee and issued as in this First Supplemental Trust Indenture provided, the valid, binding and legal obligations of the City according to the import thereof, and to constitute the Indenture (as defined below) a valid pledge of the receipts of the Sales and Use Tax to the payment of the principal of, premium, if any, and interest on the Series 2002 Bonds, the Series 2004 Bonds and all Additional Bonds (as defined below), if any, to be issued on a parity therewith (the Series 2002 Bonds, the Series 2004 Bonds and such Additional Bonds are hereinafter referred to as the "Bonds"), have been done and performed, and the creation, execution and delivery of this First Supplemental Trust Indenture and the creation, execution, issuance and delivery of the Series 2004 Bonds, subject to the terms hereof, have in all respects been duly authorized; and WHEREAS, in order to make proper provision for the security of the Series 2004 Bonds, it is necessary that the Original Indenture be amended and supplemented as effected hereby; NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS FIRST SUPPLEMENTAL TRUST INDENTURE WITNESSETH: Section 1.01. It is understood and agreed that the provisions of the Original Indenture shall extend to and apply to the security and benefit of the Series 2004 Bonds and that the term "Bonds" as used in the Original Indenture is hereby recognized to include and shall be deemed to refer to (where applicable) the Series 2004 Bonds. Section 1.02. Section 101 of the Original Indenture is hereby amended by adding thereto the following definitions (and by striking any definitions which are supplanted by the definitions set forth below): "Additional Bonds" mean Bonds in addition to the Series 2002 Bonds and the Series 2004 Bonds which are issued under the provisions of Section 212 of this Indenture. "Authorizing Ordinance" means, collectively, (i) Ordinance No. 4389, adopted by the City on May 7, 2002, which authorized the issuance of the Series 2002 Bonds pursuant to this Indenture, and (ii) Ordinance No. , adopted by the City on October 2004, which authorized the issuance of the Series 2004 Bonds pursuant to this Indenture. "Bonds" mean the Series 2002 Bonds, the Series 2004 Bonds and all Additional Bonds issued by the City pursuant to this Indenture. Except to the extent provided in Section 209 hereof and except for refunding bonds issued under the provisions of Section 212 hereof, the aggregate principal amount of Bonds issued hereunder and any RLF Loan incurred by the City shall not exceed $125,000,000. "Indenture" means this Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004, each by and between the City and the Trustee, pursuant to which the Bonds are issued, and any further amendments and supplements thereto. 10-67223.2 2 "Series 2004 Bonds" means City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2004, issued under and secured by this Indenture in the aggregate principal amount of $35,000,000. Section 2.01. Section 201(c) of the Original Indenture is hereby amended and supplemented to read as follows: "(c) The Bonds shall be equally and ratably payable and secured hereunder without priority by reason of date of adoption of this Indenture or any Supplemental Indenture authorizing their issuance or by reason of their series, number, date, date of issue, execution, authentication or sale, or otherwise; provided, however, (i) Surplus Tax Receipts shall be applied to the redemption of the Series 2002 Bonds prior to the application of such Surplus Tax Receipts to the redemption of Bonds of other series or to any RLF Loan prior to maturity, and (ii) following payment in whole of the Series 2002 Bonds at maturity or upon redemption prior to maturity, Surplus Tax Receipts shall be applied to the redemption of the Series 2004 Bonds prior to the application of such Surplus Tax Receipts to the redemption of Bonds of other series or to any RLF Loan prior to maturity." Section 2.02. Section 202 of the Original Indenture is hereby amended and supplemented to read as follows: "Section 202. Authorized Amount. There is hereby authorized the issuance of bonds of the City to be designated "Sales and Use Tax Capital Improvement Bonds, Series 2002" in the principal amount of Twenty -Five Million Dollars ($25,000,000) (the "Series 2002 Bonds"). There is hereby authorized the issuance of bonds of the City to be designated "Sales and Use Tax Capital Improvement Bonds, Series 2004" in the principal amount of Thirty -Five Million Dollars ($35,000,000) (the "Series 2004 Bonds"). No Bonds may be issued under the provisions of this Indenture except in accordance with this Article I1. The total principal amount of Bonds that may be issued hereunder and any RLF Loans that may be incurred by the City is hereby expressly limited to $125,000,000, except as provided in Section 209 and except for refunding bonds issued under the provisions of Section 212 hereof." Section 2.03. All references to the "Administrative Service Director" of the City in Section 212 of the Original Indenture are hereby revised to refer to the "Finance and Internal Services Director" of the City. Section 2.04. Article II of the Original Indenture is hereby amended by adding at the end thereof the following sections: "Section 217. Details of Series 2004 Bonds. The Series 2004 Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2004," (ii) shall be in the aggregate principal amount of $35,000,000, (iii) shall be dated as of November 1, 2004, (iv) shall bear interest from such date at the rates hereinafter provided until paid, payable semiannually on June 1 and December 1 of each year, commencing June 1, 2005, (v) shall be issued in denominations of $5,000 1 o-c7223.2 3 each, or any integral multiple thereof, (vi) shall be numbered from R04-1 upwards in order of issuance according to the records of the Trustee, and (vii) shall mature, unless sooner redeemed in the manner in this Indenture set forth, on December I in each of the years and in the amounts set forth in the following table, which table also sets forth the interest rates for the Series 2004 Bonds: Year (December 1) Principal Amount Interest Rate 2005 $ % 2006 2007 % 2008 2009 % Section 218. Form of Series 2004 Bonds. The Series 2004 Bonds shall be initially issued as fully registered bonds, without coupons, in the form of five typewritten bond certificates (one for each maturity) to be delivered to the Securities Depository. Each such certificate shall be initially registered in the name of the nominee of the Securities Depository, and no Beneficial Owner will receive a certificate representing his interest in the Series 2004 Bonds, except upon the occurrence of the events described in Section 216 of this Indenture. Beneficial Owners shall be deemed to have waived any right to receive a bond certificate except under the circumstances described in Section 216. The Series 2004 Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit A to the First Supplemental Trust Indenture, with appropriate variations, insertions and omissions as permitted or required by this Indenture. Section 219. Delivery of Series 2004 Bonds. Simultaneously with the delivery of the Series 2004 Bonds, the Trustee shall apply the proceeds thereof as follows: (a) The amount, if any, received as accrued interest on the Series 2004 Bonds, shall be deposited in the Series 2004 Interest Subaccount of the Bond Fund; (b) $ an amount sufficient to cause the amount on deposit in the Debt Service Reserve Fund to be equal to the Reserve Requirement, shall be deposited in the Series 2004 Account of the Debt Service Reserve Fund; (c) An amount equal to $ shall be deposited in the Costs of Issuance Fund and shall be utilized for payment of Costs of Issuance of the Series 2004 Bonds as directed by a Certificate of the City; and (d) The balance of said proceeds in the amount of $ shall be deposited in the Series 2004 Account of the Project Fund." 10-67223.2 4 Section 3.01. Article III of the Original Indenture is hereby amended by adding at the end thereof the following section: "Section 307. Redemption of Series 2004 Bonds. The Series 2004 Bonds shall be redeemed prior to maturity, in whole or in part, on any interest payment date, in inverse order of maturity and by lot in such manner as the Trustee shall determine within a maturity, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the date of redemption, from Surplus Tax Receipts deposited in the Redemption Fund pursuant to Section 503 hereof. Notwithstanding any other provision of this Indenture to the contrary, (i) Surplus Tax Receipts shall be applied to the redemption of the Series 2002 Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder or any RLF Loan, and (ii) following maturity or redemption in whole of the Series 2002 Bonds, Surplus Tax Receipts shall be applied to the redemption of the Series 2004 Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder or any RLF Loan." Section 4.01. Section 503(b) of the Original Indenture is hereby amended and restated to read as follows: "(b) Upon receipt, but in no event later than the last day of each month in which Sales and Use Tax receipts are deposited in the Revenue Fund, commencing no later than June 30, 2002, there shall be transferred from the Revenue Fund, in the following order, the amounts set forth below: FIRST: For deposit to the appropriate subaccount of the Interest Account of the Bond Fund, an amount equal to one -sixth (1/6) of the interest on the Outstanding Bonds due on the next interest payment date and an amount equal to the interest component of any monthly payment prescribed with respect to any RLF Loan; provided, however, no such deposits shall be made with respect to the Series 2004 Bonds prior to January 1, 2005, and the deposits made to the Interest Account with respect to the Series 2004 Bonds during the months of January, February, March, April and May of 2005 shall be in an amount equal to one -fifth (1/5) of the interest on the Series 2004 Bonds due on June 1, 2005; SECOND: For deposit to the Principal Account of the Bond Fund, an amount equal to one -twelfth (1/12) of the next scheduled principal maturity of Outstanding Bonds (including mandatory sinking fund redemptions) and an amount equal to the principal component of any monthly payment prescribed with respect to any RLF Loan; provided, however, no such deposits shall be made with respect to the Series 2004 Bonds prior to January 1, 2005, and the deposits made to the Principal Account with respect to the Series 2004 Bonds during the months of January, February, March, April, May, June, July, August, September, October and November of 2005 shall be in an amount equal to one -eleventh (1/11) of the principal maturity of the Series 2004 Bonds due on December 1, 2005; 10-67223.2 5 • THIRD: For deposit to the Debt Service Reserve Fund, an amount sufficient to cure any deficiency in the Debt Service Reserve Fund; FOURTH: For deposit to the Rebate Fund, an amount sufficient to satisfy the City's obligations under Section 507 hereof, FIFTH: For payment to the Trustee and Paying Agent, the amount, if any, necessary to pay or reimburse the Trustee and Paying Agent for fees and expenses related to the Bonds or any RLF Loan; and SIXTH: All remaining moneys ("Surplus Tax Receipts') will be transferred to the Redemption Fund and shall be applied to call Bonds or RLF Loans for redemption prior to maturity as provided in Section 301(b) and Section 506 hereof." Section 5.01. Section 902(a) of the Original Indenture is hereby amended and supplemented to read as follows: "(a) Subject to subsection (b) of this Section 902, the City shall, from moneys lawfully available therefor, pay to the Trustee and any Paying Agent reasonable compensation for all services performed hereunder and also all reasonable expenses, charges and other disbursements and those of their attorneys, agents and employees incurred in and about the administration and execution of the trusts hereby created and the performance of the powers and duties hereunder and, to the extent permitted by law and from moneys lawfully available therefor, shall indemnify and save the Trustee harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder. With respect to the Series 2002 Bonds, the Trustee's initial authentication fee shall be $2,000 and the annual administration fee of the Trustee shall be up to, but not exceeding, $2,850. With respect to the Series 2004 Bonds, the Trustee's initial authentication fee shall be $3,000 and the annual administration fee of the Trustee shall be up to, but not exceeding, $3,750. With respect to RLF Loans in aggregate principal amount up to $100 million, the Trustee's initial authentication fee shall be $2,000 and the annual administration fee of the Trustee shall be up, but not exceeding, $3,100. If the City shall fail to make any payment required by this subsection (a), the Trustee may make such payment from any moneys in its possession under the provisions of this Indenture and shall be entitled to a preference therefor over any of the Bonds Outstanding hereunder. The City shall not be required to indemnify the Trustee against any liabilities which the Trustee may incur as a result of negligent or wrongful acts or omissions of the Trustee." Section 6.01. Severability. (a) If any provisions of this First Supplemental Trust Indenture shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions or in all cases because it conflicts with any provisions or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of 10fi7223.2 6 rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatever. (b) The invalidity of any one or more phrases, sentences, clauses or paragraphs in this First Supplemental Trust Indenture contained shall not affect the remaining portions of this First Supplemental Trust Indenture or any part thereof Section 6.02. Applicable Provisions of Law. This First Supplemental Trust Indenture shall be considered to have been executed in the State of Arkansas and it is the intention of the parties that the substantive law of the State of Arkansas govem as to all questions of interpretation, validity and effect. Section 6.03. Counterparts. This First Supplemental Trust Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 6.04. Ratification of Original Indenture. As supplemented and amended hereby, the Original Indenture is hereby ratified and confirmed. 10-67223.2 7 IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor ATTEST: By: City Clerk (SEAL) SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Title: ATTEST: By: Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.2 ACKNOWLEDGMENT STATE OF ARKANSAS ) ) ss. COUNTY OF WASHINGTON ) Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Dan Coody and Sondra Smith, Mayor and City Clerk, respectively, of the City of Fayetteville, Arkansas, to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the City, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this _ day of November, 2004. Notary Public My Commission expires: (SEAL) [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] • ACKNOWLEDGMENT STATE OF ARKANSAS ) ) ss. COUNTY OFJEFFERSON ) Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Glenda Dean and , the and the , respectively, of Simmons First Trust Company, N.A., to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the Trust Company, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this _ day of November, 2004. Notary Public My Commission expires: (SEAL) [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] rnINYMA a EXHIBIT A TO FIRST SUPPLEMENTAL TRUST INDENTURE Form of Series 2004 Bond Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC'), to the City or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by the authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), any transfer, pledge or other use hereof for value or otherwise by or to any person is wrongful inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED No. R04- REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2004 Interest Rate: % Date of Bond: November I, 2004 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20_ CUSIP: IK91-10:1OM4 That the City of Fayetteville, Arkansas, a municipality and political subdivision organized and existing by virtue of the laws of the State of Arkansas (the "City'), for value received, promises to pay to the Registered Owner shown above, or registered assigns, on the Maturity Date shown above, but solely from the source and in the manner hereinafter set forth, the Principal Amount shown above, and in like manner to pay interest on said amount from the date hereof until payment of such Principal Amount has been made or duly provided for, at the Interest Rate per annum shown above, such interest to be payable semiannually on June I and December 1 of each year, commencing on June 1, 2005, except as the provisions hereinafter set forth with respect to redemption of this bond prior to maturity may become applicable hereto. The principal of and premium, if any, on this bond are payable in lawful money of the United States of America upon the presentation and surrender hereof at the principal corporate trust office of Simmons First Trust Company, N.A., Pine Bluff, Arkansas, or its successor or successors, as trustee (the "Trustee"). So long as Cede & Co. or another nominee of DTC is the registered owner of this bond, payment of interest hereon shall be made by wire transfer of immediately available funds by the Trustee to the Registered Owner as of the fifteenth day of the calendar month preceding the calendar month in which such interest payment date shall fall ,(the "Record Date"). At any time thereafter, payment of interest hereon shall be made by check or draft of the Trustee to the Registered Owner as of the applicable Record Date, at the owner's address as it appears on the bond registration books of the City kept by the Trustee. 1 M7223.2 A-1 This bond, designated "Sales and Use Tax Capital Improvement Bond, Series 2004", is one of a series of bonds aggregating Thirty -Five Million Dollars ($35,000,000) (the "Series 2004 Bonds"). The Series 2004 Bonds are being issued for the purpose of financing the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), funding a debt service reserve, and paying the costs of issuance of the Series 2004 Bonds. The Series 2004 Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and the Trustee, which Indenture is available for inspection at the principal corporate trust office of the Trustee. Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the City, the Trustee and the owners of the Series 2004 Bonds, and the terms upon which the Series 2004 Bonds are issued and secured. The Series 2004 Bonds are issued pursuant to and in full compliance with the Constitution and laws of the State of Arkansas, including particularly Amendment No. 62 to the Constitution of Arkansas, as implemented by the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October _, 2004, which ordinance authorized the execution and delivery of the Indenture, and a special election duly held on November 6, 2001, at which a majority of the qualified electors of the City voting approved the issuance of the Series 2004 Bonds. In accordance with the Local Government Bond Act, the City has pledged all receipts from a three-quarters of one percent (0.75%) local sales and use tax (the "Sales and Use Tax") levied by the City pursuant to Ordinance No. 4327, adopted by the City on August 7, 2001, to provide funds for the repayment of the Series 2004 Bonds. Such pledge is made on a parity basis with the existing pledge of receipts of the Sales and Use Tax securing the City's Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"). The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") presently secure payment of the Series 2002 Bonds and Series 2004 Bonds only, but such Tax Receipts may additionally be pledged to secure the payment of up to $65,000,000 in aggregate principal amount of (i) Additional Bonds issued under the provisions of the Indenture and (ii) loans obtained under the Arkansas Soil and Water Conservation Commission Revolving Loan Program ("RLF Loans"). The Indenture provides that the City may hereafter issue Additional Bonds and incur RLF Loans from time to time under certain terms and conditions contained in the Indenture and, if issued or incurred, such Additional Bonds and RLF Loans will rank on a parity of security with the Series 2002 Bonds and Series 2004 Bonds and be equally and ratably secured by and entitled to the protection of the Indenture (except that RLF Loans will not be secured by the debt service reserve). The Series 2004 Bonds are not general obligations of the City, but are special obligations secured by an irrevocable pledge of and lien on the Tax Receipts, as more particularly described 10-67223.2 A-2 in the Indenture. In no event shall the Series 2004 Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. The holder of this Series 2004 Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Series 2002 Bonds, Series 2004 Bonds and Additional Bonds, if any, issued under the Indenture and then outstanding may be declared and may become due and payable before the stated maturity thereof, together with accrued interest thereon. Modifications or alterations of the Indenture, or of any indenture supplemental thereto, may be made only to the extent and in the circumstances permitted by the Indenture. Following maturity or redemption in whole of the Series 2002 Bonds, the Series 2004 Bonds shall be redeemed prior to maturity, in whole or in part, on any interest payment date, in inverse order of maturity and by lot in such manner as the Trustee shall determine within a maturity, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the date of redemption, from Surplus Tax Receipts. "Surplus Tax Receipts" are Tax Receipts in excess of the amount necessary to (i) insure the prompt payment of scheduled debt service on the Series 2002 Bonds, Series 2004 Bonds, Additional Bonds and any RLF Loan, (ii) maintain the debt service reserve fund at the required level, (iii) pay any arbitrage rebate due under Section 148(f) of the Internal Revenue Code of 1986, as amended, with respect to the Series 2002 Bonds, the Series 2004 Bonds or any Additional Bonds, and (iv) pay the fees and expenses of the Trustee and any paying agent. Surplus Tax Receipts shall be applied to the redemption of the Series 2004 Bonds prior to their application for redemption prior to maturity of any series of Additional Bonds or any RLF Loan. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, the particular Series 2004 Bonds or portions thereof to be redeemed in part within a maturity shall be selected by lot by DTC in such manner as DTC shall determine. In selecting Series 2004 Bonds for redemption prior to maturity, in the case any outstanding Series 2004 Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2004 Bond shall be treated as a separate Series 2004 Bond of the denomination of $5,000. In the event any of the Series 2004 Bonds or portions thereof (which shall be $5,000 or any integral multiple thereof) are called for redemption, notice thereof shall be given by the Trustee by first class mail to the registered owner of each such Series 2004 Bond addressed to such registered owner at his registered address and placed in the mails not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption; provided, however, that failure to give such notice by mailing, or any defect therein, shall not affect the validity of the proceedings for the redemption of any Series 2004 Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2004 Bonds or portions thereof being called, and the date on which they shall be presented for payment. After the date specified in such call notice, the Series 2004 Bond or Bonds so called for redemption will cease to bear interest provided funds sufficient for their redemption have been deposited with the Trustee, and, 1 Ofi7223.2 A-3 except for the purpose of payment, shall no longer be protected by the Indenture and shall not be deemed to be outstanding under the provisions of the Indenture. This Series 2004 Bond may be transferred on the books of registration kept by the Trustee by the registered owner or by his duly authorized attorney upon surrender hereof, together with a written instrument of transfer duly executed by the registered owner or his duly authorized attorney. The Series 2004 Bonds are issuable as registered bonds without coupons in denominations of $5,000 and any integral multiple thereof. Subject to the limitations and upon payment of the charges provided in the Indenture, Series 2004 Bonds may be exchanged for a like aggregate principal amount of Series 2004 Bonds of other authorized denominations. No recourse shall be had for the payment of the principal of or premium, if any, or interest on any of the Series 2004 Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2004 Bonds or the Indenture against any past, present or future alderman, officer or employee of the City, or any successor, as such, either directly or through the City or any successor of the City, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such alderman, officer or employee as such is hereby expressly waived and released as a condition of and consideration for the issuance of any of the Series 2004 Bonds. This Series 2004 Bond is issued with the intent that the laws of the State of Arkansas will govern its construction. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the issuance of the Series 2004 Bonds do exist, have happened and have been performed in due time, form and manner as required by law; that the indebtedness represented by the Series 2004 Bonds, together with all obligations of the City, does not exceed any constitutional or statutory limitation; and that the revenues pledged to the payment of the principal of and premium, if any, and interest on the Series 2004 Bonds as the same become due and payable will be sufficient in amount for that purpose. This Series 2004 Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the Certificate of Authentication hereon shall have been signed by the Trustee. I0-67223.2 A-4 IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this Series 2004 Bond to be executed by its Mayor and City Clerk, thereunto duly authorized (by their manual or facsimile signatures), and its corporate seal to be affixed or imprinted hereon, all as of the date hereof shown above. ATTEST: By: City Clerk (SEAL) CITY OF FAYETTEVILLE, ARKANSAS By: Mayor (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2004 Bonds of the issue described in and issued under the provisions of the within mentioned Indenture. Attached hereto is the complete text of the opinion of Kutak Rock LLP, a signed original of which is on file with the undersigned, delivered and dated the date of the original delivery of and payment for the Series 2004 Bonds. Date: SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Authorized Signature 1 o-672212 A-5 0 (Form of Assignment) ASSIGNMENT FOR VALUE RECEIVED, , hereby sells, assigns, and transfers unto , the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints as attorney to transfer the within Bond on the books kept for registration thereof with full power of substitution in the premises. DATE: , 20 Transferor GUARANTEED BY: NOTICE: Signature(s) must be guaranteed by an institution satisfactory to the Trustee or other transfer agent. 10-672212 A-6 y >, s� E u sg O y 6� u � 6 O A V C a N �g L y o u >~ a o N 0 E `o :3 cL 9s a o e � T O C E o y _vVit m � u 0 0 ii it m c o�, 3 v �$ E c E 2 0 a rn m c o pO J E � � � o c V L u y �a v E $ o e � o y H 6 L � v � 3 e � c > $tea c 'Fd c 3 y V C N E _ � 0 C 0 9 L V E..SE tl y u o 9 H O a T C L m 3 c E c E:9 0 .n y L • KUTAK ROCK LLP DRAFT 09/28/04 PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER _, 2004 NEW ISSUE BOOK -ENTRY ONLY 'RATING: S&P: In the opinion of Bond Counsel, under existing law and assuming compliance with certain covenants described herein, interest on the Series 1004 Bonds is excluded from gross income of the owners thereoffor federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, with respect to corporations, interest on the Series 2004 Bonds will be taken into account in determining adjusted current earnings and profits for purposes of computing the federal alternative minimum tax. Under existing law, Bond Counsel is of the opinion that the Series 2004 Bonds and the interest thereon are exempt from all state, county and municipal taxes in the State of Arkansas. See the caption "TAX EXEMPTION" herein. IS35900%0001" CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2004 Dated: November 1, 2004 Due: June 1, as shown below The Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), are being issued by the City of Fayetteville, Arkansas (the "City") for the purpose of financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities, funding a debt service reserve, and paying certain expenses in connection with the issuance of the Series 2004 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS" and "THE PROJECT" herein. The Series 2004 Bonds are issuable only as fully registered bonds and, when issued, will be registered in the time of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2004 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2004 Bonds. Individual purchases of the Series 2004 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2004 Bonds will not receive physical delivery of bond certificates. See the caption `BOOK -ENTRY ONLY SYSTEM" herein. The Series 2004 Bonds shall bear interest from their dated date, payable on June 1 and December I of each year, commencing [June 1, 2005]. All such interest payments shall be payable to the persons in whose time such Series 2004 Bonds are registered on the bond registration books maintained by Simmons First Trust Company, N.A., Pine Bluff, Arkansas as trustee (the "Treace"), as of the fi0eemh day of the calendar month preceding the calendar month in which the applicable interest payment date falls. Principal of and premium, if any, on the Series 2004 Bonds shall be payable at the principal corporate trust office of the Trustee. So long as DTC or its nominee is the registered owner of the Series 2004 Bonds, disbursement of such payments to DTC Participants is the responsibility of DTC, and the disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as more fully described herein. Pursuant to a Trust Indenture dated as of June 1, 2002, as supplemented and amended by a First Supplemental Trust Indenture dated as of November 1, 2004 (as supplemented and amended, the "Indenture"), between the City and the Trustee, the payment of the principal of, premium, if any, and interest on the Series 2004 Bonds is secured by a pledge of the receipts from a three-quarters of one percent (0.75%) city-wide sales and use tax (the "Sales and Use Tax"). Such pledge is made on a parity basis to an existing pledge of Sales and Use Tax receipts securing the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"). See the caption "SECURITY FOR TIDE BONDS" herein. Assuming the satisfaction of certain coverage tests, the City bas reserved the right to incur up to 1$65,000,000] of additional indebtedness to be secured on a parity basis with the Series 2002 Bonds and the Series 2004 Bonds. Seethe caption "THE SERIES 2004 BONDS — Additional Bonds and RLF Loans" herein. The Series 2004 Bonds are subject to mandatory redemption prior to maturity as more fully described herein under the caption "THE SERIES 2004 BONDS - Redemption." The Series 2004 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2004 Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any appropriation for the payment of the Series 2004 Bonds, except as described herein with respect to the Sales and Use Tax. MATURITY SCHEDULE" Maturity Principal Interest Maturity Principal Interest June 1 Amount Rate June I Amount Rate 2005 $ % 2010 $ % 2006 2011 2007 2012 2008 2013 2009 2014 (All Series 2004 Bonds are offered at par plus accrued interest) The Series 2004 Bonds are offered when, as and if issued by the City and are subject to the final approving opinion of Kutak Rock LLP, Little Rock, Arkansas, Bond Counsel. Certain matters will be passed upon for the City by its counsel, Kit Williams, Esq., City Attorney. It is expected that the Series 2004 Bonds will be available for delivery in New York, New York, on or about November _, 2004. • See the caption "RATING" herein. •• Preliminary; subject to change. Stephens Inc. The date of this Official Statement is November 2004. CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bob Davis Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoades Brenda Thiel Hugh Earnest, Chief Administrative Officer Steve Davis, Finance & Internal Services Director Greg Boettcher, Water & Wastewater Director Sondra Smith, City Clerk Kit Williams, City Attorney SIMMONS FIRST TRUST COMPANY, N.A. Pine Bluff, Arkansas Trustee and Paying Agent KUTAK ROCK LLP Little Rock, Arkansas Bond Counsel STEPHENSINC. Fayetteville, Arkansas Underwriter 10-6n24.1 No dealer, broker, salesman or other person has been authorized by the City or by Stephens Inc. (the "Underwriter") to give any information or to make any representations, other than those contained herein; and, if given or made, such other information or representations must not be relied upon as having been authorized by either of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of any Series 2004 Bonds in any jurisdiction in which such offer is not authorized, or in which the person making such offer, solicitation or sale is not qualified to do so, or to any person to whom it is unlawful to make such offer, solicitation or sale. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. THE SERIES 2004 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE TRUST INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON CERTAIN EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION CONTAINED IN SUCH LAWS. CERTAIN INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM THE CITY, THE DEPOSITORY TRUST COMPANY AND OTHER SOURCES WHICH ARE BELIEVED TO BE RELIABLE. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS 'rRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTY THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2004 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. TABLE OF CONTENTS Pape IntroductoryStatement......................................................................................................................................... 1 TheSeries 2004 Bonds......................................................................................................................................... 2 Securityfor the Bonds.......................................................................................................................................... 4 Book -Entry Only System...................................................................................................................................... 4 TheProject............................................................................................................................................................ 6 Historical Sales and Use Tax Collections............................................................................................................. 7 Estimated Sources and Uses of Funds.................................................................................................................. 8 Estimated Debt Service Requirements.................................................................................................................. 8 EstimatedDebt Service Coverage........................................................................................................................ 9 ProjectedMandatory Redemptions....................................................................................................................... 10 TheCity................................................................................................................................................................ 10 TheSales and Use Tax.......................................................................................................................................... 13 Definitions of Certain Terms................................................................................................................................ 19 Summaryof the Indenture.................................................................................................................................... 23 Summary of the Continuing Disclosure Agreement............................................................................................. 28 Underwriting......................................................................................................................................................... 29 TaxExemption...................................................................................................................................................... 30 Rating............ .................................................................... :.................................................................................... 30 LegalMatters........................................................................................................................................................ 31 Miscellaneous....................................................................................................................................................... 31 Accuracy and Completeness of Official Statement.............................................................................................. 32 APPENDIX A - Form of Bond Counsel Opinion................................................................................................. A-1 10-67124.1 PRELIMINARY OFFICIAL STATEMENT [$35,0009000]* CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2004 INTRODUCTORY STATEMENT The following introductory statement is subject in all respects to the more complete information set forth in this Official Statement. All descriptions and summaries of documents hereinafter set forth are qualified in their entirety by reference to each such document. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms under the caption "DEFINITIONS OF CERTAIN TERMS" herein. This Official Statement, including the cover page and the Appendices hereto, is furnished in connection with the offering of Sales and Use Tax Capital Improvement Bonds, Series 2004, in the principal amount of [$355000,000]• (the "Series 2004 Bonds"), by the City of Fayetteville, Arkansas (the `.`City"). The City is a city of the first class organized and existing under the laws of the State of Arkansas (the "State"). The City is authorized under Amendment 62 to the Constitution of the State ("Amendment 62") and Arkansas Code Annotated (1998 Repl. & 2003 Supp.) §§14-164-301 et seq. (as from time to time amended, the "Act'), to issue and sell bonds for the purpose of financing and refinancing the cost of capital improvements of a public nature. The Series 2004 Bonds are to be issued by the City pursuant to Amendment 62, the Act and Ordinance No. adopted and approved on October , 2004 (the "Authorizing Ordinance"), for the purpose of (i) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping the City's wastewater treatment plants, sewerage and related facilities (the "Project"), (ii) establishing a debt service reserve for the Series 2004 Bonds, and (iii) paying the costs of issuing the Series 2004 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS" and `THE PROJECT" herein. The Series 2004 Bonds are not general obligations of the City, but are special obligations payable solely from and secured by a pledge of the receipts of a special city-wide sales and use tax levied pursuant to the Act at the rate of three-quarters of one percent (0.75%) (the "Sales and Use Tax"). Such pledge of Sales and Use Tax receipts is made on a parity basis with an existing pledge of Sales and Use Tax receipts securing the City's Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), in the outstanding principal amount of $ See the captions "SECURITY FOR THE BONDS," "HISTORICAL SALES AND USE TAX COLLECTIONS" and "SUMMARY OF THE INDENTURE" herein. The faith and credit of the City are not pledged to the payment of the Series 2004 Bonds, and the Series 2004 Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any appropriation for the payment of the Series 2004 Bonds, except as described herein with respect to the Sales and Use Tax. Additional Bonds may be issued on a parity of security with the Series 2002 Bonds and the Series 2004 Bonds under certain circumstances set forth in the Indenture (hereinafter defined). The Series 2002 Bonds, the Series 2004 Bonds and any Additional Bonds are herein collectively referred to as the "Bonds." In addition, the City may incur loans under the Arkansas Soil and Water Conservation Commission Revolving Loan Fund Program ("RLF Loans"), which RLF Loans may be secured on a parity basis with the Bonds, except that RLF Loans will not be secured by the Debt Service Reserve Fund. Pursuant to the Indenture, the maximum principal amount of Bonds and RLF Loans that may be issued or incurred is limited to $125,000,000. See the caption "THE SERIES 2004 BONDS -Additional Bonds and RLF Loans" herein. The Series 2004 Bonds are subject to redemption from excess moneys in the Project Fund following completion of the Project and from Surplus Tax Receipts. See the captions "THE SERIES 2004 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS." Preliminary; subject to change. 10-67124.1 Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2004 Bonds, by and between the City and the Trustee (the "Continuing Disclosure Agreement'), the City has undertaken certain obligations with respect to providing ongoing disclosure of certain financial and operating data concerning the City and the Sales and Use Tax and of the occurrence of certain material events. See the caption "SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT" herein. This Official Statement contains brief descriptions or summaries of, among other matters, the City, the Series 2004 Bonds, the Sales and Use Tax, the Continuing Disclosure Agreement, and the Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), pursuant to which the Series 2002 Bonds and the Series 2004 Bonds are issued and secured. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture and the Continuing Disclosure Agreement are qualified in their entirety by reference to each such document, and all references to the Series 2004 Bonds are qualified in their entirety by reference to the definitive form thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the form of Series 2004 Bond included therein, are available from the City by writing to the attention of the Finance and Internal Services Director, City of Fayetteville, City Administration Building, 113 West Mountain, Fayetteville, Arkansas 72701 and, during the initial offering period only, from the Underwriter, Stephens Inc., 3425 North Futrall, Suite 201, Fayetteville, Arkansas 72703. Certain financial and operating data has been provided by the City from the audited records of the City and certain demographic information has been obtained from other sources which are believed to be reliable. THE SERIES 2004 BONDS Description. The Series 2004 Bonds will be initially dated as of November I, 2004, and will bear interest payable semiannually on June I and December I of each year, commencing [June I, 20051, at the rates set forth on the cover page hereof. The Series 2004 Bonds will mature on June I in the years and in the principal amounts set forth on the cover page hereof. The Series 2004 Bonds are issuable only in the form of fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2004 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2004 Bonds. Individual purchases of the Series 2004 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof Individual purchasers (`Beneficial Owners") of Series 2004 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2004 Bonds shall be payable to the persons in whose name such Series 2004 Bonds are registered on the bond registration books maintained by the Trustee, as of the fifteenth day of the calendar month preceding the calendar month in which the applicable interest payment date falls. Principal of and premium, if any, on the Series 2004 Bonds shall be payable at the principal corporate trust office of the Trustee. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Series 2004 Bond to the extent of the sum or sums so paid. So long as DTC or its nominee is the registered owner of the Series 2004 Bonds, disbursement of such payments to DTC Participants is the responsibility of DTC, and the disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as more fully described herein. Redemption. The Series 2004 Bonds are subject to redemption prior to maturity as follows: (a) The Series 2004 Bonds shall be redeemed prior to maturity, in whole or in part, on any interest payment date, in inverse order of maturity and by lot in such manner as the Trustee shall determine within a maturity, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the date of redemption, from Project Fund moneys in excess of the amount needed to complete the Project. (b) The Series 2004 Bonds shall be redeemed prior to maturity, in whole or in part, on any interest payment date, in inverse order of maturity and by lot in such manner as the Trustee shall determine within a maturity, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the date of redemption, from Surplus Tax Receipts. "Surplus Tax Receipts" are collections of the Sales and Use Tax in excess of the amount necessary to (i) insure the prompt payment of the principal of and interest on Outstanding Bonds and any RLF Loan, (ii) maintain the Debt Service 10-67124.1 Reserve Fund in an amount equal to the Reserve Requirement, (iii) pay any arbitrage rebate due under Section 148(f) of the Internal Revenue Code of 1986, as amended (the "Code"), and (iv) pay Trustee and Paying Agent fees and expenses. So long as the Series 2002 Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2002 Bonds prior to maturity. Following final maturity or complete redemption of the Series 2002 Bonds and for so long as the Series 2004 Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2004 Bonds prior to maturity. Seethe caption "PROJECTED MANDATORY REDEMPTIONS" herein. Partial Redemption of a Series 2004 Bond. If less than all of the Series 2004 Bonds of a maturity are called for redemption, the particular Series 2004 Bonds or portions of Series 2004 Bonds to be redeemed shall be selected by lot in such manner as the Trustee in its discretion may deem fair and appropriate. So long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, the procedures established by DTC shall control with respect to the selection of the particular Series 2004 Bonds to be redeemed. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2004 Bonds or portions thereof being called and the date on which they shall be presented for payment, shall be mailed by the Trustee by first class mail (or, so long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2004 Bond addressed to such registered owner at his registered address and placed in the mails not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption; provided, however, that failure to give such notice by mailing, or any defect therein, shall not affect the validity of any proceeding for the redemption of any Series 2004 Bond with respect to which no such failure or defect has occurred. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the registered owner receives the notice. Additional Bonds and RLF Loans. The City may issue from time to time one or more series of Additional Bonds for the purpose of (i) financing Project Costs in connection with the completion of the Project, (ii) refunding the Series 2002 Bonds, the Series 2004 Bonds or any series of Additional Bonds or any RLF Loan, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the Series 2002 Bonds, the Series 2004 Bonds and any other series of Additional Bonds theretofore issued or any RLF Loan theretofore incurred and then Outstanding, except insofar as any terms or conditions of redemption or purchase established under the Indenture may afford additional benefit or security for the Bonds of any particular series and except for the security afforded by any municipal bond insurance obtained with respect to any particular series of Bonds; provided, however, that RLF Loans structured as Additional Bonds shall not be secured by the Debt Service Reserve Fund. Before any Additional Bonds are authenticated, there shall be delivered to the Trustee the items required for the issuance of Bonds by the Indenture, plus a Certificate of the Finance and Internal Services Director of the City certifying that, based upon necessary investigation, the Sales and Use Tax receipts transferred to the Trustee during the most recent twelve (12) months were not less than (i) 125% of the maximum Annual Debt Service on all then Outstanding Bonds and any RLF Loan, plus the Additional Bonds then proposed to be issued, and (ii) the amount, if any, needed to make required deposits to the Debt Service Reserve Fund. Prior to any drawdown on an RLF Loan, there shall be delivered to the Trustee a Certificate of the Finance and Internal Services Director of the City certifying that, based upon necessary investigation, the Sales and Use Tax receipts transferred to the Trustee during the most recent twelve (12) months were not less than 125% of the maximum Annual Debt Service on all the Outstanding Bonds and any RLF Loan theretofore incurred, plus the maximum Annual Debt Service on the amount of the additional RLF Loan to be incurred. No Additional Bonds shall be issued and no RLF Loan shall be incurred unless there is no default at the time of issuance under the Indenture. It is the City's present intention to obtain an RLF Loan in the approximate amount of [$65] million in order to obtain the additional funds needed to complete the acquisition, construction and equipping of the Project. It is anticipated that the RLF Loan will be entered into in the quarter of 2005 and funds will be drawn down over a period of approximately_ months, beginning , 2005. The RLF Loan may, but need not, be structured in the form of an Additional Bond or Bonds. If the proceeds of the Series 2004 Bonds and the amounts available under an RLF Loan are insufficient to complete the funding of the Project, the City may issue Additional Bonds to the extent needed. Pursuant to the Indenture, the maximum principal amount of Bonds and RLF Loans that may be issued or incurred is limited to $125,000,000. Transfer or Exchange. The Bonds may be transferred on the books of registration kept by the Trustee by the registered owner in person or by the owner's duly authorized attorney, upon surrender thereof, together with a written instrument of transfer duly executed by the registered owner or the owner's duly authorized attorney. Upon surrender for transfer of any Bond at the principal corporate office of the Trustee, the City shall execute and the 10-67124.1 3 Trustee shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of the same series and in the same aggregate principal amount and of any authorized denomination or denominations. Transfers of registration or exchanges of Bonds shall be without charge to the Holders of such Bonds, but any taxes or other governmental charges required to be paid with respect to the same shall be paid by the Holder of the Bond requesting such transfer or exchange as a condition precedent to the exercise of such privilege. The Trustee shall not be required to transfer or exchange any Bond during the period from and including a Record Date to the next succeeding interest payment date of such Bond nor to transfer or exchange any Bond after the mailing of notice calling such Bond for redemption has been made, and prior to such redemption. So long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, transfers of beneficial interests in the Series 2004 Bonds shall be in accordance with the rules and procedures of DTC and its direct and indirect participants. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. SECURITY FOR THE BONDS General. The Bonds are special obligations of the City secured by and payable from the receipts of a three- quarters of one percent (0.75%) city-wide sales and use tax (the "Sales and Use Tax"). The Sales and Use Tax was levied under Ordinance No. 4327, duly adopted by the City Council of the City on August 7, 2001 (the "Election Ordinance"). Pursuant to the Election Ordinance, a special election was held on November 6, 2001, at which time the qualified electors of the City approved the issuance of capital improvement bonds in principal amount not to exceed $125,000,000 and the corresponding levy of the Sales and Use Tax. The receipts of the Sales and Use Tax were pledged to secure the payment of Debt Service on the Series 2004 Bonds pursuant to Ordinance No. duly adopted by the City Council of the City on October , 2004 (the "Authorizing Ordinance"), subject to an existing parity pledge of such Sales and Use Tax receipts securing the Series 2002 Bonds. The collection of the Sales and Use Tax commenced April 1, 2002. See the captions "THE SALES AND USE TAX" and "HISTORICAL SALES AND USE TAX COLLECTIONS" herein. The Bonds do not constitute an indebtedness oftheCity within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any appropriation for the payment of the Bonds, except as described herein with respect to the Sales and Use Tax. Debt Service Reserve. From the proceeds of sale of each series of Bonds issued pursuant to the Indenture, there shall be deposited into the Debt Service Reserve Fund an amount which, together with the amounts then on deposit therein, will be equal to 5% of the aggregate principal amount on all Outstanding Bonds (the "Reserve Requirement".); provided, however, that no proceeds of RLF Loans will be deposited in the Debt Service Reserve Fund and the Debt Service Reserve Fund will not secure RLF Loans structured as Additional Bonds. The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds (not including RLF Loans) as due for which there are no available funds in the Bond Fund to make such payments. If the amount in the Debt Service Reserve Fund is ever reduced below the Reserve Requirement, it shall be reimbursed to an amount equal to the Reserve Requirement through monthly payments, beginning not later than the last day of the month in which the Debt Service Reserve Fund was reduced below the Reserve Requirement, and continuing not later than the last day of each month thereafter until such reimbursement shall have been accomplished, from any funds in the Revenue Fund (after making the required deposits into the Interest Account and Principal Account of the Bond Fund and after providing for the payment of monthly principal and interest payments on RLF Loans, as provided in the Indenture). If a surplus shall exist in the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the Interest Account of the Bond Fund. The moneys on deposit in the Debt Service Reserve Fund may be used, together with other available funds, to provide for the payment at maturity or to redeem prior to maturity all, but not less than all, of the Outstanding Bonds (not including RLF Loans). BOOK -ENTRY ONLY SYSTEM The Series 2004 Bonds will be issued only as one fully registered Series 2004 Bond for each maturity in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), as registered owner of all the Series 2004 Bonds. The fully registered Series 2004 Bonds will be retained and immobilized in the custody of DTC. I O-67 t 24.1 DTC (or any successor securities depository) or its nominee for all purposes under the Indenture will be considered by the City and the Trustee to be the owner or Holder of the Series 2004 Bonds. Owners of any book entry interests in the Series 2004 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2004 Bonds, and will not be considered by the City and the Trustee to be, and will not have any rights as, owners or Holders of the Series 2004 Bonds under the bond proceedings and the Indenture except to the extent, if any, expressly provided thereunder. CERTAIN INFORMATION REGARDING DTC AND DIRECT PARTICIPANTS IS SET FORTH BELOW. THIS INFORMATION HAS BEEN PROVIDED BY DTC. THE CITY, THE UNDERWRITER AND BOND COUNSEL ASSUME NO RESPONSIBILITY FOR THE ACCURACY OF SUCH STATEMENTS. DTC is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Direct Participants") deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book -entry changes in Direct Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (`Indirect Participants"). The Rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission. Purchases of Series 2004 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2004 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2004 Bond (`Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2004 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2004 Bonds, except in the event that use of the Book -Entry System for the Series 2004 Bonds is discontinued. To facilitate subsequent transfers, all Series 2004 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2004 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2004 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2004 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2004 Bonds. Under its usual procedures, DTC will mail an Omnibus Proxy to the City as soon as possible after the Record Date. The Omnibus Proxy will assign Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2004 Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Payment of Debt Service on the Series 2004 Bonds will be made to Cede & Co., or such other nominee as may be required by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts t 0-67 t 24.1 5 of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of Debt Service to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. BENEFICIAL OWNERS SHOULD CONSULT WITH THE DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS FROM WHOM THEY PURCHASE A BOOK ENTRY INTEREST TO OBTAIN INFORMATION CONCERNING THE BOOK -ENTRY SYSTEM MAINTAINED BY SUCH DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS TO RECORD SUCH INTERESTS, TO MAKE PAYMENTS, TO FORWARD NOTICES OF REDEMPTION AND OF OTHER INFORMATION. THE CITY AND THE TRUSTEE HAVE NO RESPONSIBILITY OR LIABILITY FOR ANY ASPECTS OF THE RECORDS OR NOTICES RELATING TO, OR PAYMENTS MADE ON ACCOUNT OF, BOOK ENTRY INTEREST OWNERSHIP, OR FOR MAINTAINING, SUPERVISING OR REVIEWING ANY RECORDS RELATING TO THAT OWNERSHIP. The Trustee and the City, so long as a book entry method of recording and transferring interest in the Series 2004 Bonds is used, will send any notice of redemption or of any Indenture amendment or supplement or other notices to Bondholders under the Indenture only to DTC (or any successor securities depository) or its nominee. Any failure of DTC to advise any Direct Participants, or of any Direct Participants or Indirect Participants to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Series 2004 Bonds called for redemption, the Indenture amendment or supplement, or any other action premised on notice given under the Indenture. The City and the Trustee cannot and do not give any assurances that DTC, Direct Participants, Indirect Participants or others will distribute payments of Debt Service on the Series 2004 Bonds made to DTC or its nominee as the registered owner of the Series 2004 Bonds, or any redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or that DTC will serve and act in a manner described in this Official Statement. DTC may discontinue providing its services as securities depository with respect to the Series 2004 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, bond certificates are required to be printed and delivered. In addition, the City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. DTC advises that the current "Rules" applicable to DTC are on file with the Securities and Exchange Commission, and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. THE PROJECT Existing Wastewater System. The City presently operates and maintains a municipal wastewater system, including administrative services, a collection system, pumping stations and a wastewater treatment plant. The existing wastewater system includes an estimated 480 miles of pipelines, a 12.4 million gallon per day advanced wastewater treatment plant and [33] wastewater pumping stations. These facilities serve an estimated population equivalent of [75,0001 and transport an average daily flow of approximately I I million gallons. Growth of the service area population has consumed the available wastewater system capacity and has justified the construction of core system improvements. A comprehensive facility plan has been developed which identifies a number of wastewater system components that must be upgraded, expanded or replaced in order to meet the service area needs for a projected 20-year design period. In addition to the provision of needed infrastructure capacity, the proposed improvements address ancillary issues of bypassing, odor control, residuals management and operational economies. A study of numerous alternatives and scenarios found the selected scope of the Project to represent the most cost-effective strategy based upon a combination of construction costs and the present worth of long-term operating costs. Proposed Project Improvements. The scope of the Project includes the construction of additional interceptor sewer lines, force mains and pumping stations, existing treatment plant renovations, the construction of a 10-67124.1 new wastewater treatment plant with a capacity of [101 million gallons per day, and related wastewater improvements. The current wastewater system is configured to pump all of the City's wastewater flow to a single treatment plant on the eastern side of the City, with a portion of the treated wastewater flow being pumped back to the western side of the City. Completion of the Project will eliminate this duplicate pumping between watersheds by construction of a new west side treatment plant. More than [301 miles of new pipelines ranging in size from 8-inch to 48-inch in diameter will be constructed as part of the Project. A revised collection system will eliminate the need for [six] existing lift stations, and [nine] existing lift stations will be upgraded. The construction of the new west side plant, coupled with the upgrade of the existing east side treatment plant (revised capacity of [11.81 million gallons per day is reduced as a result of improved odor control and processing), will increase total wastewater treatment capacity from [ 12.6 to 21.8] million gallons per day and will satisfy projected 20-year needs. The total cost of the Project is expected to be approximately [$120] million. This cost estimate has been developed by the various design firms and includes allowances for inflation. Within the [$120] million Project budget are cost allowances for professional services, right-of-way purchase, construction contracts, start-up services, performance evaluation services and a contract contingency. The preliminary Project schedule anticipates commencement of construction in the quarter of 200_ and completion [late in 2001. The Project is expected to be financed by a combination of Bonds and RLF Loans, the debt service on each to be paid from Sales and Use Tax receipts. The issuance of Bonds and the incurrence of RLF Loans in aggregate principal amount not to exceed $125 million, and the pledge of Sales and Use Tax receipts to pay the debt service thereon, has been approved by the voters of the City. In the event proceeds of Bonds and RLF Loans are insufficient to provide for the costs of the Project in full, the deficiency is expected to be funded with System revenues or indebtedness secured by System revenues. HISTORICAL SALES AND USE TAX COLLECTIONS Collection of the Sales and Use Tax commenced April 1, 2002. Set forth below is a table showing receipts of the City's 1% general city-wide sales and use tax for the last seven years and for the -month period from January 1, 2004 to 2004. The table also shows the growth percentage of historical receipts and what historical receipts of the general city-wide sales and use tax would have been had the rate been three-quarters of one percent (0.75%). The fifth column of the table shows receipts of the Sales and Use Tax for 2002, 2003 and for the -month period from January 1, 2004 to 2004. (2) Historical Collections Growth Projected Collections Year of City's 1.00% Tax Percentage (0.75%) 1997 $ 9,6019424 n/a $7,201,068 1998 109445,093 8.75% 71833,820 1999 10,985,041 5.17% 83238,781 2000 11,580,857 5.42% 836859643 2001 112935,870 3.07% 83951,902 2002 2003 2004(z) Collection of the Sales and Use Tax commenced April I, 2002. For the -month period from January 1, 2004 to 2004. Historical Sales and Use Tax Collections (o 10-67124.1 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series 2004 Bonds are expected to be used as follows: Sources of Funds(l) Series 2004 Bond Proceeds $j35.000.0001 Total Sources: $f35.000.0001 Uses of Funds(l) Deposit to Project Fund $ Debt Service Reserve Fund Deposit Costs of Issuance and Underwriter's Discount Total Uses: $135.000.0001 Preliminary; subject to change. ESTIMATED DEBT SERVICE REQUIREMENTS As of the date of closing, the Series 2002 Bonds and the Series 2004 Bonds will constitute the only debt obligations secured by receipts of the Sales and Use Tax. The remaining outstanding principal amount of the Series 2002 Bonds is $ . The following table sets forth estimates of the amounts required to pay scheduled principal of and interest on the Series 2002 Bonds and the Series 2004 Bonds during each year: Series 2002 Series 2002 Series 2004 Series 2004 Total Debt Year Principal • Interest Principal Interest(]) Service 2004 $ $ $ $ $ 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Totals: S Preliminary; subject to change. Assuming for purposes of this Preliminary Official State, an average coupon rate on the Series 2004 Bonds of % per annum. 10-67124.1 8 ESTIMATED DEBT SERVICE COVERAGE The following table shows estimated maximum and average annual debt service coverage with respect to the Series 2002 Bonds and the Series 2004 Bonds utilizing the most recent twelve months of Sales and Use Tax receipts from 1, 2003, to 2004. Historical Sales and Use Tax Receipts(') 41 Maximum Annual Debt Service Requirement on the Series 2002 $ Bonds and the Series 2004 Bonds(�) Average Annual Debt Service Requirement on the Series 2002 Bonds $ and the Series 2004 Bonds(�) Maximum Annual Debt Service Coverage �{ Average Annual Debt Service Coverage (0 From I, 2003 to 2004. (Z) Preliminary; subject to change. Calculated for the years 2005-20_ See the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" herein. THE COVERAGE NUMBERS SET FORTH ABOVE ARE BASED ON HISTORICAL SALES AND USE TAX RECEIPTS. ACTUAL RECEIPTS OF THE SALES AND USE TAX WILL DEPEND ON NUMEROUS FACTORS, AND THERE CAN BE NO ASSURANCE THAT FUTURE SALES AND USE TAX RECEIPTS AVAILABLE TO PAY DEBT SERVICE ON THE BONDS WILL APPROXIMATE SUCH HISTORICAL RESULTS. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 10 67124.1 9 PROJECTED MANDATORY REDEMPTIONS The table under the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" does not reflect possible mandatory redemptions of the Series 2002 Bonds and Series 2004 Bonds from Surplus Tax Receipts, if available. Surplus Tax Receipts are all receipts of the Sales and Use Tax in excess of the amount necessary (i) to assure the prompt payment of the principal of and interest on Outstanding Bonds and any RLF Loan, (ii) to maintain the Debt Service Reserve Fund in an amount equal to the Reserve Requirement, (iii) to pay any arbitrage rebate due under Section 148(f) of the Code, and (iv) to pay Trustee and Paying Agent fees and expenses. So long as any of the Series 2002 Bonds are Outstanding, Surplus Tax Receipts are required to be used to redeem Series 2002 Bonds prior to maturity. Upon final maturity or redemption in whole of the Series 2002 Bonds and for so long as any of the Series 2004 Bonds are Outstanding, Surplus Tax Receipts are required to be used to redeem Series 2004 Bonds prior to maturity. THERE CAN BE NO ASSURANCE GIVEN THAT SALES AND USE TAX RECEIPTS WILL BE REALIZED IN THE AMOUNTS ASSUMED IN THE TABLE ABOVE. See the caption "THE SALES AND USE TAX — Future Sales and Use Tax Receipts" herein. 1N ADDITION, THERE CAN BE NO ASSURANCE GIVEN AS TO THE PRECISE AMOUNT AND TIMING OF DEBT SERVICE PAYMENTS ON ANY RLF LOAN OR EARNINGS ON THE DEBT SERVICE RESERVE FUND. Year Ending June 10) Principal Due 2005 2006 2007 2008 2009 2010 2011 2012 2013 Bonds Redeemed Total Bond Prior to MaturitV(2) Principal Retired "' Series 2002 Bonds and Series 2004 Bonds are subject to mandatory redemption from Surplus Tax Receipts on each June 1 and December I. See the caption "THE SERIES 2004 BONDS — Redemptiod' herein. (2) Assuming (i) Sales and Use Tax receipts of $ for the twelve months ending June 1, 2005 and a _/o annual rate of growth, (ii) scheduled debt service on an RLF Loan of S -0- for the twelve months ending June 1, 2005, S for the twelve months ending June I, 2006, $ for the twelve months ending June 1, 2007, $ for the twelve months ending June I, 2008, S for the twelve months ending June 1, 2009, $ for the twelve months ending June 1, 2010, $ for the twelve months ending June 1, 2011 and $ for the twelve months ending June 1, 2012, (iii) earnings on the Debt Service Reserve Fund at a rate of _%' and (iv) use of the entire amount in the Debt Service Reserve Fund ($ ) to redeem Series 2004 Bonds on I, 20. THE CITY General. The City is a city of the first class organized and existing under the laws of the State of Arkansas. The City is the seat of government of Washington County (the "County") and is the fourth largest city in the State. The City is located in the Metropolitan Statistical Area of Fayetteville/Springdale/Rogers (the "MSA"), which includes all of Washington and Benton Counties in the northwest corner of the State and is approximately 185 miles northwest of Little Rock, Arkansas, 125 miles east of Tulsa, Oklahoma, and 210 miles south of Kansas City, Missouri. The City is served by U.S. Interstate 540, U.S. Highways 62 and 71, and State Highways 16, 45, 112, 156, 180 and 265. The Burlington Northern Railroad has several lines running through the City, and a general aviation airport with a 6,006-foot runway is available for limited commuter travel. The Northwest Arkansas Regional Airport is located approximately 40 minutes from downtown Fayetteville and provides daily flights to numerous venues. Government. The City currently operates under the Mayor -Council form of government pursuant to which a mayor, city attorney, city clerk and eight aldermen are elected, two from each of the City's four wards. The mayor, city attorney and city clerk are full-time positions elected to four year terms. Aldermen also serve four year terms. 10-67124.1 10 0 The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Candy Mayor 12/31/04 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/04 Kyle Cook Alderman 12/31/06 Bob Davis Alderman 12/31/04 Lioneld Jordan Alderman 12/31/04 Shirley Lucas Alderman 12/31/06 Don Marr Alderman 12/31/04 Robert Reynolds Alderman 12/31/06 Robert Rhoades Alderman 12/31/06 Brenda Thiel Alderman 12/31/04 Population. The following is a table of population changes for the City, the MSA and the State of Arkansas, according to the United States Census Bureau: City of State of Year Fayetteville MSA Arkansas 1960 20,274 92,069 1,786,272 1970 305729 127,846 1,923,322 1980 369608 178,609 2,2863435 1990 42,099 210,908 213509624 2000 583047 311,121 256735400 Economic Data. Per capita personal income figures for the MSA and the State of Arkansas are as follows: State of Year MSA Arkansas 1992 $18,260 $16,425 1993 189765 162995 1994 192590 17,750 1995 20,193 18,546 1996 20,870 1%442 1997 212586 207228 1998 22,893 21,256 1999 24,213 22,223 2000 235316 21,995 2001 24,585 22,750 2002 24,788 232556 Source: Bureau of Economic Analysis. Retail sales figures for the MSA and the State are as follows: MSA State of MSA as % of Year Arkansas State of Arkansas 1993 $1,88071053000 $16,997,72 1 ,000 11.06% 1994 2,21722291000 19,090,516,000 11.61 1995 294867425,000 207998,9231000 11.84 1996 2,692,5541000 22,053,022,000 12.21 1997 25845,9687000 22,872,236,000 12.44 1998 3,018,896,000 23,94476477000 12.61 1999• n/a n/a n/a 2000 3,5267791,000 28,488,033,000 12.38 2001 30674223000 2%652,693,000 12.84 2002 3,84133265000 2%26%775,000 13.12 2003 31968,812,000 2%920,716,000 13.26 ' Methodology changed to calendar year basis. No reliable information is available for 1999. Source: Sales and Marketing Management Survey of Buyer Power. 10-67124.1 The following table shows the total assessed value of non -utility real and personal property within the City for the years indicated: Year Real Property Personal Property Total 1994 $2457093,513 $ 86,322,277 $331,4151790 1995 3409593,452 101,274,620 441,868,072 1996 35%3695202 113,157,365 472,5262567 1997 382,798,143 1203064,627 5023862,770 1998 40130017338 127,575,096 528,576,434 1999 4139648,415 137,404,499 551,052,914 2000 432,9513171 1457147,891 578,099,062 2001 486,853,822 155,794,579 642,6487401 2002 541,0047690 15836883783 6995693,473 2003 56598467525 16736383657 733,4851182 Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the Cityto are shown below for the years indicated: 2000 2001 2002 2003t�/ 2004o) Residential Building 361 339 328 735 555 Permits Commercial Building 37 38 35 31 19 Permits Value of All Building Permits $121,887,263 $85,262,302 $100,8092486 $17950079987 $102,697,714 (1) Does not include building activity of the University of Arkansas, school permits and additions/alterations to existing structures. (2) Increase largely due to the permitting of a significant number of multifamily developments as well as an acceleration of permit requests in advance of the imposition of impact fees by the City. (3) Through August 31, 2004. Source: City of Fayetteville. Unemployment figures for the MSA and the State of Arkansas, according to the U.S. Bureau of Labor Statistics, are as follows: Year MSA State of Arkansas 1994 2.4% 5.3% 1995 2.4 4.9 1996 2.9 5.4 1997 3.0 5.3 1998 3.2 5.5 1999 2.4 4.5 2000 2.1 4.4 2001 1.7 5.1 2002 2.4 5.4 2003 3.0 6.2 2004* 2.5 5.4 * August, 2004 only. Employment and Industry. The principal campus of the University of Arkansas is located in the City and had total enrollment for the Fall semester of 2004 of approximately 17,269. For the 2003-04 fiscal year ending June 30, 2004, the University has an operating budget in excess of $206 million, which does not include the agricultural experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately 2,867 faculty, administrative, secretarial, clerical and maintenance personnel in both full-time and part-time positions, making the University the largest employer in the City. 10-67124.1 12 Other major employers in the City, their products or services and approximate number of employees are set forth below: Employer Product or Service Employee Range Pinnacle Foods, International Frozen Dinners 1,000-21499 Superior Industries Cast Aluminum Wheels 1,000-2,499 Washington Regional Medical Center Medical 1,000-2,499 Northwest Arkansas Mall Retail (all stores) 1,000-2,499 Tyson Foods Food Products 800-1,599 Fayetteville School District Education 500-999 City of Fayetteville Government 500-999 Arkansas Western Gas Co. Utilities 300-499 Ayrshire Electronics Manufacturing 300499 McClinton Anchor Company Limestone & Hot Mix 300499 Veteran's Admin. Medical Center Medical 300499 Wal-Mart Supercenter Retail 300499 Washington County Government Government 300499 Source: Fayetteville Chamber of Commerce THE SALES AND USE TAX Generally. The Sales and Use Tax is levied under the Election Ordinance pursuant to the authority of the Act. The Sales and Use Tax is a tax within the City on all items which are subject to taxation under The Arkansas Gross Receipts Act of 1941 and a tax on the receipts from storing, using or consuming tangible personal property under The Arkansas Compensating (Use) Tax Act of 1949. The Sales and Use Tax is collected only on the first $2,500 of gross receipts, gross proceeds or sales price from any single transaction. Pursuant to the Indenture and the Authorizing Ordinance, the City has pledged the receipts of the Sales and Use Tax to the payment of the Series 2002 Bonds and the Series 2004 Bonds. Collection of the Sales and Use Tax commenced April 1, 2002. Sales Tax. The sales tax portion of the Sales and Use Tax is generally levied upon the gross proceeds and receipts derived from all sales to any Person within the City of the following: (a) Tangible personal property; (b) Natural or artificial gas, electricity, water, ice, steam, or any other utility or public service except transportation services, sewer services and sanitation or garbage collection services; (c) (i) Service by telephone, telecommunications and telegraph companies to subscribers or users, including transmission of messages or images, whether local or long distance, including all service, installation, construction and rental charges having any connection with transmission of any message or image; (ii) Service of furnishing rooms, suites, condominiums, townhouses, rental houses or other accommodations by hotels, apartment hotels, lodging houses, tourist camps, tourist courts, property management companies, or any other provider of accommodations to transient guests; (iii) Service of cable television, community antenna television, and any and all other distribution of television, video, or radio services with or without the use of wires provided to subscribers, paying customers or users, including installation, service, rental, repair and other charges having any connection with the providing of the said services; (iv) Service or alteration, addition, cleaning, refinishing, replacement and repair of motor vehicles, aircraft, farm machinery and implements, motors of all kinds, tires and batteries, boats, electrical appliances and devices, furniture, rugs, upholstery, household appliances, televisions and radios, jewelry, watches and clocks, engineering instruments, medical and surgical instruments, machinery of all kinds, bicycles, office machines and equipment, shoes, tin and sheet metal, mechanical tools and shop equipment; I Ofi7124.1 13 0 however, the tax does not apply to (A) coin operated car washes, (B) the maintenance or repair of railroad parts, railroad cars and equipment brought into the City solely and exclusively for the purpose of being repaired, refurbished, modified, or converted within the City, (C) the service of alteration, addition, cleaning, refinishing, replacement or repair of commercial jet aircraft or commercial jet aircraft components or subcomponents, (D) the repair or remanufacture of industrial metal rollers or platens that have a remanufactured non-metallic material covering on all or a part of the roller or platen surface, or (E) the alteration, addition, cleaning, refinishing, replacement or repair of non -mechanical, passive or manually operated components of buildings or other improvements or structures affixed to real estate; (v) Service of providing transportation or delivery of money, property or valuables by armored car; service of providing cleaning or janitorial work; service of pool cleaning and servicing; pager services; telephone answering services; landscaping and non-residential lawn care services; service of parking a motor vehicle or allowing a motor vehicle to be parked; service of storing a motor vehicle; service of storing furs; and the service of providing indoor tanning at a tanning salon; (d) Printing of all kinds, types and characters, including the service of overprinting, and photography of all kinds; (e) Tickets or admissions to places of amusement, to athletic, entertainment, recreational events, or fees for the privilege of having access to or the use of amusement, entertainment, athletic or recreational facilities, including free or complimentary passes and tickets, admissions, dues or fees; (f) Dues and fees to health spas, health clubs and fitness clubs; dues and fees to private clubs which hold any permit from the Alcoholic Beverage Control Board allowing the sale, dispensing or serving of alcoholic beverages of any kind on the premises; and (g) Lease or rental of motor vehicles, other than diesel trucks rented for residential moving or commercial shipping or farm machinery rented or leased for a commercial purpose, for a period less than 30 days, or purchase of motor vehicles for rental or lease regardless of the length of the rental or lease. Exemptions from Sales Tax. As summarized below, several types of transactions have been exempted from the sales tax by the General Assembly of the State. Some of the current exemptions include the sale of. (a) New or used house trailers, mobile homes, aircraft, motor vehicles, trailers or semi -trailers and a used house trailer, mobile home, aircraft, motor vehicle, trailer or semi -trailer is taken as a credit or part payment of the purchase price, when the total consideration is less than the following: $2,000 for aircraft, house trailers and mobile homes (or $10,000 in case the house trailer or mobile home is a "manufactured home"); and $2,500 for motor vehicles, trailers and semi -trailers; (b) Aircraft held for resale and used for rental or charter, whether by a business or an individual for a period not to exceed one year from the date of purchase of aircraft; (c) Tangible personal property or services by churches, except where such organizations may be engaged in business for profit; (d) Tangible personal property, or service by charitable organizations, except where such organizations may be engaged in business for profit; (e) Food in public, common, high school or college cafeterias and lunchrooms operated primarily for teachers and pupils, and not operated primarily for the public or for profit; (I) Newspapers; (g) Property or services to the United States Government; motor vehicles and adaptive equipment to disabled veterans who have purchased said vehicles or equipment with financial assistance of the Veterans Administration; tangible personal property to the Salvation Army, Heifer Project International, Inc., Habitat for Humanities, the Boy Scouts of America, the Girl Scouts of America or any of the Scout Councils in the State; tangible personal property or service to the Boys Clubs of America or any local councils or organizations of the 10-67124.1 14 Boys Clubs of America, the Girls Clubs of America or any local councils or organizations of the Girls Clubs of America, to the Poets' Roundtable of Arkansas, to 4-H Clubs and FFA Clubs, to the Arkansas 4-H Foundation, the Arkansas Future Farmers of America Foundation and the Arkansas Future Farmers of America Association; (h) Gasoline or motor vehicle fuel on which the motor vehicle fuel or gasoline tax has been paid to the State and special fuel or petroleum products sold for consumption by vessels, barges and other commercial watercraft and railroads; (i) Property resales to Persons regularly engaged in the business of reselling the articles purchased; 0) Advertising space in newspapers and publications and billboard advertising services; (k) Gate admissions at State, district, county or township fairs or at any rodeo if the receipts derived from gate admissions to the rodeo are used exclusively for the improvement, maintenance and operation of such rodeo, and if no part of the net earnings thereof inures to the benefit of any private stockholder or individual; (1) Property or services which the State is prohibited by the constitution or laws of the United States or by the constitution of the State from taxing or further taxing and tangible personal property exempted from taxation by the Arkansas Compensating (Use) Tax Act of 1949, as amended; (m) Isolated sales not made by an established business; (n) Cotton, seed cotton, lint cotton, bated cotton, whether compressed or not, or cotton seed in its original condition; seed for use in commercial production of an agricultural product or of seed; raw products from the farm, orchard or garden, where such sale is made by the producer of such raw products directly to the consumer and user; livestock, poultry, poultry products and dairy products of producers owning not more than five cows; and baby chickens; (o) Foodstuffs to governmental agencies for free distribution to any public, penal and eleemosynary institutions or for free distribution to the poor and needy, and the rental or sale of medical equipment, for the benefit of Persons enrolled in and eligible for Medicare or Medicaid programs; (p) Tangible personal property or services provided to any hospital or sanitarium operated for charitable and nonprofit purposes or any nonprofit organization whose sole purpose is to provide temporary housing to the family members of patients in a hospital or sanitarium; (q) Used tangible personal property when the used property was (1) traded in and accepted by the seller as part of the sale of other tangible personal property and (2) the Arkansas Gross Receipts Tax was collected and paid on the total amount of consideration for the sale of the other tangible personal property without any deduction or credit for the value of the used tangible personal property; provided, however, this exemption does not apply to transactions involving used automobiles, used mobile homes, or used aircraft; (r) Unprocessed crude oil; (s) Tangible personal property consisting of machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing or packaging of articles of commerce at (i) new manufacturing or processing plants or facilities in the State or (ii) existing manufacturing or processing plants or facilities in the State if the tangible personal property is used to replace existing machinery and equipment; (t) Property consisting of machinery and equipment required by State law or regulation to be installed and utilized by manufacturing or processing plants or facilities to prevent or reduce air and/or water pollution or contamination; (u) Electricity used in the manufacture of aluminum metal by the electrolytic reduction process and sale of articles sold on the premises of the Arkansas Veterans Home; (v) Automobile parts which constitute "core charges," which are received for the purpose of securing a trade-in for the article purchased; (w) Bagging and other packaging and tie materials sold to and used by cotton gins for packaging and/or tying baled cotton and from the sale of twine which is used in the production of tomato crops; 10fi7124.1 15 9 0 (x) Prescription drugs by licensed pharmacists, hospitals, oncologists or dispensing physicians, and oxygen sold for human use on prescription of a licensed physician; (y) Property or services to humane societies; (z) Vessels, barges and towboats of at least fifty tons load displacement and parts and labor used in the repair and construction of the same; (aa) Property or sales to all orphans' homes, or children's homes, which are not operated for profit and whether operated by a church, religious organization or other benevolent charitable association; (bb) Agricultural fertilizer, agricultural limestone and agricultural chemicals; (cc) Sale of tickets or admissions, by municipalities, to places of amusement, to athletic entertainment, recreational events, or fees for the privilege of having access to or the use of amusement, entertainment, athletic or recreational facilities, including free or complimentary passes, tickets, admissions, dues or fees; (dd) Rental and/or lease of specialized equipment used in the filming of a motion picture; (ee) New and used farm machinery and equipment; (ff) New automobiles to a veteran of the United States Armed Services who is blind as a result of a service connected injury; (gg) Motor vehicles sold to municipalities, counties, school districts, and state supported colleges and universities; (hh) School buses sold to school districts and, in certain cases, to other purchasers providing school bus service to school districts; (ii) Natural gas, LP gas, or electricity sold to a processor or mining company engaging in open pit and underground mining or processing of bauxite; ((j) Feedstuffs used in the commercial production of livestock or poultry; (kk) New custom manufactured homes constructed from materials on which the State sales tax has been paid; (11) The first 500 kilowatt hours of electricity per month and the total franchise taxes billed to each residential customer whose household income is less than $12,000 per year; (mm) Waste fuel used in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging of articles of commerce at manufacturing or processing plants or facilities in the State; (nn) Electricity and natural gas to qualified steel manufacturers; (oo) Tangible personal property lawfully purchased with food stamps, food coupons, food instruments or vouchers in connection with certain Federal programs; (pp) Publications sold through regular subscriptions; (qq) Tickets for admission to athletic events and interscholastic activities of public and private elementary and secondary schools in the State and tickets for admission to athletic events at public and private colleges and universities in the State; (rr) Prescriptive adaptive medical equipment and prescriptive disposable medical equipment; (ss) Insulin and test strips for testing blood sugar levels in humans; (it) Telephone instruments sent into the State for refurbishing or repair and then shipped back to the state of origin; (uu) Industrial metal rollers sent into the State for repair or remanufacture and then shipped back to the state of origin; (vv) New motor vehicles purchased by non-profit organizations and used for the performance of contracts with the Department of Human Services, and new motor vehicles purchased with Urban Mass Transit Administration funds if (i) the vehicles are purchased in lots of ten vehicles, (ii) meet minimum State specifications, and (iii) vehicles are used for transportation under the Department of Human Services' programs for the aging, disabled, mentally ill, and children and family services; 10-67124.1 16 (ww) Motor fuels to owners or operators of motor buses operated on designated streets according to regular schedule and under municipal franchise which are used for municipal transportation purposes; (xx) Parts or other tangible personal property incorporated into or which become a part of commercial jet aircraft component or subcomponent; (yy) Transfer of fill material by a business engaged in transporting or delivering fill material; (zz) Long-term leases, thirty days or more, of commercial trucks used for interstate transportation of goods under certain conditions; (aaa) Foodstuffs to nonprofit agencies; (bbb) Tangible personal property consisting of forms constructed of plaster, cardboard, fiberglass, natural fibers, synthetic fibers or composites and which are destroyed or consumed during the manufacture of the item; (ccc) Natural gas used as a fuel in the process of manufacturing glass; (ddd) Sales to Fort Smith Clearinghouse; (eee) Substitute fuel used in producing, manufacturing, fabrication, assembling, processing, finishing or packaging of articles at manufacturing facilities or processing plants in the State; (fff) Railroad rolling stock used in transporting persons or property in interstate commerce; (ggg) Parts or other tangible personal property which become apart of railroad parts, railroad cars and equipment brought into the State for the purpose of being repaired, refurbished, modified or converted within the State; (hhh) Fire protection and emergency equipment to be owned by and exclusively used by a volunteer fire department, and supplies and materials to be used in the construction and maintenance of volunteer fire departments; and (iii) Gas produced from biomass and sold for the purpose of generating energy to be sold to the gas producer. Reference is made to "The Arkansas Gross Receipts Act of 1941," Title 26, Chapter 52 of the Arkansas Code of 1987 Annotated, for more information concerning the sales tax. Use Tax. The use tax portion of the Sales and Use Tax is levied on every Person for the privilege of storing, using, distributing or consuming in the City any article of tangible personal property purchased for storage, use, distribution or consumption. The use tax applies to the use, distribution, storage or consumption of every article of tangible personal property except as hereinafter provided. The use tax does not apply to aircraft equipment, and railroad parts, cars, and equipment, nor to tangible personal property owned or leased by aircraft, automotive or railroad companies brought into the City solely and exclusively for refurbishing, conversion, or modification within the City or storage for use outside or inside the City regardless of the length of time any such property is so stored in the City. The use tax is levied on the following described tangible personal property: (a) Tractors, trailers, semi -trailers, trucks, buses and other rolling stock, including replacement tires, used directly in the transportation of persons or property in intrastate or interstate common carrier transportations; (b) Property (except hie]) consumed in the operation of railroad rolling stock; (c) Transmission lines and pumping or pressure control equipment used directly in or connected to the primary pipeline facility engaged in intrastate or interstate common carrier transportation of property; (d) Airplanes and navigation instruments used directly in or becoming a part of flight aircraft engaged in transportations of persons or property in regular scheduled intrastate or interstate common carrier transportation; (e) Exchange equipment, lines, boards and all accessory devices used directly in and connected to the primary facility engaged in the transmission of messages; (f) Transmission and distribution pipelines in pumping or pressure control and equipment used in connection therewith used directly in primary pipeline facility for the purpose of transporting and delivering natural gas; 10-67124.1 17 i 0 (g) Transmission and distribution lines, pumping machinery and controls used in connection therewith in cleaning or treating equipment of primary water distribution system; (h) Property of public electric power companies consisting of all machinery and equipment including reactor cores and related accessory devices used in the generation and production of electric power and energy and transmission facilities consisting of the lines, including poles, towers and other supporting structures, transmitting electric power and energy together with substations located on or attached to such lines; and (i) Computer software. Exemptions from Use Tax. Some of the property exempted from the use tax by the General Assembly of the State is as follows: (a) Property, the storage, use or consumption of which the State is prohibited from taxing under the Constitution or laws of the United States of America or the State; (b) Sales of tangible personal property in which the tax under the Arkansas Gross Receipts Act of 1941 is levied; (c) Tangible personal property which is exempted from the sales tax under the Arkansas Gross Receipts Act of 1941; (d) Feedstuffs used in the commercial production of livestock or poultry in the State; (e) Unprocessed crude oil; (t) Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, fmishing or packaging of articles of commerce at manufacturing or processing plants or facilities in the State, including facilities and plants for manufacturing feed, processing of poultry and/or eggs and livestock and the hatching of poultry and such equipment is either (1) purchased to create or expand manufacturing or processing plants in the State, (2) purchased to replace existing machinery and used directly in producing, manufacturing, fabricating, assembling, processing, finishing or packaging of articles of commerce at manufacturing or processing plants in the State, or (3) required by State law to be installed and utilized by manufacturing or processing plants to prevent or reduce air and/or water pollution or contamination; (g) Custom manufactured homes constructed with materials on which the sales or use tax has once been paid; (h) Aircraft, aircraft equipment, railroad parts, cars, and equipment, and tangible personal property owned or leased by aircraft, airmotive, or railroad companies, brought into the State solely and exclusively for refurbishing, conversion, or modification or for storage for use outside or inside the State; (i) Vessels, barges, and towboats of at least 50 tons load displacement and parts and labor used in the repair and construction of them; 0) Motor fuels to the owners or operators of motor buses operated on designated streets according to regular schedule, under municipal franchise, which are used for municipal transportation purposes; (k) Agricultural fertilizer, agricultural limestone, agricultural chemicals, including agricultural pesticides and herbicides used in commercial production of agricultural products, and vaccines, medications, and medicinal preparations, used in treating livestock and poultry being grown for commercial purposes and other ingredients used in the commercial production of yeast; (1) All new and used motor vehicles, trailers or semi -trailers that are purchased for a total consideration of less than $2,000; and (m) Any tangible personal property used, consumed, distributed, or stores in this State upon which a like tax, equal to or greater than the Arkansas Compensating (Use) Tax, has been paid in another state. Reference is made to "The Arkansas Compensation (Use) Tax Act of 1949," Title 26, Chapter 53 of the Arkansas Code of 1987 Annotated, for more information concerning the use tax. Administration. Pursuant to the Act, the Commissioner of Rm evenues of the State (the "Comissioner") performs all functions incidental to the administration, collection, enforcement and operation of the Sales and Use Tax. All Sales and Use Tax receipts collected, less certain charges payable and retainage due the commissioner for administrative services in the amount of 3% of the gross Sales and Use Tax receipts, shall be remitted by the State I M7124.1 18 Treasurer to the Trustee monthly. See the caption "SUMMARY OF THE INDENTURE —Application of Sales and Use Tax Receipts" herein. Future Sales and Use Tax Receipts. Sales and Use Tax receipts will be contingent upon the sale and use of property and services within the City, which activity is generally dependent upon economic conditions within the City. Also, Sales and Use Tax receipts may be affected by changes to transactions exempted from the Sales and Use Tax made by legislation adopted by the General Assembly of the State or by the people of the State in the form of a constitutional amendment or initiated act. In the past the General Assembly of the State has considered new exemptions to the Sales and Use Tax, such as food sales, which, if adopted, would materially reduce Sales and Use Tax receipts. The City has no control over actions of the General Assembly or the people of the State and cannot predict whether changes to the Sales and Use Tax may be made. Accordingly, the City cannot predict with certainty the expected amount of Sales and Use Tax receipts to the be received and, therefore, there can be no assurance that Sales and Use Tax receipts will be sufficient to pay the principal of and interest on the Bonds. DEFINITIONS OF CERTAIN TERMS The following are definitions of certain terns used in this Official Statement: "Account" means an Account established by Article V of the Indenture. "Act" means the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Rep). & Supp. 2003) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" means Bonds in addition to the Series 2002 Bonds and the Series 2004 Bonds which are issued under the provisions of Section 212 of the Indenture. "Amendment 62" means Amendment No. 62 to the Constitution of Arkansas, approved by the voters of the State on November 6, 1984. "Annual Debt Service" means, with respect to all or any particular amount of Bonds or any RLF Loan, as the case may be, the Debt Service for any particular Fiscal Year required to be paid or set aside during such Fiscal Year, less the amount of such payment which is provided from the proceeds of the sale of Bonds or which is drawn under an RLF Loan or from sources other than Sales and Use Tax receipts. "Authorized Representative" means either the Mayor or Finance and Internal Services Director of the City and such additional persons as from time to time may be designated to act on behalf of the City by a Certificate furnished to the Trustee containing the specimen signature thereof and executed on behalf of the City by its Mayor. "Authorizing Ordinance" means Ordinance No. _, adopted by the City on October _, 2004, which authorized the issuance of the Series 2004 Bonds pursuant to the Indenture. "Beneficial Owner" means any Person who acquires beneficial ownership interest in a Bond held by the Securities Depository. In determining the Beneficial Owner of any Bond, the Trustee may rely exclusively upon written representations made and information given to the Trustee by the Securities Depository or its Participants with respect to any Bond held by the Securities Depository in which a beneficial ownership interest is claimed. "Bond Counsel" means any firm of nationally recognized municipal bond counsel selected by the City and acceptable to the Trustee. "Bond Fund" means the fund by that name created and established in the Indenture. "Bonds" mean the Series 2002 Bonds, the Series 2004 Bonds and all Additional Bonds issued by the City pursuant to the Indenture. Except to the extent provided in Section 209 of the Indenture and except for refunding bonds issued under the Indenture, the aggregate principal amount of Bonds and any RLF Loan incurred by the City shall not exceed $125,000,000. "Book -Entry System" means the book -entry system maintained by the Securities Depository and described in the Indenture. "Certificate" means a document signed by an Authorized Representative of the City attesting to or acknowledging the circumstances or other matters therein stated. "City" means the City of Fayetteville, Arkansas, a municipality and political subdivision under the laws of the State of Arkansas. 10fi7124.1 19 "Closing Date" means, with respect to any series of Bonds, the date upon which there is an exchange of such series of Bonds for the proceeds representing the purchase price for such series of Bonds by the Original Purchaser or Purchasers thereof. "Code" means the Internal Revenue Code of 1986, as from time to time amended, and applicable regulations issued or proposed thereunder. "Continuing Disclosure Agreement" means, collectively, each Continuing Disclosure Agreement between the City and the Trustee, dated the date of issuance and delivery of a series of Bonds, as originally executed and as amended from time to time in accordance with the terms thereof. "Costs of Issuance" means all items of expense payable or reimbursable directly or indirectly by the City and related to the authorization, sale and issuance of the Bonds, including, but not limited to, underwriting discounts, fees and expenses, election expenses, publication expenses, expenses of printing, reproducing, filing and recording documents, initial fees and charges of the Trustee and any Paying Agent, fees and expenses for legal, accounting and other professional services, rating fees, costs of securing any credit enhancement for the Bonds, costs of execution, transportation and safekeeping of the Bonds, and other costs, charges and fees incurred in connection with the foregoing. "Costs of Issuance Fund" means the fund by that name created and established in the Indenture. "Debt Service" means, with respect to all or any particular amount of Bonds or any RLF Loan, as the case may be, the total as of any particular date of computation and for any particular period of the scheduled amount of interest and amortization of principal payable on such Bonds and any RLF Loan, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Reserve Fund" means the fund by that name created and established in the Indenture. "Election Ordinance" means Ordinance No. 4327, adopted by the City Council on August 7, 2001, pursuant to which there was submitted to the qualified electors of the City the question of the issuance of the Bonds. "Event of Default" means any event of default specified in Section 801 of the Indenture. "Fiscal Year" means the 12-month period used, at any time, by the City for accounting purposes, which may be the calendar year. "Fund" means a fund established by the Indenture. "Government Securities" means (i) bonds, notes, certificates of indebtedness, treasury bills or other securities constituting direct obligations of, or obligations on which the full and timely payment of principal and interest is fully and unconditionally guaranteed by, the United States of America (including any such securities issued or held in book -entry form on the books of the Department of Treasury of the United States of America), and (ii) evidences of direct ownership or proportionate or individual interest in future interest or principal payments on specified direct obligations of, or obligations on which the full and timely payment of principal and interest is fully and unconditionally guaranteed by, the United States of America, which obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian in form and substance satisfactory to the Trustee. "Holder" or `Bondholder" or "owner of the Bonds" means the registered owner of any Bond. "Indenture" means the Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004, between the City and the Trustee, pursuant to which the Bonds are issued, and any further amendments and supplements thereto. "Investment Securities" means, if and to the extent the same are at the time legal for investment of Funds and Accounts held under the Indenture: (a) Government Securities; (b) bonds, notes or other obligations of any state of the United States of America or any political subdivision of any state, which at the time of their purchase are rated in either of the two highest rating categories by a nationally recognized Rating Agency; (c) certificates of deposit or time or demand deposits constituting direct obligations of any bank, bank holding company, savings and loan association or trust company organized under the laws of t o-67124. t 20 the United States of America or any state thereof (including the Trustee or any of its affiliates), except that investments may be made only in certificates of deposit or time or demand deposits which are: (1) insured by the Federal Deposit Insurance Corporation, or any other similar United States Government deposit insurance program then in existence; or (2) continuously and fully secured by Government Securities, which have a market value, exclusive of accrued interest, at all times at least equal to the principal amount of such certificates of deposit or time or demand deposits; (d) short term discount obligations of the Federal National Mortgage Association and the Government National Mortgage Association; and (e) money market mutual funds (1)that invest in Government Securities or that are registered with the federal Securities and Exchange Commission (SEC), meeting the requirements of Rule 2a-7 under the Investment Company Act of 1940, and (2) that are rated in either of the two highest categories by a nationally recognized Rating Agency. "Mayor" means the person holding the office and performing the duties of the Mayor of the City. "Original Purchaser" means the first purchaser(s) of a series of Bonds from the City. "Outstanding" means, as of any date of computation, Bonds theretofore or thereupon being delivered under the Indenture, except: (a) Bonds cancelled at or prior to such date or delivered to or acquired by the Trustee at or prior to such date for cancellation; (b) Bonds deemed to be paid in accordance with Article V II of the Indenture; and (c) Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture. "Participants" means those financial institutions for whom the Securities Depository effects book -entry transfers and pledges of securities deposited with the Securities Depository in the Book -Entry System, as such listing of Participants exists at the time of such reference. "Paying Agent" means any bank or trust company named by the City as the place at which the principal of and premium, if any, and interest on the Bonds are payable. "Person" means any natural person, firm, association, corporation, limited liability company, partnership, joint stock company, joint venture, trust, unincorporated organization or firm, or a government or any agency or political subdivision thereof or other public body. "Project" means the acquisition, construction, reconstruction, extension, improving and equipping of System wastewater treatment plants, sewerage and related facilities. "Project Costs" means, to the extent permitted by the Act or other applicable laws, with respect to the Project, all costs of planning, designing, purchasing, acquiring, constructing, improving, enlarging, extending, repairing, financing and placing in operation, including obtaining governmental approvals, certificates, permits and licenses with respect thereto, heretofore or hereafter paid or incurred by or on behalf of the City and which shall include, but shall not be limited to: (a) interest accruing in whole or in part on the Bonds prior to and during construction of the Project, including all amounts required by the Indenture to be paid from the proceeds of the Bonds into the Bond Fund; (b) preliminary investigation and development costs, engineering fees, contractors' fees, labor costs, the cost of materials, equipment, utility services and supplies, costs of obtaining permits, licenses and approvals, costs of real property, insurance premiums, legal and financing fees and costs, administrative and general costs, and all other costs properly allocable to the acquisition, construction and equipping of the Project and placing the same in operation; (c) all costs relating to injury and damage claims arising out of the acquisition, construction or equipping of the Project; 10-67124.1 21 (d) all other costs incurred in connection with, and properly allocable to, the acquisition, construction and equipping of the Project; and (e) amounts to pay or reimburse the City or any City fund for expenses of the City incident and properly allocable to such planning, designing, purchasing, acquiring, constructing, improving, enlarging, extending, repairing, financing and placing in operation of the Project. "Project Fund" means the fund by that name created and established in the Indenture. "Qualified Engineer" means an independent consulting engineer or firm of independent consulting engineers not in the regular employ of the City. "RLF Loan" means any loan to the City under the Arkansas Soil and Water Conservation Commission Revolving Loan Fund Program, which loan is to be secured by Sales and Use Tax receipts on a parity basis with the Bonds. Any RLF Loan may, but need not, be structured in the form of an Additional Bond or Additional Bonds issued hereunder. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and thew respective successors and assigns. If any such corporation ceases to act as a securities rating agency, the City may appoint any nationally recognized securities rating agency as a replacement. "Rebate Fund" means the fund by that name created and established in the Indenture. "Record Date" means the fifteenth day of the calendar month preceding the calendar month in which an interest payment date on the Bonds occurs. "Redemption Fund" means the fund by that name established in the Indenture. "Requisition" means a written requisition of the City, consecutively numbered, signed by an Authorized Representative including, without limitation, the following with respect to each payment requested: (i) the name of the Person or party to whom payment is to be made and the purpose of the payment, (ii) the amount to be paid thereunder; (iii) that such amount has not been previously paid by the City and is justly due and owing to the Person(s) named therein as a proper payment or reimbursement of a Project Cost; and (iv) that no Event of Default exists under the Indenture and that, to the knowledge of the Authorized Representative, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. "Reserve Requirement" means, at any particular time, an amount equal to 5% of the aggregate Outstanding principal amount of Outstanding Bonds of all series, except as may otherwise be provided in Section 508 of the Indenture with respect to RLF Loans. "Revenue Fund" means the fund by that name created and established in the Indenture. "Sales and Use Tax" means the three-quarters of one percent (0.75%) city-wide sales and use tax authorized under the Act which has been levied within the City pursuant to the Election Ordinance, the collection of which tax commenced on April 1, 2002, as approved by the voters of the City. Receipts of the Sales and Use Tax are pledged to the payment of Debt Service on the Bonds. "Securities Depository" means The Depository Trust Company, New York, New York, or its nominee, and its successors and assigns. "Series 2002 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2002, issued under and secured by the Indenture in the original aggregate principal amount of $25,000,000. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued under and secured by the Indenture in the aggregate principal amount of [$35,000,000]'. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture. Preliminary; subject to change. 10-67124.1 22 "Surplus Tax Receipts" shall have the meaning ascribed to such term in Section 503 of the Indenture. "System" means the City's combined water and sewer utility system. "Tax Regulatory Agreement" means with respect to any series of Bonds, that Tax Regulatory Agreement of the City relating to maintenance of the excludability of interest on such Bonds from gross income for federal income tax purposes, delivered in connection with the issuance of such series of Bonds. "Trustee" means the banking corporation or association designated as Trustee in the Indenture, and its successor or successors as such Trustee. The original Trustee is Simmons First Trust Company, N.A. "Trust Estate" means the property described in the granting clauses of the Indenture. SUMMARY OF THE INDENTURE The following statements are brief summaries of certain provisions of the Indenture. The statements do not purport to be complete, and reference is made to the Indenture, copies of which are available for examination at the offices of the Finance and Internal Services Director of the City, for a full statement thereof. Funds and Accounts. Receipts of the Sales and Use Tax are pledged by the Indenture to the payment of the principal of and interest on the Bonds. The following Funds and Accounts have been established with the Trustee in connection with the Bonds: Funds and Accounts Revenue Fund Bond Fund, and a Principal Account and an Interest Account therein Debt Service Reserve Fund Redemption Fund Project Fund Cost of Issuance Fund Rebate Fund Application of Sales and Use Receipts. The application of Sales and Use Tax receipts is as follows: (a) Revenue Fund. All Sales and Use Tax receipts shall, as and when received, be deposited into the Revenue Fund. All moneys at any time in the Revenue Fund shall be applied on a monthly basis to the payment of Debt Service on the Bonds and any RLF Loans, to the maintenance of the Debt Service Reserve Fund, to the payment of any arbitrage rebate due under Section 148(f) of the Code, to the payment of fees and expenses of the Trustee and any Paying Agent, and to the early redemption of the Bonds, at the times and in the amounts set forth as follows: (b) Bond Fund. Upon receipt, but in no event later than the last day of each month in which Sales and Use Tax receipts are deposited in the Revenue Fund, there shall be transferred from the Revenue Fund (i) into the Interest Account of the Bond Fund, an amount equal to 1/6 of the interest on the Bonds due on the next interest payment date and an amount equal to the interest component of any monthly payment prescribed with respect to any RLF Loan, and (ii) into the Principal Account of the Bond Fund, an amount equal to 1/12 of the principal on the Bonds due on the next principal payment date and an amount equal to the principal component of any monthly payment prescribed with respect to any RLF Loan. Moneys in the Bond Fund shall be used solely for the purpose of paying Annual Debt Service on the Bonds or RLF Loans or for redemption of the Bonds, as provided in the Indenture. The Trustee shall withdraw from the Bond Fund, on the date of any principal or interest payment,'an Amount equal to such payment for the sole purpose of paying the same. If Sales and Use Tax receipts in the Revenue Fund are insufficient to make the required monthly payment into the Bond Fund, the amount of any such deficiency in the payment made shall be added to the amount otherwise required to be paid into the Bond Fund not later than last day of the next succeeding month. When the moneys held in the Revenue Fund, the Bond Fund, the Debt Service Reserve Fund and the Redemption Fund shall be and remain sufficient to pay in full the principal of and interest on all Bonds and RLF Loans then Outstanding in accordance with the Indenture, together with the required fees and expenses to be paid or 10-67124.1 23 reimbursed to the Trustee and any Paying Agent, the City shall have no further obligation to make payments into such Funds and the levy of the Sales and Use Tax shall cease. (c) Debt Service Reserve Fund. See the caption "SECURITY FOR THE BONDS — Debt Service Reserve" herein. (d) Redemption Fund. After making the required deposits into the Bond Fund, into the Debt Service Reserve Fund, and into the Rebate Fund, and after paying the fees and expenses of the Trustee and any Paying Agent, there shall be paid from the Revenue Fund into the Redemption Fund all remaining moneys in the Revenue Fund (the "Surplus Tax Receipts"). Moneys in the Redemption Fund shall be transferred to the Principal Account of the Bond Fund at such times as may be necessary to effectuate redemptions of the Bonds on the first available redemption date. So long as the Series 2002 Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2002 Bonds prior to maturity. Following maturity or redemption in full of the Series 2002 Bonds and for so long as the Series 2004 Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2004 Bonds prior to maturity. See the captions "THE SERIES 2004 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS" herein. (e) Project Fund. A portion of the proceeds of the Series 2004 Bonds shall be deposited in the Project Fund. See the caption "ESTIMATED SOURCES AND USES OF FUNDS" herein. Amounts in the Project Fund shall be expended only for the payment of Project Costs upon the submission of Requisitions by the City to the Trustee. The Trustee shall only make payments from the Project Fund pursuant to and in accordance with Requisitions. Within ninety (90) days following completion of the portion of the Project being financed with a particular series of Bonds, the City shall deliver to the Trustee its Certificate stating that the applicable portion of the Project is complete and the Trustee shall transfer the remaining moneys in the Project Fund relating to such series of Bonds (save and except moneys needed to satisfy unpaid Project Costs) to the Redemption Fund for application to the retirement of Bonds. See the caption "THE SERIES 2004 Bonds — Redemption" herein. (f) Cost of Issuance Fund. A portion of the proceeds of the Series 2004 Bonds shall be deposited to the credit of the Cost of Issuance Fund. The Trustee shall pay those Costs of Issuance as directed by the City pursuant to a Certificate delivered on a Closing Date. After all Costs of Issuance have been paid with respect to a series of Bonds, any remaining moneys in the Cost of Issuance Fund shall be transferred to the Interest Account of the Bond Fund. (g) Rebate Fund. The Trustee shall establish and maintain, separate and apart from any other Funds and Accounts established and maintained under the Indenture, the Rebate Fund, which Fund is not pledged to the payment of any Bonds or RLF Loan. Subject to transfer to the United States in payment of any arbitrage rebate due under Section 148(f) of the Code, all moneys at any time deposited in the Rebate Fund shall be held by the Trustee in trust, and neither the City nor the Owner of any Bond shall have any rights in or claim to such money. Any amounts remaining in the Rebate Fund after payment in full of the rebate amount owing to the United States, within sixty (60) days after the date on which the last Bond is redeemed, shall be transferred to the Revenue Fund. Investment of Funds. At the direction of the City or absent such direction, the Trustee shall invest moneys in Funds or Accounts held by the Trustee in Investment Securities with maturity or redemption dates consistent with the times at which said moneys will be required for the purposes provided in the Indenture; provided, however, the stated maturity dates of Investment Securities of Debt Service Reserve Fund moneys shall not exceed five years from the date of investment therein. Moneys in separate Funds or Accounts may be commingled for the purpose of investment. Obligations purchased as an investment of moneys in any Fund or Account created by the Indenture shall be deemed at all times to be a part of such Fund or Account, and any income or loss due to an investment thereof shall be charged to the respective Fund or Account for which the investment was made except as otherwise provided in the Indenture. Investments in any Fund or Account shall be evaluated at least annually by the Trustee. For the purpose of determining the amount in any Fund or Account, the City and the Trustee shall value all Investment Securities credited to such Fund or Account at the price at which such Investment Securities are redeemable by the Holders or owners thereof at their option if so redeemable, or, if not so redeemable, at the lesser of (i) the cost of such Investment Securities minus the amortization of any premium or plus the amortization of any discount thereon and (ii) the market value of such Investment Securities, provided that Investment Securities credited to the Debt Service Reserve Fund, if not so redeemable, shall be valued at the cost thereof minus the amortization of any premium or plus the amortization of any discount thereon. 10-67124.1 24 Valuation of Funds and Accounts. In determining the value of any Fund or Account held by the Trustee under the Indenture, the Trustee shall credit Investment Securities at the fair market value thereof, as determined by the Trustee by any method selected by the Trustee in its reasonable discretion. No less frequently than annually, and in any event within thirty (30) days prior to the end of each Fiscal Year, the Trustee shall determine the value of each Fund and Account held under the Indenture and shall report such determination to the City. The Trustee shall sell or present for redemption any Investment Securities as necessary in order to provide money for the purpose of making any payment required under the Indenture, and the Trustee shall not be liable for any loss resulting from any such sale. Responsibility of Trustee. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of moneys made by it at the direction of the City. Instruments of Further Assurance. At any and all times the City shall, so far as it may be authorized by law, pass, make, do, execute, acknowledge and deliver, all and every such further resolutions, ordinances, acts, deeds, conveyances, assignments, transfers and assurances as may be necessary or desirable for the better assuring, conveying, granting, pledging, assigning and confirming of all and singular the receipts from the Sales and Use Tax and all other moneys pledged or assigned by the Indenture, or intended so to be, or which the City may become bound to pledge or assign. Tax Covenants. The City shall not use or permit the use of any Bond proceeds or any other funds of the City, directly or indirectly, in any manner, and will not take or permit to be taken any other action or actions which would adversely effect the exclusion of interest on any Bond from gross income for federal income tax purposes. No part of the proceeds of the Bonds shall at any time be used, directly or indirectly, to acquire securities or obligations the acquisition of which would cause any of such Bonds to be an "arbitrage bond" as defined in Sections 148(a) and (b) of the Code. The City agrees that so long as any of the Bonds remain Outstanding, it will comply with the provisions of each applicable Tax Regulatory Agreement. Drawdowns Under RLF Loans. The City covenants and agrees not to requisition amounts available under any RLF Loan unless the Sales and Use Tax receipts during the Fiscal Year immediately preceding the Fiscal Year in which such Requisition is to occur were not less than 125% of the maximum Annual Debt Service on all Outstanding Bonds and any RLF Loan following such Requisition. Defeasance. Any Bond shall be deemed to be paid within the meaning of the Indenture when payment of the principal of and premium, if any, and interest on such Bond (whether at maturity or upon redemption as provided in the Indenture, or otherwise), either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably set aside exclusively for such payment, (1) moneys sufficient to make such payment or (2) Government Securities (provided that such deposit will not affect the tax-exempt status of the interest on any of the Bonds or cause any of the Bonds to be classified as "arbitrage bonds" within the meaning of Section 148(a) of the Code, as reflected in an opinion of Bond Counsel delivered to the Trustee), maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys to make such payment, and all necessary and proper fees, compensation and expenses of the Trustee and any Paying Agent pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee and any said Paying Agent. Events of Default. Each of the following events shall constitute and is referred to in the Indenture as an "Event of Default": (a) Default in the due and punctual payment of any interest on any Bond; (b) Default in the due and punctual payment of the principal of or premium, if any, on any Bond, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by declaration; (c) Default in the payment of any other amount required to be paid under the Indenture or the performance or observance of any other of the covenants, agreements or conditions contained in the Indenture, or in the Bonds issued under the Indenture, and continuance thereof for a period of sixty (60) days after written notice specifying such failure and requesting that it be remedied, shall have been given to the City by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of Holders of not less than fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding, unless the Trustee, or the Trustee and Holders of an aggregate principal amount of Bonds not less than the aggregate principal amount of Bonds the Holders of which requested such notice, as the case may be, shall agree in writing to an extension of such 10-67124.1 25 period prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Trustee will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by the City within such period and is being diligently pursued; (d) The filing of a petition in bankruptcy by or against the City under the United States Bankruptcy Code or the commencement of a proceeding by or against the City under any other law concerning insolvency, reorganization or bankruptcy; and (e) If the State has limited or altered the rights of the City pursuant to the Act, as in force on the date of the Indenture, to fulfill the terms of any agreements made with the Trustee or the Bondholders or in any way impaired the rights and remedies of the Trustee or the Bondholders while any Bonds are Outstanding. The term "default" as used in clauses (a), (b) and (c) above shall mean default by the City in the performance or observance of any of the covenants, agreements or conditions on its part contained in the Indenture, or in the Bonds Outstanding thereunder, exclusive of any period of grace required to constitute a default an "Event of Default" as described above. Acceleration. Upon the occurrence of an Event of Default, the Trustee may, and upon the written request of the Holders of not less than 51 % in aggregate principal amount of Bonds Outstanding shall, by notice in writing delivered to the City, declare the principal of all Bonds then Outstanding, together with any premium and the interest accrued thereon, immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Other Remedies; Rights of Bondholders. Upon the occurrence of an Event of Default, the Trustee may, as an alternative, pursue any available remedy by suit at law or in equity, including, without limitation, mandamus to enforce the payment of the principal of and premium, if any, and interest on the Bonds then Outstanding. If an Event of Default shall have occurred, and if it shall have been requested so to do by the Holders of 51% in aggregate principal amount of Bonds Outstanding and if it shall have been indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred upon it by the Indenture as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the Bondholders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any default or Event of Default under the Indenture, whether by the Trustee or by the Bondholders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. Rights and Remedies of Bondholders. No Holder of any Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy thereunder, unless a default has occurred of which the Trustee has been notified as provided in the Indenture, or of which by the Indenture it is deemed to have notice, nor unless such default shall have become an Event of Default and the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers granted or to institute such action, suit, or proceeding in its own name, nor unless also they have offered to the Trustee indemnity as provided in the Indenture nor unless the Trustee shall thereafter fail or refuse to exercise the powers granted, or to institute such action, suit, or proceeding in its own name; and such notification, request and offer of indemnity are declared in every such case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of the Indenture, and to any action or cause of action for the enforcement of the Indenture or for the appointment of a receiver or for any other remedy thereunder; it being understood and intended that no one or more Holders of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Indenture by action of the Holder or Holders or to enforce any right under the Indenture except in the manner therein provided, and that all proceedings at law or in equity shall be instituted, held and maintained in the manner therein provided for the equal benefit of the Holders of all Bonds Outstanding thereunder. Nothing in the Indenture contained shall, however, affect or impair 10-67124.1 26 the right of any Bondholders to enforce the payment of the principal of and premium, if any, and interest on any Bonds at and after the maturity thereof, or the obligation of the City to pay the principal of and premium, if any, and interest on each of the Bonds issued under the Indenture to the respective Holders thereof at the time and place in said Bonds expressed. Supplemental Indentures Not Requiring Consent of Bondholders. The City and the Trustee may, from time to time and at any time, without the consent of or notice to the Bondholders, enter into Supplemental Indentures as follows: (a) to cure any formal defect, omission, inconsistency or ambiguity in the Indenture; (b) to grant to or confer or impose upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers, authority, security, liabilities or duties which may lawfully be granted, conferred or imposed and which are not contrary to or inconsistent with the Indenture as theretofore in effect, provided that no such additional liabilities or duties shall be imposed upon the Trustee without its consent; (c) to add to the covenants and agreements of, and limitations and restrictions upon, the City in the Indenture other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with the Indenture as theretofore in effect; (d) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, the Indenture, of the Trust Estate or of any other moneys, securities or funds; (e) to comply with the requirements of the Trust Indenture Act of 1939, as from time to time amended; (f) to authorize the issuance and sale of one or more series of Additional Bonds; (g) to make such additions, deletions or modifications as may be necessary to assure compliance with Section 148(i) of the Code relating to required rebate to the United States or otherwise as may be necessary to assure exemption from federal income taxation of interest on the Bonds; or (h) to modify, alter, amend or supplement the Indenture in any other respect which is not materially adverse to the Bondholders and which does not involve a change described in clause (a), (b), (c), (d), (e) or (f) below and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Supplemental Indentures Requiring Consent of Bondholders. Subject to the terms and provisions contained in this paragraph, and not otherwise, the Holders of not less than 2/3 in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything contained in the Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such indenture or indentures supplemental to the Indenture as shall be deemed necessary and desirable by the City for the purpose of modifying, altering, amending, adding to, or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any Supplemental Indenture; provided, however, that nothing contained in the Indenture shall permit or be construed as permitting (a) an extension of the maturity (or mandatory redemption date) of the principal of or the interest on any Bond issued thereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Bond issued thereunder, or (c) the creation of any lien on the Trust Estate or any part thereof, except as expressly permitted in the Indenture, or (d) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (e) a reduction in the aggregate principal amount of the Bonds required for consent to such Supplemental Indenture, or (f) depriving the Holder of any Bond then Outstanding of the lien created on the Trust Estate. If, at any time the City shall request the Trustee to enter into any Supplemental Indenture for any of the purposes described above, the Trustee shall, at the expense of the City, cause notice of the proposed execution of such Supplemental Indenture to be mailed by first class mail to each registered owner of the Bonds. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the principal office of the Trustee for inspection by Bondholders. The Trustee shall not, however, be subject to any liability to any Bondholder by reason of its failure to mail such notice, and any such failure shall not affect the validity of such Supplemental Indenture when consented to and approved as provided above. If the Holders of not less than 2/3 in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such Supplemental Indenture shall have consented to and approved the execution thereof, no Holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the City from executing the same or from taking any action pursuant to the provisions thereof. 10-67124.1 27 SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT The City has entered into an undertaking in the form of the Continuing Disclosure Agreement as required by the Indenture for the benefit of the Beneficial Owners of the Series 2004 Bonds to cause certain financial information to be sent to certain information repositories annually and to cause notice to be sent to such information repositories of certain specified events, pursuant to the requirements of Section (b)(5)(i) of Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (the "Rule"). The City has not failed to comply with any previous undertaking pursuant to the Rule. The Continuing Disclosure Agreement contains the following covenants and provisions: (a) The City shall, not later than August 1 of each year, commencing August 1, 2005, provide to each Repository and the Trustee its Annual Financial Information consistent with the requirements of subsection (d) below. (b) If, on the date specified in subsection (a) above for providing the Annual Financial Information to Repositories, the Trustee has not received a copy of the Annual Financial Information, the Trustee shall contact the Disclosure Representative to determine if the City is in compliance with subsection (a). (c) If the Trustee is unable to verify that the Annual Financial Information has been provided to the Repositories by the date required within subsection (a), the Trustee shall file a notice to such effect with the Repositories and the MSRB. (d) The City's Annual Financial Information shall contain or incorporate by reference the following: (i) Receipts of the Sales and Use Tax for the latest Fiscal Year and for the four previous Fiscal Years, if. available. . (ii) The City's audited financial statements for the prior Fiscal Year, prepared in accordance with accounting principles generally accepted in the United States ("GAAP") as such principles are modified by the governmental accounting standards promulgated by the Government Accounting Standards Board ("GASB") and by mandated principles of the State of Arkansas, if any, as in effect from time to time, which financial statements have been audited by such auditor as shall then be required or permitted by the laws of the State of Arkansas. If the City's audited financial statements are not available by the time its Annual Financial Information is required to be filed pursuant to subsection (a) above, the Annual Financial Information shall contain the unaudited financial statements of the City, and the audited financial statements shall be filed in the same manner as the Annual Financial Information when they become available. (e) The City has agreed to instruct the Trustee to deliver to each National Repository, or the MSRB and the Arkansas State Repository, notice of the occurrence of any of the following Specified Events, if deemed material: (i) Principal and interest payment delinquencies; (ii) Non-payment related defaults; (iii) Unscheduled draws on any debt service reserve reflecting financial difficulties; (iv) Unscheduled draws on any credit enhancement reflecting financial difficulties; (v) Substitution of any credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions or events affecting the tax-exempt status of the Series 2004 Bonds; (vii) Modifications to rights of Bondowners; (viii) Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2004 Bonds; or (xi) Rating changes. (f) The City has agreed that the foregoing undertakings shall be for the benefit of the Beneficial Owners of the Series 2004 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2004 Bonds in an action for specific performance against the City. 10-67124.1 28 (g) The continuing obligation of the City to provide Annual Financial Information and notice of the occurrence of Specified Events, if material, will terminate if the City is no longer an "obligated person" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2004 Bonds. The City and the Trustee may amend the Continuing Disclosure Agreement, and any provision of the Continuing Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel, reasonably acceptable to each of the City and the Trustee, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings under the Continuing Disclosure Agreement to violate the Rule, taking into account any subsequent change in or official interpretation of the Rule. (h) The following terms used under this caption shall have the meanings set forth below: "Annual Financial Information" means the annual financial information to be provided by the City of the type described in the Continuing Disclosure Agreement. "Arkansas State Repository" means any public or private repository or entity as may be designated by the State of Arkansas as a state repository for purposes of the Rule and recognized as such by the SEC. As of the date of the Continuing Disclosure Agreement, there is no Arkansas State Repository. "Beneficial Owner" means any Person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2004 Bonds, including Persons holding Series 2004 Bonds through nominees or depositories. "Disclosure Representative" means the City's Finance and Internal Services Director or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee from time to time. "Fiscal Year" means the 12-month period used, at any time, by the City for accounting purposes, which may be the calendar year. The City's fiscal year presently ends on December 31. "MSRB" means the Municipal Securities Rulemaking Board. "National Repository" means any nationally recognized municipal securities information repository for purposes of the Rule. "Participating Underwriter" means Stephens Inc. "Repository" means each National Repository and the Arkansas State Repository. "Specified Events" means each of the events with respect to the Series 2004 Bonds listed in subsection (e) above. (i) A failure by the City to comply with the provisions of the Continuing Disclosure Agreement will not constitute an Event of Default under the Indenture, and the sole remedy in such an event shall be an action to compel specific performance. Nevertheless, such a failure to comply must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2004 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2004 Bonds. UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), the Series 2004 Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2004 Bonds less an underwriting discount of $_ plus accrued interest from November 1, 2004 to the date of delivery of the Series 2004 Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2004 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2004 Bonds is subject to various conditions contained in the bond purchase agreement, including the absence of pending or threatened litigation questioning the validity of the Series 2004 Bonds or any proceedings in connection with the issuance thereof, and the absence of material adverse changes in the financial condition of the City. The Underwriter intends to offer the Series 2004 Bonds to the public initially at the offering prices as set forth on the cover page of this Official Statement, which offering prices (or bond yields establishing such offering prices) may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2004 Bonds to the public, and may offer the Series 2004 Bonds to such dealers and other underwriters at a price below the public offering price. t 0-67 t 24.1 29 LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2004 Bonds are subject to the unqualified approving opinion of Kutak Rock LLP, Little Rock, Arkansas, Bond Counsel, a copy of whose approving opinion will be delivered with the Series 2004 Bonds and a form of which is attached hereto as Appendix A. Certain legal matters will be passed upon for the City by its counsel, Kit Williams, Esq., City Attorney. Litigation. There is no litigation pending seeking to restrain or enjoin the issuance or delivery of the Series 2004 Bonds or questioning or affecting the legality of the Series 2004 Bonds or the proceedings and authority under which the Series 2004 Bonds are to be issued, or questioning the right of the City to issue the Series 2004 Bonds. There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the City in any way which could have a material adverse effect on the City or its financial affairs. MISCELLANEOUS Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Series 2004 Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] I0-67124.1 31 ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT The information contained in this Official Statement has been taken from sources considered to be reliable, but is not guaranteed. To the best of the knowledge of the City, this Official Statement does not include any untrue statement of a material fact, nor does it omit the statement of any material fact required to be stated herein, or necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, Arkansas. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor 10-67124.1 32 APPENDIX A Proposed Form of Bond Counsel Opinion Kutak Rock LLP, Bond Counsel, will render an opinion with respect to the Series 2004 Bonds, dated the date of issuance and delivery thereof, in substantially the following form: November—, 2004 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Fayetteville, Arkansas [$35,0002000]' City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance and sale by the City of Fayetteville, Arkansas (the "City"), a political subdivision of the State of Arkansas, of its [$35,000,0001• Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Bonds"). The Bonds are being issued pursuant to the provisions of the Constitution and laws of the State of Arkansas, including, particularly, Amendment 62 and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14- 164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. _ of the City, duly adopted and approved on October, 2004 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"). Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the conditions for the issuance of parity debt by the City, the nature and extent of the security for the Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Bonds, and the terms upon which the Bonds are issued and secured. Reference is made to an opinion of even date herewith of Kit Williams, Esq., City Attorney, a copy of which is on file with the Trustee, with respect, among other matters, to the status and valid existence of the City, the power of the City to adopt the Election Ordinance and the Authorizing Ordinance and to enter into and perform its obligations under the Indenture, the valid adoption of the Election Ordinance and the Authorizing Ordinance, and the due authorization, execution and delivery of the Indenture by the City, and with respect to the Indenture being enforceable upon the City. We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the City contained in the Election Ordinance, the Authorizing Ordinance and the Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 10-67124.1 A-1 1. The City is duly created and validly existing as a municipal corporation of the State of Arkansas. Pursuant to the Constitution and laws of the State of Arkansas, including, particularly, Amendment 62 and the Act, the City is empowered to adopt the Election Ordinance and the Authorizing Ordinance, to execute and deliver the Indenture, to perform the agreements on its part contained therein, and to issue the Bonds. 2. The Authorizing Ordinance has been duly adopted by the City and constitutes a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 3. The Indenture has been duly authorized, executed and delivered by the City and is a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 4. The Bonds have been validly authorized, executed, issued and delivered by the City and represent valid and binding special obligations of the City. The principal, premium, if any, and interest on the Bonds shall be payable from, and shall be secured by an assignment and pledge by the City to the Trustee of, the receipts of the Sales and Use Tax (as defined in the Indenture), subject to a parity pledge of such receipts securing the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2002, and any Additional Bonds and RLF Loan (as such terms are defined in the Indenture) issued hereafter. 5. The Sales and Use Tax receipts have been duly and validly assigned and pledged to the Trustee under the Indenture, and the Indenture creates, as security for the Bonds, a valid security interest in the Sales and Use Tax receipts. Under the laws of the State of Arkansas, including, particularly, Arkansas Code Annotated (2001 RepIJ Section4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Bonds is and shall be prior to any judicial lien hereafter imposed on the Sales and Use Tax receipts to enforce a judgment against the City on a simple contract, and it is not necessary to file a Uniform Commercial Code financing statement in order to perfect a security interest in the Sales and Use Tax receipts. 6. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for purposes of such alternative minimum tax. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied prior to or subsequent to the issuance of the Bonds in order that the interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 7. The interest on the Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended, in connection with the offer and sale of the Bonds. It is to be understood that the rights of the registered owners of the Bonds and the enforceability of the Bonds, the Authorizing Ordinance and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that thew enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Very truly yours, A-2 KUTAK ROCK LLP DRAFT 03/09/2004 CITY OF FAYETTEVILLE, ARKANSAS BANK OF OKLAHOMA, N.A. as Trustee FIRST SUPPLEMENTAL TRUST INDENTURE Dated as of May 1, 2004 This First Supplemental Trust Indenture supplements and amends a Trust Indenture dated as of May 1, 2002, by and between the City of Fayetteville, Arkansas and Bank of Oklahoma, N.A., as Trustee. The Trust Indenture, as supplemented and amended hereby, secures the City's (i) $2,730,000 original principal amount of Water and Sewer System Refunding Revenue Bonds, Series 2002A, (ii) $6,540,000 original principal amount of Water and Sewer System Refunding Revenue Bonds, Series 2002B,and (iii) $ original principal amount of Water and Sewer System Refunding Revenue Bonds, Series 2004. Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 10-58927.2 FIRST SUPPLEMENTAL TRUST INDENTURE THIS FIRST SUPPLEMENTAL TRUST INDENTURE dated as of May 1, 2004, by and between the CITY OF FAYETTEVILLE, ARKANSAS (the "City"), a city of the first class organized under and existing by virtue of the laws of the State of Arkansas, and BANK OF OKLAHOMA, N.A., as trustee (the "Trustee"), a national banking association organized under and existing by virtue of the laws of the United States of America and having its principal corporate trust office located in Tulsa, Oklahoma; WITNESSETH: WHEREAS, the City presently owns a public water and sewer utility system (which system, together with all capital improvements thereto, is herein collectively called the "System") serving the residents of the City and its environs; and WHEREAS, the City is authorized and empowered under the provisions of the Constitution and laws of the State of Arkansas, including particularly Amendment 65 to the Constitution and Arkansas Code Annotated (1998 Repl. & 2003 Supp.) Sections 14-164-401 et seq., Sections 14-234-201 et seq. and Sections 14-235-201 et seq. (collectively, and as from time to time amended, the "Act"), to issue and sell its water and sewer revenue bonds and to expend the proceeds thereof to finance the costs of acquisition, construction, equipping, improving, maintaining, operating and repairing the System, and to refund any bonds issued under the Act or any bonds issued under other applicable legislation payable from and secured by a pledge of revenues derived from the System; and WHEREAS, pursuant to the provisions of Ordinance No. 4159 of the City, adopted and approved on April 20, 1999, the City has previously issued its Water and Sewer System Refunding Revenue Bonds, Series 1999 (the "Series 1999 Bonds"), in the original principal amount of $8,365,000, for the purpose of refunding certain outstanding bonds of the City previously issued to finance and refinance the cost of improvements to the System; and WHEREAS, the City and the Trustee have previously entered into a Trust Indenture dated as of May 1, 2002 (the "Original Indenture"), pursuant to which the City's Water and Sewer System Refunding Revenue Bonds, Series 2002A and Series 2002B (collectively, the "Series 2002 Bonds"), were issued in the original principal amount of $9,270,000, for the purpose of refunding certain outstanding bonds of the City previously issued to finance and refinance the cost of improvements to the System; and WHEREAS, the Series 2002 Bonds were issued and secured under the Original Indenture on ajunior and subordinate basis to the Series 1999 Bonds; and WHEREAS, in order to secure sufficient funds to refund the Series 1999 Bonds, to fund a debt service reserve, [to pay the premium on a policy of municipal bond insurance] and to pay legal and other expenses incidental to the issuance of water and sewer system refunding revenue bonds for such purposes, it has been determined appropriate and necessary that the City authorize the issuance of its $ Water and Sewer System Refunding Revenue Bonds, Series 2004 (the "Series 2004 Bonds"), pursuant to the provisions of the Constitution of the State 10-58927.2 of Arkansas and the Act, such Series 2004 Bonds to be payable solely from and secured by a pledge of the net revenues of the System on a parity with the pledge of System net revenues securing the Series 2002 Bonds; and WHEREAS, upon the issuance of the Series 2004 Bonds and the corresponding refunding and defeasance of the Series 1999 Bonds, then the Series 2002 Bonds and the Series 2004 Bonds will be the only outstanding indebtedness of the City secured by System net revenues; and WHEREAS, the conditions for the issuance of Additional Bonds, as set forth in the Original Indenture, have been satisfied; and WHEREAS, the Series 2004 Bonds are to be dated, bear interest, mature and be subject to redemption as hereinafter in this First Supplemental Trust Indenture set forth in detail; and WHEREAS, the execution and delivery of this First Supplemental Trust Indenture and the issuance of the Series 2004 Bonds have been in all respects duly and validly confirmed, authorized and approved by Ordinance No. adopted and approved by the City Council of the City on April _, 2004; and WHEREAS, all things necessary to make the Series 2004 Bonds, when authenticated by the Trustee and issued as in this First Supplemental Trust Indenture provided, the valid, binding and legal obligations of the City according to the import thereof, and to constitute the Indenture (as defined below) a valid pledge of the Net Revenues (as defined in the Indenture) to the payment of the principal of, premium, if any, and interest on the Series 2002 Bonds, the Series 2004 Bonds and all Additional Bonds (as defined below), if any, to be issued on a parity therewith (the Series 2002 Bonds, the Series 2004 Bonds and such Additional Bonds are hereinafter referred to as the "Bonds"), have been done and performed, and the creation, execution and delivery of this First Supplemental Trust Indenture and the creation, execution, issuance and delivery of the Series 2004 Bonds, subject to the terms hereof, have in all respects been duly authorized; and WHEREAS, in order to make proper provision for the security of the Series 2004 Bonds, it is necessary that the Original Indenture be amended and supplemented as effected hereby; NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS FIRST SUPPLEMENTAL TRUST INDENTURE WITNESSETH: Section 1.01. It is understood and agreed that the provisions of the Original Indenture shall extend to and apply to the security and benefit of the Series 2004 Bonds and that the term "Bonds" as used in the Original Indenture is hereby recognized to include and shall be deemed to refer to (where applicable) the Series 2004 Bonds. Section 1.02. Section 101 of the Original Indenture is hereby amended by adding thereto the following definitions (and by striking any definitions which are supplanted by the definitions set forth below): 10-58927.2 2 "Additional Bonds" mean Bonds in addition to the Series 2002 Bonds and the Series 2004 Bonds which are issued under the provisions of Section 213 of this Indenture. "Authorizing Ordinance" means (i) Ordinance No. 4381, adopted by the City on March 19, 2002, which authorized the issuance of the Series 2002 Bonds pursuant to this Indenture, and (ii) Ordinance No. , adopted by the City on April _, 2004, which authorized the issuance of the Series 2004 Bonds pursuant to this Indenture. "Bonds" mean the Series 2002 Bonds, the Series 2004 Bonds and all Additional Bonds issued by the City pursuant to this Indenture. "1999 Escrow Agreement" means the Escrow Deposit Agreement dated May _, 20043 between the City and the 1999 Escrow Trustee, providing for the redemption of the Series 1999 Bonds. "1999 Escrow Fund" means the fund established under the 1999 Escrow Agreement for deposit of moneys and investment securities to be held for the redemption of the Series 1999 Bonds. "1999 Escrow Trustee" means Bank of Oklahoma, N.A., in its capacity as escrow trustee under the 1999 Escrow Agreement. "Indenture" means this Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of May 1, 2004, each by and between the City and the Trustee, pursuant to which the Bonds are issued, and any further amendments and supplements thereto. "Series 2004 Bonds" means City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds, Series 2004, issued under and secured by this Indenture in the aggregate principal amount of $ for the purpose of refunding the Series 1999 Bonds. Section 2.01. Article 11 of the Original Indenture is hereby amended by adding at the end thereof the following sections: "Section 218. Details of Series 2004 Bonds. The Series 2004 Bonds (i) shall be designated "City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds, Series 2004," (ii) shall be in the aggregate principal amount of $ , (iii) shall be dated as of May 1, 2004, (iv) shall bear interest from such date at the rates hereinafter provided until paid, payable semiannually on February 15 and August 15 of each year, commencing August 15, 2004, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R04-1 upwards in order of issuance according to the records of the Trustee, and (vii) shall mature, unless sooner redeemed in the manner in this Indenture set forth, on August 15 in each of the years and in the amounts set forth in the following table, which table also sets forth the interest rates for the Series 2004 Bonds: 10-58927.2 3 Year (August 15) 2004 2005 2006 2007 2008 2009 2010 2011 2012 Principal Amount Interest Rate $ "Section 219. Form of Series 2004 Bonds. The Series 2004 Bonds shall be issued as registered Bonds without coupons. The Series 2004 Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit A to this First Supplemental Trust Indenture, with appropriate variations, insertions and omissions as permitted or required by the Indenture." "Section 220. Delivery of Series 2004 Bonds. Simultaneously with the delivery of the Series 2004 Bonds, the Trustee shall apply the proceeds thereof as follows: (a) The amount, if any, received as accrued interest on the Series 2004 Bonds, shall be deposited in the Series 2004 Account of the Bond Fund; (b) An amount equal to $ , the Reserve Requirement with respect to the Series 2004 Bonds, shall be deposited in the Series 2004 Account of the Debt Service Reserve Fund; (c) An amount equal to $ shall be transferred to the 1999 Escrow Trustee to be held in the 1999 Escrow Fund for redemption of the Series 1999 Bonds; [(d) An amount equal to $ shall be paid to [BOND INSURER] as a premium for the [BOND INSURANCE POLICY];] (e) An amount equal to $ shall be deposited in the Costs of Issuance Fund and shall be utilized for payment of Costs of Issuance of the Series 2004 Bonds pursuant to the written direction of the City; and (f) The balance of said proceeds in the amount of $ shall be deposited in the Series 2004 Account of the Bond Fund." 10-59927.2 Section 3.01. Section 301 of the Original Indenture is hereby amended and supplemented to read as follows: "Section 301. Optional Redemption. (a) The Series 2002A Bonds shall not be subject to redemption prior to maturity. (b) The Series 2002B Bonds are subject to redemption prior to maturity, at the option of the City, on and after August 15, 2012, in whole at any time or in part in inverse order of maturity (and selected by the Trustee by lot within a maturity) on any interest payment date, from funds from any source, at a redemption price of 100% of the principal amount of the Series 2002B Bonds being redeemed, plus accrued interest to the date of redemption. (c) The Series 2004 Bonds are subject to redemption prior to maturity, at the option of the City, on and after August 15, 2009, in whole at any time or in part in inverse order of maturity (and selected by the Trustee by lot within a maturity) on any interest payment date, from funds from any source, at a redemption price of 100% of the principal amount of the Series 2004 Bonds being redeemed, plus accrued interest to the date of redemption." Section 4.01. Severabilitv. (a) If any provisions of this First Supplemental Trust Indenture shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions or in all jurisdictions or in all cases because it conflicts with any provisions or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatever. (b) The invalidity of any one or more phrases, sentences, clauses or paragraphs in this First Supplemental Trust Indenture contained shall not affect the remaining portions of this First Supplemental Trust Indenture or any part thereof. Section 4.02. Applicable Provisions of Law. This First Supplemental Trust Indenture shall be considered to have been executed in the State of Arkansas and it is the intention of the parties that the substantive law of the State of Arkansas govern as to all questions of interpretation, validity and effect. Section 4.03. Counterparts. This First Supplemental Trust Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 4.04. Ratification of Original Indenture. As supplemented and amended hereby, the Original Indenture is hereby ratified and confirmed. 1 0-58927.2 5 IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. CITY OF FAYETTEVILLE, ARKANSAS By: ATTEST: By: City Clerk (SEAL) Mayor BANK OF OKLAHOMA, N.A., as Trustee By:_ Title: ATTEST: By:_ Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-58927.2 EXHIBIT A TO FIRST SUPPLEMENTAL TRUST INDENTURE Form of Series 2004 Bond Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC'), to the City or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by the authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), any transfer, pledge or other use hereof for value or otherwise by or to any person is wrongful inasmuch as the registered owner hereof, Cede & Co., has an interest herein. No. R04- $ UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS WATER AND SEWER SYSTEM REFUNDING REVENUE BOND, SERIES 2004 Interest Rate: % Maturity Date: August 15, 20_ Date of Bond: May 1, 2004 CUSIP: Registered Owner: CEDE & CO. Principal Amount: Dollars KNOW ALL MEN BY THESE PRESENTS: That the City of Fayetteville, Arkansas, a municipality and political subdivision organized and existing by virtue of the laws of the State of Arkansas (the "City"), for value received, promises to pay to the Registered Owner shown above, or registered assigns, on the Maturity Date shown above, but solely from the source and in the manner hereinafter set forth, the Principal Amount shown above, and in like manner to pay interest on said amount from the date hereof until payment of such Principal Amount has been made or duly provided for, at the Interest Rate per annum shown above, such interest to be payable semiannually on February 15 and August 15 of each year, commencing on the February 15 or August 15 next succeeding the date of this bond shown above, except as the provisions hereinafter set forth with respect to redemption of this bond prior to maturity may become applicable hereto. The principal of and premium, if any, on this bond are payable in lawful money of the United States of America upon the presentation and surrender hereof at the principal corporate trust office of Bank of Oklahoma, N.A., Tulsa, Oklahoma, or its successor or successors, as trustee (the "Trustee"). So long as Cede & Co. or another nominee of DTC is the registered owner of this bond, payment of interest hereon shall be made by wire transfer of immediately available funds by the Trustee to the Registered Owner as of the first day of the calendar month in which such interest payment date 1 a-58927.2 A-1 shall fall (the "Record Date"). At any time thereafter, payment of interest hereon shall be made by check or draft of the Trustee to the Registered Owner as of the applicable Record Date, at the owner's address as it appears on the bond registration books of the City kept by the Trustee. This bond, designated "City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bond, Series 2004," is one of a series of bonds in the aggregate original principal amount of $ (the "Series 2004 Bonds"), issued for the purpose of refunding the City's outstanding Water and Sewer System Refunding Revenue Bonds, Series 1999, establishing a debt service reserve for the Series 2004 Bonds, [paying the premium on a policy of municipal bond insurance,] and paying expenses of issuing the Series 2004 Bonds. The Series 2004 Bonds are issued under and are secured and entitled to the protection given by a Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as May 1, 2004 (as amended and supplemented, the "Indenture"), each duly executed and delivered by the City to the Trustee. The City has previously issued its Water and Sewer System Refunding Revenue Bonds, Series 2002, in the aggregate original principal amount of $9,270,000 (the "Series 2002 Bonds") under the provisions of the Indenture. The Series 2004 Bonds are not general obligations of the City, but are limited and special obligations payable solely from and secured by a pledge of the net revenues (the "Net Revenues") of the City's water and sewer system (the "System"), as specified in, and in accordance with the provisions of, the Indenture. The Series 2004 Bonds are secured by a pledge of the Net Revenues on a parity basis with the pledge of Net Revenues securing the Series 2002 Bonds. The Indenture provides that the City may hereafter issue Additional Bonds from time to time under certain terms and conditions contained in the Indenture and, if issued, such Additional Bonds will rank on a parity of security with the Series 2002 Bonds and Series 2004 Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the nature and extent of the security, the rights, duties and obligations of the City, the Trustee and the registered owners of the Series 2004 Bonds, and the terms upon which the Series 2004 Bonds are issued and secured. The Series 2004 Bonds are issued pursuant to and in full compliance with the Constitution and laws of the State of Arkansas, including particularly Amendment 65 to the Constitution and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14-164-401 et seq., §§14-234-201 et seq. and §§14-235-201 et seq. (collectively, and as from time to time amended, the "Act"), and pursuant to Ordinance No. of the City adopted on April _, 2004. The Series 2004 Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. Provision has been made in the Indenture for the creation or maintenance of a Revenue Fund, an Operation and Maintenance Fund, a Bond Fund (and for the payment into the Bond Fund of sufficient amounts of Net Revenues to pay the principal of and premium, if any, and interest on the Series 2004 Bonds when due), a Debt Service Reserve Fund and a Renewal and Replacement Fund. The City covenants in the Indenture to always maintain rates for System services which will produce Net Revenues (gross revenues of the System less all reasonable and 10-58927.2 A-2 0 necessary costs and expenses incurred in the operation, maintenance, repair and insuring of the System) in each fiscal year at least equal to 125% of the average annual debt service on all outstanding indebtedness of the City secured by System revenues, plus the amount, if any, required to be deposited into the Debt Service Reserve Fund and any debt service reserve fund established with respect to outstanding indebtedness of the City secured by System revenues, and plus the amount, if any, required to make deposits to the Renewal and Replacement Fund. Reference is hereby made to the Indenture for the details of the rate covenant. The Series 2004 Bonds shall never constitute an obligation or charge against the general credit or taxing powers of the City. [BOND INSURANCE CLAUSE] The holder of this Series 2004 Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any event of default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of all the Series 2002 Bonds, the Series 2004 Bonds and Additional Bonds, if any, issued under the Indenture and then outstanding may be declared and may become due and payable before the stated maturity thereof, together with accrued interest thereon. Modifications or alterations of the Indenture, or of any indenture supplemental thereto, may be made only to the extent and in the circumstances permitted by the Indenture. The Series 2004 Bonds are subject to redemption prior to maturity, at the option of the City, on and after August 15, 2009, in whole at any time or in part in inverse order of maturity (and selected by the Trustee by lot within a maturity) on any interest payment date, from funds from any source, at a redemption price equal to one hundred percent (100%) of the principal amount of the Series 2004 Bonds being redeemed, plus accrued interest to the date of redemption This Series 2004 Bond may be transferred on the books of registration kept by the Trustee by the registered owner or by his duly authorized attorney upon surrender hereof, together with a written instrument of transfer duly executed by the registered owner or his duly authorized attorney. The Series 2004 Bonds are issuable as registered bonds without coupons in denominations of $5,000 and any integral multiple thereof. Subject to the limitations and upon payment of the charges provided in the Indenture, Series 2004 Bonds may be exchanged for a like aggregate principal amount of Series 2004 Bonds of other authorized denominations. No recourse shall be had for the payment of the principal of or premium, if any, or interest on any of the Series 2004 Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2004 Bonds or the Indenture against any past, present or future alderman, officer or employee of the City, or any successor, as such, either directly or through the City or any successor of the City, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such 10-58927.2 A-3 liability of any such alderman, officer or employee as such is hereby expressly waived and released as a condition of and consideration for the issuance of any of the Series 2004 Bonds. This Series 2004 Bond is issued with the intent that the laws of the State of Arkansas will govern its construction. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, happen and be performed precedent to and in the issuance of the Series 2004 Bonds do exist, have happened and have been performed in due time, form and manner as required by law; that the indebtedness represented by the Series 2004 Bonds, together with all obligations of the City, does not exceed any constitutional or statutory limitation; and that the revenues pledged to the payment of the principal of and premium, if any, and interest on the Series 2004 Bonds as the same become due and payable will be sufficient in amount for that purpose. This Series 2004 Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Indenture until the Certificate of Authentication hereon shall have been signed by the Trustee. IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this Series 2004 Bond to be executed by its Mayor and City Clerk, thereunto duly authorized (by their manual or facsimile signatures), and its corporate seal to be affixed or imprinted hereon, all as of the date hereof shown above. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor ATTEST: By: City Clerk (SEAL) 10-58927.2 A-4 (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2004 Bonds of the issue described in and issued under the provisions of the within mentioned Indenture. Attached hereto is the complete text of the opinion of Kutak Rock LLP, a signed original of which is on file with the undersigned, delivered and dated the date of the original delivery of and payment for the Series 2004 Bonds. BANK OF OKLAHOMA, N.A., as Trustee By: Authorized Signature 10-58927.2 A-5 0 (Form of Assignment) ASSIGNMENT FOR VALUE RECEIVED, , hereby sells, assigns, and transfers unto , the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints as attorney to transfer the within Bond on the books kept for registration thereof with full power of substitution in the premises. DATE: , 20 Transferor GUARANTEED BY: NOTICE: Signature(s) must be guaranteed by an institution satisfactory to the Trustee or other transfer agent. 10-58927.2 A-6 T A E° n $ ,a 9 o v a$ 9 a`o u y � T a c m _T y sv C � A O L T �g r T O ca a g H a, g o o m E o U a�= „a L vUi W � `o 0 v 0 0 0 o � m c o," 3 u E CC � A & c ry o o N 'm C U O U a u_ EO c 0 �, O c 3. o A— c m o � c 3 cE peg 0 0 3 "03 c � `o � E o o cz`5 9 v � L j� U L H W ✓ L T � z c E c E3 c 0 h ,c a .t0 L � C . • KUTAK ROCK LLP DRAFT 04/ /2004 PRELIMINARY OFFICIAL STATEMENT DATED APRIL 2004 NEW ISSUE *RATINGS: S&P:" "(Underlying:"_") BOOK -ENTRY ONLY ( Insured) In the opinion of Kutak Bock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain covenants, interest on the Series 2004 Bands is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Under existing law, Bond Counsel is of the opinion that the Series 2004 Bonds and the interest thereon are exempt from all state, county and municipal taxes in the State of Arkansas. Seethe caption "TAX MATTERS" herein. Dated: May 1, 2004 CITY OF FAYETTEVILLE, ARKANSAS WATER AND SEWER SYSTEM REFUNDING REVENUE BONDS SERIES 2004 Due: August 15, as shown below The Water and Sewer System Refunding Revenue Bonds, Series 2004 (the "Series 2004 Bonds"), are being issued by the City of Fayetteville, Arkansas (the "City") for the purpose of refunding certain outstanding indebtedness of the City, funding a debt service reserve, [paying the premium for a financial guaranty insurance policy,] and paying certain expenses in connection with the issuance of the Series 2004 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS" and "THE REFUNDING PROGRAM" herein. The Series 2004 Bonds are issuable only as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2004 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2004 Bonds. Individual purchases of the Series 2004 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2004 Bonds will not receive physical delivery of bond certificates. See the caption `BOOK -ENTRY ONLY SYSTEM' herein. The Series 2004 Bonds shall bear interest from their dated date, payable on February 15 and August 15 of each year, commencing August 15, 2004. All such interest payments shall be payable to the persons in whose name such Series 2004 Bonds are registered on the bond registration books maintained by the Bank of Oklahoma, N.A., Tulsa, Oklahoma, as trustee (the "Trustee"), as of the first day of the calendar month in which the applicable interest payment date falls. Principal of and premium, if any, on the Series 2004 Bonds shall be payable at the principal corporate trust office of the Trustee. So long as DTC or its nominee is the registered owner of the Series 2004 Bonds, disbursement of such payments to DTC Participants is the responsibility of DTC, and the disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as more fully described herein. Pursuant to a Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of May 1, 2004, each by and between the City and the Trustee, the principal of, premium, if any, and interest on the Series 2004 Bonds are secured by a pledge of the Net Revenues (as defined herein) of the water and sewer system (the "System") of the City. The pledge of Net Revenues securing the Series 2004 Bonds shall be on a parity with the existing pledge of Net Revenues securing $8,145,000 outstanding principal amount of the City's Water and Sewer System Refunding Revenue Bonds, Series 2002. The City has covenanted to fix and maintain rates for System services which shall produce Net Revenues at least equal to (i) 125% of the average annual debt service on all indebtedness of the City to which System revenues are pledged, (ii) the amount, if any, needed to fund debt service reserve deficiencies with respect to all indebtedness of the City to which System revenues are pledged, and (iii) the amount, if any, needed to make required deposits to the Renewal and Replacement Fund (as defined herein). See the caption "SECURITY FOR THE BONDS" herein. The Series 2004 Bonds are subject to optional redemption prior to maturity as more fully described herein under the caption "THE SERIES 2004 BONDS - Redemption." [Payment of the principal of and interest on the Series 2004 Bonds when due will be insured by a financial guaranty insurance policy to be issued by simultaneously with the delivery of the Series 2004 Bonds.] [BOND INSURER LOGO] The Series 2004 Bonds are special obligations of the City secured by and payable solely from the Net Revenues of the System. The Series 2004 Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any appropriation for the payment of the Series 2004 Bonds, except as described herein with respect to Net Revenues of the System. MATURITY SCHEDULE" Maturity Principal Interest Maturity Principal Interest (August 15) Amount Rate Price (August 151 Amount Rate Price 2004 $ % % 2009 $ % % 2005 2010 2006 2011 2007 2012 2008 (Plus accrued interest) The Series 2004 Bonds are offered when, as and if issued by the City and are subject to the final approving opinion of Kutak Rock LLP, Little Rock, Arkansas, Bond Counsel. Certain matters will be passed upon for the City by its counsel, Kit Williams, Esq., City Attorney. It is expected that the Series 2004 Bonds will be available for delivery in New York, New York, on or about May. 2004. Stephens Inc. " See the caption "RATINGS" herein. Preliminary; subject to change. The date of this Official Statement is April . 2004. 10-58777.3 r 9 CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bob Davis Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoades Brenda Thiel Hugh Earnest, Chief Administrative Officer Stephen Davis, Finance & Internal Services Director Greg Boettcher, Water & Wastewater Director Sondra Smith, City Clerk Kit Williams, City Attorney BANK OF OKLAHOMA, N.A. Tulsa, Oklahoma Trustee and Paying Agent KUTAK ROCK LLP Little Rock, Arkansas Bond Counsel STEPHENSINC. Fayetteville, Arkansas Underwriter 10-58777.3 No dealer, brokeolesman or other person has been authorizedRthe City or by Stephens Inc (the "Underwriter") to give any information or to make any representations, other than those contained herein; and, if given or made, such other information or representations must not be relied upon as having been authorized by either of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of any Series 2004 Bonds in any jurisdiction in which such offer is not authorized, or in which the person making such offer, solicitation or sale is not qualified to do so, or to any person to whom it is unlawful to make such offer, solicitation or sale. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the System since the date hereof. THE SERIES 2004 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE TRUST INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 19399 AS AMENDED, IN RELIANCE UPON CERTAIN EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION CONTAINED IN SUCH LAWS. CERTAIN INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM THE CITY, THE DEPOSITORY TRUST COMPANY AND OTHER SOURCES WHICH ARE BELIEVED TO BE RELIABLE. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, ITS RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTY THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2004 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. TABLE OF CONTENTS Pape IntroductoryStatement......................................................................................................................4.4................ 1 TheSeries 2004 Bonds..........................................................................................................................4.............. 2 Securityfor the Bonds...............................................................................................................................4.......... 4 [Bond Insurance].................................................................................................................................................. 5 Book -Entry Only System..................................................................................................................................... 5 Estimated Sources and Uses of Funds.................................................................................................................. 7 TheRefunding Program....................................................................................................................................... 7 Estimated Debt Service Requirements................................................................................................................. 8 Estimated Debt Service Coverage........................................................................................................................ 8 TheCity.....................................................................................................................................................4.......... 9 TheSystem........................................................................................................................................................... l l Definitionsof Certain Terms................................................................................................................................ 20 Summaryof the Indenture.................................................................................................................................... 23 Summary of the Continuing Disclosure Agreement............................................................................................. 28 Underwriting........................................................................................................................................................ 30 TaxMatters........................................................................................................................................................... 31 Ratings.................................................................................................................................................................. 31 LegalMatters........................................................................................................................................................ 32 FinancialStatements............................................................................................................................................. 32 Miscellaneous....................................................................................................................................................... 32 Accuracy and Completeness of Official Statement.............................................................................................. 32 APPENDIX A - Audited General Purpose Financial Statements of the City for the yearended December 31, 2002.................................................................................................. A-1 APPENDIX B - Unaudited Financial Statements of the City's Water and Sewer Fund for the year ended December 31, 2003.................................................................................................. B-1 APPENDIX C - Form of Bond Counsel Opinion................................................................................................. C-1 [APPENDIX D - Specimen of Financial Guaranty Insurance Policy................................................................... D-1] 10-58777.3 Ll OFFICIAL STATEMENT $ CITY OF FAYETTEVILLE, ARKANSAS WATER AND SEWER SYSTEM REFUNDING REVENUE BONDS SERIES 2004 INTRODUCTORY STATEMENT The following introductory statement is subject in all respects to the more complete information set forth in this Official Statement. All descriptions and summaries of documents hereinafter set forth are qualified in their entirety by reference to each such document. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms under the caption "DEFINITIONS OF CERTAIN TERMS" herein. with the This Official Statement, including the cover page and the Appendices hereto, is famished in connection offering of Water and Sewer System Refunding Revenue Bonds, Series 2004 in the principal amount of * (the "Series 2004 Bonds"), by the City of Fayetteville, Arkansas (the "City"). The City is a city of the first class organized and existing under the laws of the State of Arkansas (the "State"). The City is authorized under Amendment 65 to the Constitution of the State ("Amendment 65") and Arkansas Code Annotated (1998 Repl. & 2003 Supp.) §§14-164-401 et seq., §§14-234-201 et seq., and §§14-235-201 et seq. (collectively, and as from time to time amended, the "Act"), to issue and sell revenue bonds for the purpose of financing and refinancing the cost of improvements and betterments to its water and sewer system (the "System"). The Series 2004 Bonds are to be issued by the City pursuant to Amendment 65, the Act and Ordinance No. adopted and approved on April _, 2004 (the "Authorizing Ordinance"), for the purpose of (i) refunding the City's $6,365,000 outstanding principal amount Water and Sewer System Refunding Revenue Bonds, Series 1999 (the "Series 1999 Bonds"), (ii) establishing a debt service reserve for the Series 2004 Bonds, [(iii) paying the premium for a financial guaranty insurance policy,] and (iv) paying the costs of issuing the Series 2004 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS" and "THE REFUNDING PROGRAM" herein. The Series 2004 Bonds are special obligations of the City, payable solely from and secured by a pledge of the Net Revenues (as defined herein) of the System on a parity basis to the existing pledge of Net Revenues securing the payment of debt service on $8,145,000 outstanding principal amount of the City's Water and Sewer System Refunding Revenue Bonds, Series 2002 (the "Series 2002 Bonds"). The City has covenanted to fix and maintain rates for System services which shall produce Net Revenues at least equal to (i) 125% of the average annual debt service on all indebtedness of the City to which System revenues are pledged, (ii) the amount needed to fund debt service reserve deficiencies with respect to all indebtedness of the City to which System revenues are pledged, and (iii) the amount needed to make required deposits to the Renewal and Replacement Fund (as defined herein). [The regularly scheduled payment of principal of and interest on the Series 2004 Bonds when due is guaranteed under a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") issued concurrently with the delivery of the Series 2004 Bonds by (" ").] See the captions "SECURITY FOR THE BONDS," ["BOND INSURANCE"] and "SUMMARY OF THE INDENTURE" herein. The faith and credit of the City are not pledged to the payment of the Series 2004 Bonds, and the Series 2004 Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Series 2004 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any appropriation for the payment of the Series 2004 Bonds, except as described herein with respect to Net Revenues. * Preliminary; subject to change. 10-587773 Additional bonds may be issued on a parity of security with the Series 2002 Bonds and the Series 2004 Bonds under certain circumstances set forth in the Indenture (hereinafter defined). See the caption "THE SERIES 2004 BONDS - Additional Bonds" herein. The Series 2002 Bonds, the Series 2004 Bonds and any Additional Bonds are herein collectively referred to as the "Bonds." Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2004 Bonds, by and between the City and the Trustee (the "Continuing Disclosure Agreement"), the City has undertaken certain obligations with respect to providing ongoing disclosure of certain financial and operating data concerning the System and of the occurrence of certain material events. See the caption "SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT" herein. This Official Statement contains brief descriptions or summaries of, among other matters, the City, the System, the Series 2004 Bonds, the Continuing Disclosure Agreement, and the Trust Indenture dated as of May t, 2002, as supplemented and amended by a First Supplemental Trust Indenture dated as of May 1, 2004 (as supplemented and amended, the "Indenture"), by and between the City and Bank of Oklahoma, N.A., Tulsa, Oklahoma, as trustee (the "Trustee"), pursuant to which the Bonds are issued and secured. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture and the Continuing Disclosure Agreement are qualified in their entirety by reference to each such document, and all references to the Series 2004 Bonds are qualified in their entirety by reference to the definitive form thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the form of Series 2004 Bond included therein, are available from the City by writing to the attention of the City Clerk, City of Fayetteville, City Administration Building, 113 West Mountain, Fayetteville, Arkansas 72701 and, during the initial offering period only, from the Underwriter, Stephens Inc., 3425 North Futrall, Suite 201, Fayetteville, Arkansas 72703. Certain financial and operating data have been provided by the City from the audited records of the System and certain demographic information has been obtained from other sources which are believed to be reliable. THE SERIES 2004 BONDS Description. The Series 2004 Bonds will be initially dated as of May 1, 2004, and will bear interest payable semiannually on February 15 and August 15 of each year, commencing August 15, 2004, at the rates set forth on the cover page hereof. The Series 2004 Bonds will mature on August 15 in the years and in the principal amounts set forth on the cover page hereof. The Series 2004 Bonds are issuable only in the form of fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2004 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2004 Bonds. Individual purchases of the Series 2004 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2004 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2004 Bonds shall be payable to the persons in whose name such Series 2004 Bonds are registered on the bond registration books maintained by the Trustee, as of the first day of the calendar month in which the applicable interest payment date falls. Principal of and premium, if any, on the Series 2004 Bonds shall be payable at the principal corporate trust office of the Trustee. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Series 2004 Bonds to the extent of the sum or sums so paid. So long as DTC or its nominee is the registered owner of the Series 2004 Bonds, disbursement of such payments to DTC Participants is the responsibility of DTC, and the disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as more fully described herein. Redemption. The Series 2004 Bonds are subject to redemption prior to maturity as follows: The Series 2004 Bonds are subject to redemption prior to maturity, at the option of the City, on and after August 15, 2009, in whole at any time or in part in inverse order of maturity (and selected by the Trustee by lot within a maturity) on any interest payment date, from funds from any source, at a redemption price of 100% of the principal amount of the Series 2004 Bonds being redeemed, plus accrued interest to the date of redemption. Partial Redemption of a Series 2004 Bond. In selecting Series 2004 Bonds for redemption prior to maturity, in the case any outstanding Series 2004 Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2004 Bond shall be treated as a separate Series 2004 Bond in the denomination of $5,000; 10-58777.3 provided, however, that so long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, the particular Series 2004 Bonds or portions thereof to be redeemed within a maturity shall be selected by lot in such manner as DTC shall determine. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2004 Bonds or portions thereof being called and the date on which they shall be presented for payment, shall be mailed by the Trustee by first class mail (or, so long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2004 Bond addressed to such registered owner at his registered address and placed in the mails not less than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption; provided, however, that failure to give such notice by mailing, or any defect therein, shall not affect the validity of any proceeding for the redemption of any Series 2004 Bond with respect to which no such failure or defect has occurred. Any notice mailed as provided above shall be conclusively presumed to have been duly given, whether or not the registered owner receives the notice. Additional Bonds. The City may issue from time to time one or more series of Additional Bonds for the purpose of (i) financing Costs of Construction in connection with the acquisition, construction and equipping of Project facilities, (ii) refunding the Series 2002 Bonds, the Series 2004 Bonds or any series of Additional Bonds or Subordinate Obligations, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the Series 2002 Bonds, the Series 2004 Bonds and any other series of Additional Bonds theretofore issued and then Outstanding, except insofar as any terms or conditions of redemption or purchase established under the Indenture may afford additional benefit or security for the Bonds of any particular series. Before any Additional Bonds are authenticated, there shall be delivered to the Trustee the items required for the issuance of Bonds by the Indenture, plus a statement by a Qualified Accountant reciting the opinion, based upon necessary investigation, that the Net Revenues of the System for the Fiscal Year immediately preceding the Fiscal Year in which such Additional Bonds are to be issued were not less than (i) 130% of the average Annual Debt Service on all then outstanding Bonds and Subordinate Obligations, plus the Additional Bonds then proposed to be issued, (ii) the amount, if any, needed to make required deposits to the Debt Service Reserve Fund and any debt service reserve funds with respect to Subordinate Obligations, and (iii) the amount, if any, needed to make required deposits to the Renewal and Replacement Fund. If any changes have been made, and are in effect on the date of issuance of the Additional Bonds, in any rates and charges imposed by the City for System services which were not in effect during the entire preceding Fiscal Year, the Qualified Accountant may, if such changes resulted in increases in such rates and charges, and shall, if such changes resulted in reductions in such rates and charges, adjust the Net Revenues for the preceding Fiscal Year to reflect any changes in such Net Revenues which would have occurred if the changed rates and charges had been in effect during the entire preceding Fiscal Year. Notwithstanding any of the foregoing, no Additional Bonds shall be issued unless there is no default existing at the time of issuance under the Indenture. Subordinate Obligations. Nothing in the Indenture shall prevent the City from authorizing and issuing bonds, notes, bond anticipation notes, warrants, certificates or other obligations or evidences of indebtedness, the payment of the principal of and premium, if any, and interest on which shall be made from Revenues or Net Revenues or from a special fund to be established and maintained from Revenues or Net Revenues, provided payments from Revenues or Net Revenues or from Revenues or Net Revenues in such special fund, and the lien and charge on such Revenues or Net Revenues, shall be made junior and subordinate to the lien, pledge and charge created in the Indenture for the security and payment of the Bonds and other payments under the Indenture, including, without limitation, the following payments out of Revenues specified by the Indenture: (i) payments of Operation and Maintenance Expenses; (ii) payments into the Bond Fund; (iii) payments into the Debt Service Reserve Fund; and (iv) payments into the Renewal and Replacement Fund. Transfer or Exchange. The Bonds may be transferred on the books of registration kept by the Trustee by the registered owner in person or by the owner's duly authorized attorney, upon surrender thereof, together with a written instrument of transfer duly executed by the registered owner or the owner's duly authorized attorney. Upon surrender for transfer of any Bond at the principal corporate office of the Trustee, the City shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of the same series and in the same aggregate principal amount and of any authorized denomination or denominations. 10-58777.3 3 Transfers of registration or exchanges of Bonds shall be without charge to the holders of such Bonds, but any taxes or other governmental charges required to be paid with respect to the same shall be paid by the holder of the Bond requesting such transfer or exchange as a condition precedent to the exercise of such privilege. The Trustee shall not be required to transfer or exchange any Bond during the period from and including a Record Date to the next succeeding interest payment date of such Bond nor to transfer or exchange any Bond after the mailing of notice calling such Bond for redemption has been made, and prior to such redemption. So long as DTC or its nominee is the sole registered owner of the Series 2004 Bonds, transfers of beneficial interests in the Series 2004 Bonds shall be in accordance with the rules and procedures of DTC and its direct and indirect participants. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. SECURITY FOR THE BONDS General. The Bonds are special obligations of the City secured by and payable solely from the Net Revenues derived from operation of the System. The Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance of the Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any appropriation for the payment of the Bonds, except as described herein with respect to the Net Revenues of the System. Rate Covenant. The rates charged for services of the System heretofore fixed by ordinances of the City and the conditions, rights and obligations pertaining thereto, as set forth in said ordinances, are ratified, confirmed and continued by the Authorizing Ordinance. In the Indenture, the City covenants that the rates for System services will never be reduced while any of the Bonds are Outstanding unless there is obtained from a Qualified Accountant a certificate to the effect that Net Revenues, with the reduced rates, in the current Fiscal Year will be at least equal to (i) 125% of the average Annual Debt Service on all Bonds and Subordinate Obligations, (ii) the amount, if any, needed to make required deposits to the Debt Service Reserve Fund and any debt service reserve funds with respect to Subordinate Obligations, and (iii) the amount, if any, needed to make required deposits to the Renewal and Replacement Fund. The City further covenants that the rates for System services shall, if and when necessary, from time to time, be increased in such manner as will produce Net Revenues at least equal to (i) 125% of the current Annual Debt Service on all Bonds and Subordinate Obligations, (ii) the amount, if any, needed to make required deposits to the Debt Service Reserve Fund and any debt service reserve funds with respect to Subordinate Obligations, and (iii) the amount, if any, needed to make required deposits to the Renewal and Replacement Fund. The Indenture defines "Net Revenues" as Revenues less Operation and Maintenance Expenses. Revenues include all fees, tolls, rates, rentals and charges levied and collected in connection with, and all other income and receipts of whatever kind or character derived by the City from, the operation of the System. Operation and Maintenance Expenses include all ordinary and necessary expenses of operation, repair, maintenance and insuring of the System under generally accepted accounting principles. Such term includes the cost of purchased water and payments to all taxing authorities, but does not include debt service and depreciation expense. Debi Service Reserve. From the proceeds of sale of each series of Bonds issued pursuant to the Indenture, there shall be deposited into the Debt Service Reserve Fund an amount which, together with the amounts then on deposit therein, will be equal to 50% of the aggregate maximum Annual Debt Service on all Outstanding Bonds in any Fiscal Year thereafter (the "Reserve Requirement"). If the amount in the Debt Service Reserve Fund is ever reduced below the Reserve Requirement, it shall be reimbursed to the Reserve Requirement through monthly payments, beginning not later than the fifth business day preceding the fifteenth day of the month immediately following the month in which the Debt Service Reserve Fund was reduced below the Reserve Requirement, and continuing not later than the fifth business day preceding the fifteenth day of each month thereafter until such reimbursement shall have been accomplished, from any funds in the Revenue Fund (after making the required deposits into the Operation and Maintenance Fund and into the Bond Fund as provided in the Indenture), in an amount equal to 1/12 of the Reserve Requirement deficiency. If a surplus shall exist in the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the Bond Fund. The moneys on deposit in the Debt Service Reserve Fund (i) shall be used to the extent necessary to prevent a default in the payment of Annual Debt Service on the Bonds and Trustee's and any Paying Agent's fees and (ii) may be used, together with other available funds, to provide for the payment at maturity or to redeem prior to maturity all, but not less than all, of the Outstanding Bonds. 10-58777.3 [Bond Insurance. As described below under the caption "BOND INSURANCE," the payment of principal of and interest on the Series 2004 Bonds as due is guaranteed under a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") issued concurrently with the issuance of the Series 2004 Bonds by (. „) ] BONDINSURANCE [TO BE PROVIDED IF NECESSARY] BOOK -ENTRY ONLY SYSTEM The Series 2004 Bonds will be issued only as one fully registered Series 2004 Bond for each maturity, in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ("DTC"), as registered owner of all the Series 2004 Bonds. The fully registered Series 2004 Bonds will be retained and immobilized in the custody of DTC. DTC (or any successor securities depository) or its nominee for all purposes under the Indenture will be considered by the City and the Trustee to be the owner or holder of the Series 2004 Bonds. Owners of any book entry interests in the Series 2004 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2004 Bonds, and will not be considered by the City and the Trustee to be, and will not have any rights as, owners or holders of the Series 2004 Bonds under the bond proceedings and the Indenture except to the extent, if any, expressly provided thereunder. CERTAIN INFORMATION REGARDING DTC AND DIRECT PARTICIPANTS IS SET FORTH BELOW. THIS INFORMATION HAS BEEN PROVIDED BY DTC. THE CITY, THE UNDERWRITER AND BOND COUNSEL ASSUME NO RESPONSIBILITY FOR THE ACCURACY OF SUCH STATEMENTS. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over two million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges among Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and by Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, GSCC, MBSCC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The DTC Rules applicable to its Direct and Indirect Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtc.com. Purchases of Series 2004 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2004 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2004 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner 10-58777.3 • entered into the transaction. Transfers of ownership interests in the Series 2004 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2004 Bonds, except in the event that use of the Book -Entry System for the Series 2004 Bonds is discontinued. To facilitate subsequent transfers, all Series 2004 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2004 Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2004 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2004 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Series 2004 Bonds within a maturity are to be redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2004 Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the Record Date. The Omnibus Proxy will assign Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2004 Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Payment of debt service and redemption proceeds with respect to the Series 2004 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Trustee on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and debt service to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. BENEFICIAL OWNERS SHOULD CONSULT WITH THE DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS FROM WHOM THEY PURCHASE A BOOK ENTRY INTEREST TO OBTAIN INFORMATION CONCERNING THE SYSTEM MAINTAINED BY SUCH DIRECT PARTICIPANTS OR INDIRECT PARTICIPANTS TO RECORD SUCH INTERESTS, TO MAKE PAYMENTS, TO FORWARD NOTICES OF REDEMPTION AND OF OTHER INFORMATION. THE CITY AND THE TRUSTEE HAVE NO RESPONSIBILITY OR LIABILITY FOR ANY ASPECTS OF THE RECORDS OR NOTICES RELATING TO, OR PAYMENTS MADE ON ACCOUNT OF, BOOK ENTRY INTEREST OWNERSHIP, OR FOR MAINTAINING, SUPERVISING OR REVIEWING ANY RECORDS RELATING TO THAT OWNERSHIP. The Trustee and the City, so long as a book entry method of recording and transferring interest in the Series 2004 Bonds is used, will send any notice of redemption or of any Indenture amendment or supplement or other notices to Bondholders under the Indenture only to DTC (or any successor securities depository) or its nominee. Any failure of DTC to advise any Direct Participants, or of any Direct Participants or Indirect Participants to notify any Beneficial Owner, of any such notice and its content or effect will not affect the validity of the redemption of the Series 2004 Bonds called for redemption, the Indenture amendment or supplement, or any other action premised on notice given under the Indenture. The City and the Trustee cannot and do not give any assurances that DTC, Direct Participants, Indirect Participants or others will distribute payments of debt service on the Series 2004 Bonds made to DTC or its nominee as the registered owner of the Series 2004 Bonds, or any redemption or other notices, to the Beneficial Owners, or 10-58777.3 0 • that they will do so on a timely basis, or that DTC will serve and act in a manner described in this Official Statement. DTC may discontinue providing its services as securities depository with respect to the Series 2004 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, bond certificates are required to be printed and delivered. In addition, the City may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series 2004 Bonds and other available funds are expected to be used as follows: Sources of Funds* Series 2004 Bond Proceeds Available Moneys in Series 1999 Bond Fund and Debt Service Reserve Fund Total Sources: Uses of Funds* Deposit to Series 1999 Bond Escrow Fund $ Debt Service Reserve Fund Deposit Costs of Issuance, Underwriter's Discount [and Bond Insurance Premium] Contingency Total Uses: * Preliminary, subject to change. THE REFUNDING PROGRAM The proceeds of the Series 2004 Bonds will be used to accomplish a current refunding of $6,365,000 outstanding principal amount of the City's Water and Sewer System Refunding Revenue Bonds, Series 1999, dated as of May I, 1999 (the "Series 1999 Bonds"). The Series 1999 Bonds were issued to refund bonds previously issued by the City to refinance various capital improvements to the water storage, transmission and distribution components of the System. Upon the delivery of the Series 2004 Bonds, a portion of the proceeds thereof will be deposited with the Bank of Oklahoma, N.A., Tulsa, Oklahoma, as escrow trustee (the "Escrow Trustee"), under an irrevocable Escrow Deposit Agreement (the "Escrow Agreement"), between the City and the Escrow Trustee. The proceeds derived from the Series 2004 Bonds will be held by the Escrow Trustee under the Escrow Agreement in trust for the holders of the Series 1999 Bonds, and will be sufficient to pay the principal, premium, and interest due on the Series 1999 Bonds when redeemed on August 15, 2004. Amounts held by the Escrow Trustee will be irrevocably pledged for the benefit of the holders of the Series 1999 Bonds. After such deposit, the Series 1999 Bonds will no longer be deemed to be outstanding and will be secured solely by the amounts held by the Escrow Trustee. See the caption "ESTIMATED SOURCES AND USES OF FUNDS" herein. i0-58777.3 ESTIMATED DEBT SERVICE REQUIREMENTS As of the date of closing, the Series 2002 Bonds and the Series 2004 Bonds constitute the only debt obligations secured by Revenues of the System. The following table details amounts required to pay scheduled principal and interest on the Series 2002 Bonds and the Series 2004 Bonds during each year: Series 2002 Series 2002 Series 2004 Year Principal Interest Principal[') 2004 $ 445,000 $ 353,405 $ 2005 460,000 340,055 2006 475,000 324,645 2007 495,000 307,545 2008 515,000 288,240 2009 5359000 267,382 2010 5553000 245,180 2011 5809000 2219315 2012 605,000 195,505 2013 6355000 1679978 2014 6609000 138,450 2015 695,000 1073100 2016 725,000 73,392 2017 765,000 37,867 Totals: 8 145 000 68 OS Series 2004 Total Debt Interest(�) Service "' Preliminary; subject to change. (3) Assuming for the purposes of this Preliminary Official Statement an average coupon rate of _% on the Series 2004 Bonds. ESTIMATED DEBT SERVICE COVERAGE The following table shows estimated maximum and average annual debt service coverage with respect to the outstanding Series 2002 Bonds and Series 2004 Bonds utilizing historical Net Revenues of the System. 2002 2003 Audited (Unaudited) Historical Gross Revenues of the System $ $ Historical Operating Expenses Net Revenues Available for Debt ServiceM $ $ Maximum Annual Debt Service Requirement on Series 2002 Bonds and Series 2004 Bonds(�) $ $ Average Annual Debt Service Requirement on Series 2002 Bonds and Series 2004 Bonds lzl (3) $ $ Maximum Annual Debt Service Coverage X Average Annual Debt Service Coverage X X Net Revenues means gross revenues of the System less the amounts required to pay the costs of operation, maintenance and repair of the System in accordance with generally accepted accounting principles applicable to municipal water systems (excluding depreciation, interest and amortization expenses). (2) See the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" herein. 131 For the years 2004 — 2012 while both the Series 2002 Bonds and the Series 2004 Bonds will be outstanding. THE NET REVENUES AVAILABLE FOR SYSTEM DEBT SERVICE SET FORTH ABOVE ARE BASED ON THE HISTORICAL RESULTS OF OPERATION OF THE SYSTEM. FUTURE NET REVENUES AVAILABLE FOR DEBT SERVICE WILL DEPEND ON NUMEROUS FACTORS, AND THERE CAN BE NO ASSURANCE THAT FUTURE NET REVENUES AVAILABLE FOR SYSTEM DEBT SERVICE WILL APPROXIMATE SUCH HISTORICAL RESULTS. 10-58777.3 THE CITY General. The City is a city of the first class organized and existing under the laws of the State of Arkansas. The City is the seat of government of Washington County (the "County") and is the fourth largest city in the State. The City is located in the Metropolitan Statistical Area of Fayetteville/Springdale/Rogers (the "MSA"), which includes all of Washington and Benton Counties in the northwest corner of the State and is approximately 185 miles northwest of Little Rock, Arkansas, 125 miles east of Tulsa, Oklahoma, and 210 miles south of Kansas City, Missouri. The City is served by U.S. Interstate 540, U.S. Highways 62 and 71, and State Highways 16, 45, 112, 1569 180 and 265. The Burlington Northern Railroad has several lines running through the City, and a general aviation airport with a 6,006-foot runway is available for limited commuter travel. The Northwest Arkansas Regional Airport is located approximately 40 minutes from downtown Fayetteville and provides daily Flights to numerous venues. Government The City currently operates under the Mayor -Council form of government pursuant to which a mayor, city attorney, city clerk and eight aldermen are elected, two from each of the City's four wards. The mayor, city attorney and city clerk are full-time positions elected to four year terms. Aldermen also serve four year terms. The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Coody Mayor 12/31/04 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/04 Kyle Cook Alderman 12/31/06 Bob Davis Alderman 12/31/04 Lioneld Jordan Alderman 12/31/04 Shirley Lucas Alderman 12/31/06 Don Mart Alderman 12/31/04 Robert Reynolds Alderman 12/31/06 Robert Rhoades Alderman 12/31/06 Brenda Thiel Alderman 12/31/04 Population. The following is a table of population changes for the City, the MSA and the State of Arkansas, according to the United States Census Bureau: City of State of Year Fayetteville MSA Arkansas 1960 20,274 92,069 1,786,272 1970 305729 127,846 1,923,322 1980 36,608 1787609 2,286,435 1990 423099 210,908 2,350624 2000 58,047 311,121 2,673,400 Economic Data. Per capita personal income figures for the MSA and the State of Arkansas are as follows: State of Year MSA Arkansas 1992 $18,260 $16,425 1993 18,765 16,995 1994 195590 17,750 1995 20,193 185546 1996 20,870 193442 1997 21,586 205228 1998 22,893 21,256 1999 243213 22,223 2000 235316 215995 2001 249585 225750 2002 n/a n/a Source: Bureau of Economic Analysis. 10-58777.3 9 0 Retail sales figures for the MSA and the State are as follows: MSA State of MSA as % of Year Arkansas State of Arkansas 1993 $1,880,1053000 $16,997,721,000 11.06% 1994 2,21792295000 195090,5169000 11.61 1995 2,4865425,000 203998,923,000 11.84 1996 216925554,000 229053,0229000 12.21 1997 2,845,9%000 225872,236,000 12.44 1998 310185896,000 235944,647,000 12.61 1999* n/a n/a n/a 2000 33526,791,000 28,488,033,000 12.38 2001 358061422,000 29,652,693,000 12.84 2002 358411326,000 29,2695775,000 13.12 2003 329683812,000 29,920,716,000 13.26 * Methodology changed to calendar year basis. No reliable information is available for 1999. Source: Sales and Marketing Management Survey of Buyer Power. The following table shows the total assessed value of non -utility real and personal property within the City for the years indicated: Year Real Property Personal Property Total 1994 $245,093,513 $ 86,322,277 $331,415,790 1995 3405593,452 101,274,620 441,8681072 1996 359,36%202 113,157,365 4721526,567 1997 3825798,143 120,0645627 502,8621770 1998 401,001,338 127,5753096 528,5763434 1999 4135648,415 137,404,499 5515052,914 2000 432,951,171 145,1475891 578,0995062 2001 4862853,822 1559794,579 642,648,401 2002 5411004,690 158,688,783 69%693,473 20031t1 565,846,525 167,638,657 73354855182 1'l Not certified. Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the City(l) are shown below for the years indicated: 1999 Residential Building 451 Permits Commercial Building 59 Permits Value of All Building Permits $1001744,816 2000 2001 2002 361 339 328 27 38 35 $121,887,263 $85,262,302 $100,809,486 2003n) 735 31 $179,007,987 r" Does not include building activity of the University of Arkansas, school permits and additions/alterations to existing stmctures. (2) Increase largely due to the permitting of a number of multifamily developments as well as an acceleration of permit requests in advance of the imposition of impact fees by the City. Source: City of Fayetteville 10-58777.3 10 Unemployment figures for the MSA and the State of Arkansas, according to the U.S. Bureau of Labor Statistics, are as follows: Year MSA State of Arkansas 1994 2.4% 5.3% 1995 2.4 4.9 1996 2.9 5.4 1997 3.0 5.3 1998 3.2 5.5 1999 2.4 4.5 2000 2.1 4.4 2001 1.7 5.1 2002 2.4 5.4 2003 3.0 6.2 2004• 3.0 5.2 January 2004 only; preliminary. Employment and Industry. The principal campus of the University of Arkansas is located in the City and had total enrollment for the Spring semester of 2004 of approximately 15,527. For the 2003-04 fiscal year ending June 30, 2004, the University has an operating budget in excess of $206 million, which does not include the agricultural experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately 2,416 faculty, administrative, secretarial, clerical and maintenance personnel in both full- time and part-time positions, making the University the largest employer in the City. Other major employers in the City, their products or services and approximate number of employees are set forth below: Employer Product or Service Employee Range Pinnacle Foods, International Frozen Products 1,000-23499 Superior Industries Cast Aluminum Wheels 1,000-21499 Washington Regional Medical Center Medical 11000-2,499 Fayetteville School District Education 500-999 Tyson's Mexican Original Mexican Food Products 500-999 City of Fayetteville Government 500-999 Arkansas Western Gas Co. Utilities 300-499 Ayrshire Electronics Manufacturing 300-499 Dillard's Department Store Retail 300-499 McClinton Anchor Company Limestone and Hot Mix 300-499 Tyson's Entrde Division Frozen Dinner Entrees 300499 Veteran's Admin. Medical Center Medical 300-499 Wal-Mart Supercenter Retail 300.499 Washington County Government Government 300-499 Source: Fayetteville Chamber of Commerce THE SYSTEM Water Supply. The water supply for the City is provided by the Beaver Water District of Benton and Washington Counties, Arkansas (the "District"), which is the source of supply for an approximate population of 200,000 people in northwest Arkansas. The District was organized as a public water distribution district by order of the Benton County Circuit Court on July 17, 1959 for the purpose of obtaining water storage rights in Beaver Reservoir from the U.S. Corps of Engineers, and supplying treated water to municipalities within Benton and Washington Counties. Through the joint efforts of the cities of Bentonville, Fayetteville, Rogers and Springdale, Arkansas (the "Participating Cities"), the District entered into a contract with the U.S. Corps of Engineers providing for the supply to the District of up to 120 million gallons of water per day ("mgd"). 10-58777.3 11 The Beaver Reservoir has a capacity of 1,952,000 acre feet. The District currently has a firm pumping capacity of 27.6 mgd to the City. The District's facilities are located on a 300 acre site owned by the District approximately 2 1/2 miles east of Lowell, Arkansas, near its intake structure on Beaver Reservoir. The District's water treatment plant has a present nominal design capacity of 80 mgd with a current peak demand of 67.8 mgd. The District's 1996 master plan indicated that an expansion of capacity will be undertaken when peak demand exceeds 70 mgd. This expansion has begun and is presently intended to provide a nominal design capacity of 140 mgd upon completion. Water Supply Contracts with Beaver Water District. In 1967, the District and the Participating Cities entered into a Memorandum of Understanding and Contract for Construction, Maintenance, Operation and Expansion of Beaver Water Supply Facilities (the "Memorandum of Understanding"). Pursuant to the Memorandum of Understanding, the District agreed to construct, operate, maintain and expand a drinking water treatment plant as required to meet the then present and future needs of the Participating Cities. The Participating Cities agreed to build and maintain their own water supply lines from the point of the water discharge at the District's drinking water treatment plant to their respective distribution systems. The Participating Cities are also permitted to serve, through their distribution systems, other smaller cities and other approved water distribution agencies within Benton and Washington counties. The Memorandum of Understanding provides that the Participating Cities will make payments to the District for drinking water used by each Participating City based on the total cost to the District of the water delivered, including, but not limited to, amortization of the District's indebtedness, operation and maintenance of the District's facilities and the cost of the expansion of the District's facilities. The District issued water revenue bonds in 1990 and 1991 to finance a 40 mgd expansion to the then existing water treatment facility. The 1990 and 1991 water bonds were defeased with 1994 water revenue bonds dated as of June 1, 1994. This District also issued water revenue bonds in 2003 to finance the construction of two raw water intakes with microtunneled piping connections to Beaver Lake, construction of a 60 inch raw water pipeline, improvements to and expansion of the Croxton I Water Treatment Plant, solids handling improvements for the Croxton I Water Treatment Plant and the Steele Water Treatment Plant, improvements to the Steele Water Treatment Plant, and property acquisition. The Participating Cities' obligations to make payments under the Memorandum of Understanding are evidenced, as to each Participating City, by water rate ordinances duly enacted in accordance with State law. While each Participating City has agreed, in principle, to make payments to the District sufficient to pay its proportionate share of the District's cost of providing water, the Participating Cities' sources of payment are limited to revenues from their respective water systems pursuant to these water rate ordinances. The revenues derived from these water rate ordinances are not pledged by the Participating Cities to the repayment of the District's bonds and are subject to the debt requirements on any outstanding bonds of the Participating Cities secured by water revenues. Payments made to the District by the Participating Cities are considered by the Participating Cities to be operating expenses. The 1994 and 2003 water revenue bonds are currently the only outstanding bonded indebtedness of the District. As of December 31, 2003, the 1994 water revenue bonds were outstanding in the principal amount of $14,720,000, and had a scheduled final maturity in 2009. As of December 31, 2003, the 2003 water revenue bonds were outstanding in the principal amount of $57,390,000, and had a scheduled final maturity in 2018. The costs of the water storage rights are treated as a cost of water produced, and therefore the Participating Cities pay based on water consumption. The City treats these costs as Operation and Maintenance Expenses of the System and they are to be paid from Revenues deposited to the Operation and Maintenance Fund prior to the payment of debt service on the Series 2002 Bonds or the Series 2004 Bonds. 10-58777.3 12 The District's total water sales for the previous two fiscal years ended September 30 are represented in the following table: City 2002 2003 Fayetteville $4,953,866 $59040,203 Springdale 59056,008 59025,519 Rogers 29776,922 2,587,085 Bentonville 2,383,880 2,361,911 TOTALS: $1S.170.676 $j5114,718 Source: Audited Financial Statements of the District dated September 30, 2002 and 2003. Each Participating City is billed monthly based on metered water consumption and effective rates at that time for drinking water purchased. On the basis of the District's annual audit, a cost for providing service to the Participating Cities is determined. Based on the District's annual operating costs, a charge or credit is then applied to each City for under- or over -payment for the drinking water used in that year. Net refunds for overpayments by the Participating Cities for the two fiscal years ended September 30, 2002 and 2003 were $2,291,053 and $1,403,320, respectively. The City received a refund of $426,277 for the fiscal year ended September 30, 2003. The rates charged by the District to the Participating Cities since 1967 for the cost of water delivered are as follows: Effective Date Rate Per Million Gal. Effective Date Rate Per Million Gal. 1967 $180.00 2-1-89 610.00 9-1-77 270.00 2-1-90 810.00 9-1-82 320.00 2-1-91 1,010.00 11-1-85 370.00 11-1-03 1,016.00 12-1-86 410.00 Customers. At December 31, 2003, the City had approximately 30,658 active water customers and 26,427 active sewer customers. Water customers are billed solely on the basis of water usage and meter and line size. See the caption "THE SYSTEM — Rate Structure" below. The following table classifies active sewer customers for the years indicated: 2003 2002 2001 2000 1999 Residential 22,061 20,926 203095 1%533 18,685 Commercial/Industrial 23387 2,377 2,482 2,433 25347 Outside City Limits 1979 1 931 1 857 1792 1695 Totals: M234 24�414 2 22�21 Source: City of Fayetteville. 10-58777.3 13 The System's 10 largest water customers, based upon water revenues produced during 2003, are as follows: Percentage of 2003 Customer Total Revenues Water Revenues University of Arkansas $545,996.62 .051025 Campbell Soup (Pinnacle Foods) 34%956.21 .032704 Superior Industries 301,466.49 .028173 Tyson Foods, Inc. 248,115.69 .023187 City of West Fork 21%462.90 .020510 City of Fayetteville 14%501.65 .013972 City of Elkins Water District 113,276.47 .010586 Veterans Administration 66,613.35 .006225 Mt. Olive Water Association 95,954.59 .008967 Washington Regional Medical Center 48,268.63 .004511 Source: City of Fayetteville. Historical Statistics. The following table shows historical water usage statistics for the water distribution component of the System: Year Average Daily Use Maximum Days' Use in Million Gallons in Million Gallons 1992 10.20 MG 17.84 MG 1993 10.70 MG 17.95 MG 1994 10.62 MG 18.94 MG 1995 12.45 MG 21.50 MG 1996 12.55 MG 21.50 MG 1997 12.33 MG 20.53 MG 1998 13.26 MG 23.80 MG 1999 13.30 MG 23.56 MG 2000 13.20 MG 23.77 MG 2001 13.16 MG 20.39 MG 2002 13.72 MG 23.63 MG 2003 13.39 MG 26.24 MG Source: City of Fayetteville. The following table shows historical sewer treatment statistics for the wastewater treatment component of the System: Average Daily Flow Year in Million Gallons 1992 10.40 MG 1993 11.90 MG 1994 11.35 MG 1995 11.73 MG 1996 11.69 MG 1997 11.01 MG 1998 11.22 MG 1999 11.22 MG 2000 11.79 MG 2001 12.50 MG 2002 11.95 MG 2003 10.95 MG Source: City of Fayetteville. 10-58777.3 14 Present System. [UPDATE] As described above under this caption in the subcaptions "- Water Supply" and "- Water Supply Contracts With Beaver Water District," the City purchases treated water from the Beaver Water District. The City distributes such treated water to its residents as well as to the residents of certain surrounding cities and communities as described below. The City presently owns and operates a single wastewater treatment plant serving residents of the City and surrounding areas. The water distribution component of the System is made up of approximately 480 miles of water main, 1,880 fire hydrants, 260 miles of sewer service lines and approximately 29 million gallons of storage capacity held in 14 water storage tanks. The water distribution component of the System provides service to the City, to the Cities of Farmington and Greenland, to parts of the City of Johnson, and to other rural areas surrounding the City. Wholesale service is provided to the Cities of Elkins and West Fork, to the Mount Olive Rural Water System and to the Rural Development Authority of Washington County, Arkansas. The City currently has no written agreements with respect to the provision of its water services to, and the operation of the water systems of, the Cities of Farmington, Greenland and Johnson. Continuing water sales and the operation of these systems is based on terms and provisions of expired contracts and mutual understandings between the City and each of the Cities of Farmington, Greenland and Johnson. The City has a current contract in place with respect to wholesale service to the Mount Olive Rural Water System and is currently in the process of renegotiating wholesale contracts with the City of West Fork and with the Rural Development Authority of Washington County, Arkansas. There is no written agreement currently in force with respect to the sale of water to the City of Elkins, and continuing sales are based on the terms and provisions of an expired contract and mutual understandings between the City and the City of Elkins. The sewage collection component of the System consists of approximately 480 miles of sewer main and 11,300 manholes. The type of pipe in the sewage collection system is principally vitrified clay pipe with varying amounts of ABS composite pipe, plastic pipe and cast iron pipe. The age of the sewage collection system varies from new to 87 years. The City has implemented an ongoing sewer rehabilitation program with over $16 million spent in related capital improvements during the last decade. Sewer collection and treatment services are provided to residents of the City, to the Cities of Farmington and Greenland, and to small parts of the City of Johnson. Some rural residents in the City's growth area also receive sewer collection and treatment service. Wholesale service is provided to the City of Elkins. Total revenues collected for water and sewer services to nonresidents of the City represented approximately 15% of total revenues of the System during 2003. Revenues collected for water services to nonresidents represented approximately 21% of the total revenues of the System during 2003. The City of Farmington was the largest nonresident water customer accounting for less than 3.5% of total revenues of the System during 2003. Revenues collected for sewer services to nonresidents of the City represented approximately 7.9% of total revenues of the System during 2003. The City of Farmington was the largest nonresident sewer customer accounting for approximately 5% of total revenues of the System during 2003. When added together, the water and sewer service revenues derived from the City of Farmington accounted for approximately 4.3% of total revenues of the System during 2003. The City's existing wastewater treatment plant ("W WTP") went into operation in 1987 and is currently permitted at 12.4 mdg. Treatment stages consist of the plant headworks (bar screens, vacutators and influent lift station), primary sedimentation, aeration basins, secondary sedimentation basins, biological and chemical nutrient removal, and U.V. disinfection. The sludge treatment plan employs dewatering of secondary sludge with ultimate disposal of the residuals in a sanitary landfill. Average daily flow treated was 10.95 mgd in 2003. Peak flow in 2003 was approximately 23.4 mgd. The WWTP is operated on a contract basis by Operations Management International, the 2003 operations having no permit violations. The existing W WTP was planned to meet the 2005 needs of the City. A comprehensive study of the System was completed in February of 1997 and updated in 2002. This comprehensive improvement program addressed sewer lines, pumping stations and treatment works, including the construction of a new 10 mdg wastewater treatment facility west of the City. Final design of the project is underway and the 300 acre west plant site has been acquired by the City. Project construction is scheduled to commence in the third quarter of 2004, final completion being anticipated in the third quarter of 2006. The improvements are predicted to meet 20-year needs by providing a net treatment works capacity of 21.2 mgd plus correct wet water overflow problems. Projected Capital Expenditures. The City anticipates the cost of contemplated expansions and capital improvements to the System over the next five years, including the construction of the wastewater treatment plant, 10-58777.3 15 to be as set forth in the following table. Said expansions and improvements are expected to be financed from a combination of System revenues and the receipts from a dedicated 3/4% City sales and use tax (the "Sales Tax") approved by the voters of the City at an election held November 6, 2001. Collection of the Sales Tax commenced on April 1, 2002. Pursuant to the election, Sales Tax revenues are dedicated to the payment of debt service on obligations to be issued to finance wastewater treatment and sewerage improvements. The precise breakdown of funding sources for the new wastewater treatment plant has yet to be finalized; however, it is likely that the costs thereof will be financed by a combination of sources, including, but not limited to, System revenues and proceeds from debt issuances secured by System revenues and/or Sales Tax revenues. 2004' 2005 2006 2007 2008 Miscellaneous Water System Improvements $ 8,488,436 $ 698,000 $ 572,000 $ 579,000 $ 712,000 Miscellaneous Sewer System Improvements 61946,365 11500,000 11500,000 1,5001000 1,5007000 Wastewater Treatment Plant Expansion 122,022A91 180,000 180,000 180,000 180,000 TOTALS: $13Z Q512Q2 QQQ 2 2 2 �5� 094 2 4 2 0 ' From the City's 2004 annual budget. Source: Water and Wastewater Director, City of Fayetteville, Arkansas. Rate Structure. Effective January 11, 2004, the following tables set forth the City's current water rate structure: WATER RATES Monthly Treated Water Rates Usage Rate (in eallons) Inside City Outside City First 10,000 $2.81 $3.52 Next 290,000 2.42 3.03 Next 4,700,000 1.76 2.20 Over 5,000,000 1.60 1.98 Monthly Meter Service Charge Meter Size (inches) Inside City Outside City 5/8 $ 3.88 $ 4.92 3/4 4.14 5.26 1 5.39 6.84 1'/2 9.40 11.94 2 13.69 17.39 3 31.90 40.51 4 52.80 67.05 6 105.60 134.11 8 158.40 201.16 Monthly Standby Fire Protection Service Charge Line Size (inches) Inside/Outside City 2 $ 6.60 3 19.80 4 39.60 6 110.00 8 231.00 10 396.00 Monthly Wholesale Treated Water Rates (Outside City Limits) Usage Rate Per 1,000 Gallons $ 2.01 Reduced Demand 1.81 Meter Charge 55.55 10-58777.3 16 E Effective February 9, 2004, the following tables set forth the City's current sewer rate structure: SEWER RATES Monthly Quantity Charge User Type Usage Rate Per 1,000 Gallons Effective2-9-04 Effective 12-31-04 Effective 12-31-05 Residential $2.61 $2.84 $3.10 Commercial/Industrial 2.04 2.22 2.42 Outside City Limits 6.03 6.57 7.16 City of Elkins 5.24 5.71 6.22 Monthly Service Charge Meter Size (inches) Inside Ciri Effective 2-9-04 Effective 12-31-04 Effective 12-31-05 5/8 $ 8.72 $ 9.50 $ 10.36 3/. 10.08 10.99 11.98 1 11.34 12.36 13.47 1'/2 15.85 17.27 21.99 2 21.10 23.00 31.44 3 46.31 50.77 73.01 4 77.51 84.49 120.26 6 149.26 163.64 238.37 8 232.26 253.16 356.48 Monthly Service Charge Meter Size (inches) Outside Citv Effective 2-9-04 Effective 12-31-04 Effective 12-31-05 5/8 $ 8.72 $ 9.50 $ 10.35 3/. 11.87 12.94 14.10 1 16.28 17.75 19.35 1% 28.90 31.50 34.33 2 41.51 45.25 49.32 3 97.02 105.75 115.27 4 160.09 174.50 190.21 6 317.78 346.38 377.56 8 475.47 518.26 564.90 Extra Strength Surcharge For all commercial and industrial customers whose wastewater discharge is greater than 300 mg/I of BODS and/or TSS, an extra strength surcharge is levied as follows: Extra Strength BOD5 Extra Strength TSS Effective 2-9-04 $0.2246/lb $0.1123/lb Effective 12-31-04 $0.2449/lb $0.1224/lb Effective 12-31-05 $0.2669/lb $0.1334/lb 10-58777.3 17 0 Rate Comparison. The following is a comparison of the monthly water and sewer charges for the City of Fayetteville with the charges of other area municipalities, based upon combined water and sewer charges for the average residential unit with 6,000 gallons of water consumption per month: City Cost Per Month Fayetteville $45.12 Bentonville 51.70 Fort Smith 37.76 Rogers 40.78 Springdale 36.02 Source: City water and sewer departments as of March 1, 2004. Billing Procedures, Delinquency and Uncollectible Accounts. The City Code of Ordinances provides that bills for water and sewer services are rendered in the net amount due. Water bills are due and payable on or before the twentieth day following the billing date stated on the water bill. Currently, water bills not paid on or before the due date are considered delinquent and an additional charge of 10% of the total current bill is assessed against the account. In the event that bills due the City for water service are not paid on or before the twentieth day following the billing date stated on the water bill, notice by mail is sent to each customer concerned advising him that such bill is due and payable immediately. Should any delinquent bill remain unpaid, the appropriate ordinance provides that service will be discontinued on the twenty-eighth day following the billing date stated on the water bill, and the customer's deposit will be forfeited in an amount sufficient to cover the gross amount of his due bill. The forfeiture of the deposit will take place if the customer has not paid the delinquent bill plus all applicable service charges within seven days after disconnection. If the forfeited deposit is not sufficient to cover the delinquent bill plus all applicable service charges and the bill is delinquent by more than 90 days, the matter is turned over to a collection agency. Over the last five years, the City's bad debt expense experience has been as follows: Fiscal Year Ending December 31 1999 2000 2001 2002 2003t" Unaudited. Water and Sewer Operating Revenues $1953563739 1954625422 1953975672 19,946,464 20,364,602 Bad Debt Bad Debt Expense Percentage $ 682275 .35% 61,391 .31 1213921 .63 61,615 .31 87,800 .43 Financial Information. Set forth in Appendix A to this Official Statement are the audited general purpose financial statements of the City for the year ended December 31, 2002, which financial statements have been audited by BKD, LLP, independent certified public accountants, as stated in their report also appearing in Appendix A. The notes set forth in Appendix A are an integral part of such financial statements, and the statements and notes should be read in their entirety. Set forth in Appendix B to this Official Statement are the unaudited financial statements of the City's Water and Sewer Fund for the year ended December 31, 2003. 10-58777.3 18 Following is a summary of revenues, expenses and changes in fund equity of the City's Water and Sewer Fund for the five years ended December 31, 2003. Information for the summary for the years ended December 31, 1999, 2000 and 2001 was derived from the financial statements of the City audited by Arthur Andersen LLP, independent certified public accountants. Information for the summary for the year ended December 31, 2002 was derived from the financial statements of the City audited by BKD, LLP, independent certified public accountants. The audits were performed for the purpose of rendering an opinion on the general purpose financial statements of the City taken as a whole, and not for the purpose of rendering an opinion on the fair presentation of the City's Water and Sewer Fund. The following table should be read in conjunction with the audited financial statements and related notes in Appendix A. Information for the summary for the year ended December 31, 2003 was derived from the unaudited financial statements of the City's Water and Sewer Fund attached as Appendix B. City of Fayetteville, Arkansas Water and Sewer Fund Statement of Revenues, Expenses and Changes in Fund Equity For the Years Ended December 31, 1999 2000 2001 Water services Sewer services Other Total operating revenues Operating expenses: Operations and administration Water supply Water transmission and distribution Sewer collection Wastewater treatment Customer service Total operating expenses before depreciation Operating income before depreciation Depreciation Operating income (loss) Nonoperating income (expense) Intergovernmental Interest expenses and fees Interest income Net increase in fair value of investments (decrease) Other Total nonoperating income (expense) Income before operating transfers Capital Contributions Operating transfers in Operating transfers out Net income (loss) Add back depreciation on assets acquired with contributed capital Increase in retained earnings Retained eamings, beginning of year Cumulative effect of change in accounting principle Retained earnings, beginning of year, as Restated Retained earnings, end of year Contributed capital, beginning of year Capital contributions Cumulative effect of change in accounting principle Depreciation on assets acquired with contributed capital Contributed capital, end of year 'total fund equity, end of year Change in net assets Total net assets, beginning of year Total net assets, end of year DEFINITIONS OF CERTAIN TERMS The following are definitions of certain terms used in this Official Statement: "Act" — Arkansas Code Annotated (1998 Repl. and Supp. 2003) §§ 14-164401 et seq., §§ 14-234-201 et seq. and §§ 14-235-201 et seq., as from time to time amended. "Additional Bonds" — Bonds in addition to the Series 2002 Bonds and the Series 2004 Bonds which are issued under the provisions of the Indenture. [BOND INSURER] "Annual Debt Service" — With respect to all or any particular amount of Bonds or Subordinate Obligations, as the case may be, the Debt Service for any particular Fiscal Year required pursuant to the provisions of the Indenture to be paid or set aside during such Fiscal Year, less the amount of such payment which is provided from the proceeds of the sale of Bonds or Subordinate Obligations or from sources other than Net Revenues. "Authorizing Ordinance" — Ordinance No. of the City, adopted and approved on April _, 2004, authorizing the issuance of the Series 2004 Bonds pursuant to the Indenture. "Bond Counsel" — Any firm of nationally recognized municipal bond counsel selected by the City and acceptable to the Trustee. "Bond Fund" — The fund by that name created and established in the Indenture. "Bonds" — The Series 2002 Bonds, the Series 2004 Bonds and all Additional Bonds issued by the City pursuant to the Indenture. "City" — The City of Fayetteville, Arkansas, a municipality and political subdivision under the laws of the State of Arkansas. "Code" — The Internal Revenue Code of 1986, as from time to time amended, and applicable regulations issued or proposed thereunder. "Cost of Issuance Fund" — The fund by that name created and established in the Indenture. "Debt Service" — With respect to all or any particular amount of Bonds or Subordinate Obligations, as the case may be, the total as of any particular date of computation and for any particular period of the scheduled amount of interest and amortization of principal payable on such Bonds or Subordinate Obligations, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period. "Debt Service Reserve Fund" — The fund by that name created and established in the Indenture. "Depository" — A national or state banking corporation or association (which may also include the Trustee and any Paying Agent) which holds membership in the Federal Deposit Insurance Corporation. "Escrow Agreement" — The Escrow Deposit Agreement dated May _, 2004, between the City and the Escrow Trustee, providing for the redemption of the Series 1999 Bonds. "Escrow Trustee" — The Bank of Oklahoma, N.A., in its capacity as escrow trustee under the Escrow Agreement. "Event of Default" — Any event of default specified in the Indenture. See the caption "SUMMARY OF THE INDENTURE — Events of Default" herein. ["Financial Guaranty Insurance Policy" — The financial guaranty insurance policy issued by [BOND INSURER] insuring the payment when due of the principal of and interest on the Series 2004 Bonds as provided therein.] "Fiscal Year" — The 12-month period used, at any time, by the City for accounting purposes with respect to the System, which may be the calendar year. Currently, the fiscal year of the City ends on December 31 of each year. "Government Securities" — (i) bonds, notes, certificates of indebtedness, treasury bills or other securities constituting direct obligations of, or obligations on which the full and timely payment of principal and interest is fully and unconditionally guaranteed by, the United States of America (including any such securities issued or held in book -entry form on the books of the Department of Treasury of the United States of America), and (ii) evidences of direct ownership or proportionate or individual interest in future interest or principal payments on specified direct 10-58777.3 20 0 • obligations of, or obligations on which the full and timely payment of principal and interest is fully and unconditionally guaranteed by, the United States of America, which obligations are held by a bank or trust company organized and existing under the laws of the United States of America or any state thereof in the capacity of custodian in form and substance satisfactory to the Trustee. "Holder" or "bondholder" or "owner of the Bonds" — The registered owner of any Bond. "Indenture" — The Trust Indenture dated as of May 1, 2002, as supplemented and amended by a First Supplemental Trust Indenture dated as of May 1, 2004, each by and between the City and the Trustee, pursuant to which the Bonds are issued, and any further amendments and supplements thereto. "Investment Securities" — If and to the extent the same are at the time legal for investment of funds held under the Indenture: (1) Government Securities; (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: — Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). — Obligations of the Resolution Funding Corporation (REFCORP). — Senior debt obligations of the Federal Home Loan Bank System. — Senior debt obligations of other Government Sponsored Agencies approved by [Ambac Assurance]; (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P-1" by Moody's and "A-1" or "A -I+" by S&P and maturing no more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank.); (4) Investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P; (5) Pre -refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (A) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of Moody's or S&P or any successors thereto; or (B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such Obligations or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (6) Municipal obligations rated "Aaa/AAA" or general obligations of States with a rating of at least "A2/A" or higher by both Moody's and S&P. (7) Investment agreements approved in writing by [Ambac Assurance] (supported by appropriate opinions of counsel); and IDWIMPA, 21 (8) Other fors of investments (including repurchase agreements) approved in writing by [Ambac Assurance.] "Moody's" — Moody's Investors Service and any successor thereto. "Net Revenues" — Revenues less Operation and Maintenance Expenses. "Operation and Maintenance Expenses" — For any period, all ordinary and necessary expenses of operation, repair, maintenance and insuring of the System under generally accepted accounting principles, except that there shall not be included (i) any allowance for depreciation, (ii) any deposits or transfers to the credit of (a) the Bond Fund or to any fund or account created for the payment of debt service on any Subordinate Obligations, (b) the Debt Service Reserve Fund or any debt service reserve fund or account created in connection with any Subordinate Obligations, or (c) the Renewal and Replacement Fund, or (iii) any payments with respect to obligations not payable in whole or in part under any circumstances from Revenues. Operating Expenses shall specifically include obligations of the City to the Beaver Water District of Benton and Washington Counties, Arkansas. "Operation and Maintenance Fund" — The fund by that name described in the Indenture. "Outstanding" — When used with reference to the Bonds, as of any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture except: (a) Bonds cancelled at or prior to such date or delivered to or acquired by the Trustee at or prior to such date for cancellation; (b) Bonds deemed to be paid in accordance with Article V I I I of the Indenture; and (c) Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture. [Notwithstanding the provisions of (a), (b) and (c), Series 2004 Bonds, the principal of and/or interest on which has been paid by [BOND INSURER] pursuant to the Financial Guaranty Insurance Policy, shall be deemed to remain Outstanding for all purposes.] "Paying Agent" — Any bank or trust company named by the City as the place at which the principal of and premium, if any, and interest on the Bonds are payable. "Permitted Encumbrances" — (i) Any mortgage lien for the security of the Bonds; (ii) liens for taxes, assessments and other governmental charges not then delinquent or which can be paid without penalty; (iii) unfiled, inchoate mechanics' and materialmen's liens; (iv) workmen's, repairmen's, warehousemen's, and carriers' liens and others similar liens, if any, arising in the ordinary course of business; and (v) any easements, restrictions, mineral, oil, gas and mining rights and reservations, zoning laws and defects in title or other encumbrances to which System facilities may be subject because of their acquisition, construction and installation as part of the System. "Person" — Any natural person, firm, association, corporation, limited liability company, partnership, joint stock company, joint venture, trust, unincorporated organization or firm, or a government or any agency or political subdivision thereof or other public body. "Qualified Accountant" — An independent certified public accountant or fir of independent certified public accountants not in the regular employ of the City. "Rebate Fund" — The fund by that name created and established in the Indenture. "Record Date" — With respect to any interest payment date of the Bonds, the first day of the calendar month in which such interest payment date falls. "Renewal and Replacement Fund — The fund by that name confirmed and described in the Indenture. "Reserve Requirement" — At any particular time, an amount equal to 50% of the aggregate maximum Annual Debt Service in any Fiscal Year thereafter with respect to Outstanding Bonds of all series. "Revenues" — All fees, tolls, rates, rentals and charges levied and collected in connection with, and all other income and receipts of whatever kind or character derived by the City from, the operation of the System. Revenues shall specifically include, but shall not be limited to, revenues from water sales, sewer service charges, fire protection charges and interest income on Revenue Fund balances. Notwithstanding the foregoing, Revenues shall not include acreage, connection, front -footage, tap -on, assessment and similar fees, charges, contributions or grants 10-58777.3 22 0 derived by the City in connection with the provision of or payment for capital improvements constituting a part of the System. "Revenue Fund" — The fund by that name confirmed and described in the Indenture. "S&P" — Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., and any successor thereto. "Series 1999 Bonds" — City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds, Series 1999, issued in the original aggregate principal amount of $8,365,000. "Series 2002 Bonds" — Collectively, the Series 2002A Bonds and the Series 2002B Bonds. "Series 2002A Bonds" — One of the initial series of Bonds issued under and secured by the Indenture in the aggregate principal amount of $2,730,000. "Series 2002B Bonds" — One of the initial series of Bonds issued under and secured by the Indenture in the aggregate principal amount of $6,540,000. "Series 2004 Bonds" — An additional series of Bonds being issued under and secured by the Indenture in the aggregate principal amount of $ "Subordinate Obligations" — Debt obligations of the City secured by a pledge of Net Revenues that is subordinate to the lien thereon securing the payment of the Bonds, as permitted by the provisions of the Indenture. "System" — The City's combined water and sewer utility system. "Trustee" — The banking corporation or association designated as Trustee in the Indenture, and its successor or successors as such Trustee. The original Trustee is Bank of Oklahoma, N.A., Tulsa, Oklahoma. "Trust Estate" — The property described in the granting clauses of the Indenture. • Preliminary; subject to change. SUMMARY OF THE INDENTURE The following statements are brief summaries of certain provisions of the Indenture. The statements do not purport to be complete, and reference is made to the Indenture, copies of which are available for examination at the offices of the City Clerk of the City, for a full statement thereof. Funds and Disposition of Revenues. Net Revenues are pledged by the Indenture to the payment of the principal of and premium, if any, and interest on the Bonds, subject to various provisions permitting application for other purposes. The following funds are referenced with respect to the Bonds: . Fund Held By Revenue Fund City Operation and Maintenance Fund City Bond Fund Trustee Debt Service Reserve Fund Trustee Renewal and Replacement Fund City Cost of Issuance Fund Trustee Rebate Fund Trustee Application of Revenues. The application of Revenues is as follows: (a) Revenue Fund. All Revenues shall, as and when received, be deposited into the Revenue Fund. All moneys at any time in the Revenue Fund shall be applied to the payment of Operation and Maintenance Expenses of the System, the payment of Annual Debt Service on the Bonds and any Subordinate Obligations, the maintenance of the Debt Service Reserve and the debt service reserves for any Subordinate Obligations, and the providing of the Renewal and Replacement Fund in the order, at the times and in the amounts set forth as follows: 10-58777.3 23 0 (b) Operation and Maintenance Fund. Prior to making the required payments into the Bond Fund and Debt Service Reserve Fund, into the bond funds and debt service reserve funds for any Subordinate Obligations, and into the Renewal and Replacement Fund, there shall be paid from the Revenue Fund into the Operation and Maintenance Fund, not later than the fifth business day preceding the fifteenth day in each month while any of the Bonds shall be Outstanding, an amount sufficient to cause amounts on deposit therein to equal projected Operation and Maintenance Expenses for the next two succeeding months (as shown in the budget of proposed Operation and Maintenance Expenses for the then current Fiscal Year) and from which disbursements shall be made only for those purposes. Fixed annual charges such as insurance premiums and the cost of major repair and maintenance expenses may be computed and set up on an annual basis, and 1/12 of the amount thereof may be paid into the Operation and Maintenance Fund each month. If in any month for any reason there shall be a failure to transfer and pay the required amount into the Operation and Maintenance Fund, the amount of any deficiency shall be added to the amount otherwise required to be transferred and paid into the Operation and Maintenance Fund in the next succeeding month. (c) Bond Fund. Immediately following the making of required deposits into the Operation and Maintenance Fund, there shall be paid from the Revenue Fund into the Bond Fund, on the fifth business day preceding the fifteenth day of each month until all Outstanding Bonds with interest thereon have been paid in full, or provision made for such payment, a sum equal to (i) 1/6 of the installment of interest coming due on the Bonds (whether at maturity, upon mandatory redemption, or otherwise) during the then next six (6) months, and (ii) 1/12 of the installment of principal coming due on the Bonds (whether at maturity, upon mandatory redemption, or otherwise) during the then next twelve (12) months (provided, however, that the first payments required under the Indenture with respect to a series of Bonds shall be prorated from the date of issuance of such series of Bonds and subsequent payment obligations shall be reduced to the extent of investment earnings and other moneys credited to the Bond Fund from sources other than monthly payments). All moneys in the Bond Fund shall be used solely for the purpose of paying Annual Debt Service on the Bonds or for any redemption of the Bonds, except as specifically provided in the Indenture. The Trustee shall withdraw from the Bond Fund, on the date of any principal or interest payment, an amount equal to the amount of such payment for the sole purpose of paying the same. If Revenues are insufficient to make the required payment into the Bond Fund, the amount of any such deficiency in the payment made shall be added to the amount otherwise required to be paid into the Bond Fund not later than the fifth business day preceding the fifteenth day of the next succeeding month. When the moneys held in the Bond Fund and the Debt Service Reserve Fund shall be and remain sufficient to pay in full the principal of and premium, if any, and interest on all Bonds then Outstanding, there shall be no obligation to make further payments into the Bond Fund. (d) Debt Service Reserve Fund. See the caption "SECURITY FOR THE BONDS — Debt Service Reserve' herein. (e) Renewal and Replacement Fund. After making the required deposits into the Operation and Maintenance Fund, into the Bond Fund and Debt Service Reserve Fund, and into the bond funds and debt service reserve funds with respect to any Subordinate Obligations, there shall be paid from the Revenue Fund into the Renewal and Replacement Fund not later than the fifth business day preceding the fifteenth day of each month while any of the Bonds are Outstanding, an amount sufficient to cause the amount on deposit therein to equal $300,000 or such greater amount as the City may determine from time to time is appropriate, provided that the amount to be deposited in any month need not exceed 1/12 of the amount then required to be on deposit therein. The moneys in the Renewal and Replacement Fund shall be used solely for the purpose of paying the cost of necessary repairs or replacements due to the depreciation of the System and not paid for with moneys in the Operation and Maintenance Fund and costs of damage caused to the System by unforeseen catastrophes. (0 Surplus. Any surplus in the Revenue Fund after making all disbursements and providing for all funds described above may be used, at the option of the City for any lawful purpose. Investment of Funds. At the direction of the City or absent such direction, the Trustee shall invest moneys in funds or accounts held by the Trustee in Investment Securities with maturity or redemption dates consistent with the times at which said moneys will be required for the purposes provided in this Indenture; provided, however, the stated maturity dates of Investment Securities of Debt Service Reserve Fund moneys shall not exceed five years from the date of investment therein. Moneys in separate funds or accounts may be commingled for the purpose of investment. The City may invest moneys held in the Revenue Fund, Operation and Maintenance Fund and Renewal and Replacement Fund in any investment obligations permitted by Arkansas law. 10-58777.3 24 0 Obligations purchased as an investment of moneys in any fund or account created by the Indenture shall be deemed at all times to be a part of such fund or account, and any income or loss due to an investment thereof shall be charged to the respective fund or account for which the investment was made except as otherwise provided in the Indenture. Investments in any fund or account shall be evaluated at least annually by the City or the Trustee, as may be appropriate. For the purpose of determining the amount in any fund or account, the City and the Trustee shall value all Investment Securities credited to such fund or account at the price at which such Investment Securities are redeemable by the holders or owners thereof at their option if so redeemable, or, if not so redeemable, at the lesser of (i) the cost of such Investment Securities minus the amortization of any premium or plus the amortization of any discount thereon and (ii) the market value of such Investment Securities, provided that Investment Securities credited to the Debt Service Reserve Fund, if not so redeemable, shall be valued at the cost thereof minus the amortization of any premium or plus the amortization of any discount thereon. Valuation of Funds and Accounts. In determining the value of any fund or account held by the Trustee under the Indenture, the Trustee shall credit Investment Securities at the fair market value thereof, as determined by the Trustee based on accepted industry standards and from accepted industry providers. No less frequently than annually, and in any event within thirty (30) days prior to the end of each Fiscal Year, the Trustee shall determine the value of each fund and account held under the Indenture and shall report such determination to the City. The Trustee shall sell or present for redemption any Investment Securities as necessary in order to provide money for the purpose of making any payment required under the Indenture, and the Trustee shall not be liable for any loss resulting from any such sale. Responsibility of Trustee. The Trustee shall not be responsible or liable for any loss suffered in connection with any investment of moneys made by it at the direction of the City. Operation and Maintenance of System; Disposition of System Assets. The City covenants that it will continuously operate the System in a diligent fashion in accordance with prudent utility practice and as a revenue -producing undertaking in compliance with all applicable laws and regulations and all the covenants and obligations under the Indenture. The City further covenants that it will maintain the System in sound condition and repair, that it will not sell or otherwise dispose of any property necessary to the proper operation of the System or to the maintenance of Revenues, and that it will not enter into any lease or agreement which will impair or impede the operation of the System or adversely affect the rights of the bondholders. Insurance. The City covenants and agrees to insure and at all times keep insured, in the amount of the actual value thereof, by a responsible insurance company or companies authorized and qualified under the laws of the State of Arkansas to assume the risk thereof, all properties of the System, other than water storage tanks, mains and lines for the transmission, distribution or collection of water or wastewater, against loss or damage from fire, lightning, tornado, winds, strike, malicious damage or explosion and against loss or damage from any other causes customarily insured against by private companies engaged in a similar type of business. In the event of loss, the proceeds of such insurance shall be applied solely toward the reconstruction, replacement or repair of the System, and in such event the City shall, with reasonable promptness, cause to be commenced and completed the reconstruction, replacement and repair work. If such proceeds are more than sufficient for such purposes, the balance remaining shall be deposited to the credit of the Bond Fund, and, if such proceeds shall be insufficient for such purposes, the deficiency shall be supplied, first, from moneys in the Renewal and Replacement Fund and, second, from any available moneys in the Revenue Fund pursuant to Section 506 of the Indenture. Damage or Destruction; Condemnation. The City covenants and agrees that in the event of damage to or destruction of the System, or if all or any part of the System shall be taken under the exercise of eminent domain, it will immediately notify the Trustee. All insurance money paid or net amounts awarded shall be paid to the City, and the City shall proceed to restore, repair, replace or rebuild System facilities as nearly as possible to the condition they were in immediately prior to such damage or condemnation, to the extent that the same may be feasible, subject to such alterations as the City may elect to make. If the insurance money or net amounts awarded shall be insufficient to pay all costs of the restoration, the City shall pay the deficiency and shall nevertheless proceed to complete the restoration and pay the cost thereof. Any balance of the insurance or condemnation proceeds remaining over and above the cost of the restoration shall be deposited into the Revenue Fund. 10-58777.3 25 0 The City's obligations to make all payments set forth in the Indenture and to perform all other covenants and agreements on its part to be performed shall not be affected by any such damage or destruction or condemnation. Notwithstanding the foregoing provisions, the City shall not be required to repair, restore, replace or rebuild System facilities, or any part thereof, if the City shall elect to redeem prior to maturity on the next possible redemption date all of the Bonds then Outstanding, together with accrued interest to the redemption date, and to pay all charges, fees and expenses necessarily incurred and required to be incurred in connection with such redemption, and all other amounts then owing by the City. In that event, the proceeds of all insurance or condemnation awards shall be placed in and become part of the Bond Fund. If there be any deficiency in the moneys on deposit in the Bond Fund after the deposit of all such proceeds, the City shall immediately deposit therein the amount of the deficiency. Accounting; Reports. The City covenants that it will keep the funds and accounts of the System separate from all other funds and accounts of the City, and that it will keep accurate records of all items of cost and of all expenditures relating to the System, and of the collection and application of Revenues, in accordance with generally accepted accounting principles. Such records and accounts shall be open to inspection by the Trustee under reasonable circumstances. The City further covenants that at the end of each Fiscal Year it will cause an audit to be made of the books and accounts for that Fiscal Year pertaining to the System by a Qualified Accountant. Copies of each such audit shall be filed with the Trustee and furnished to the holders of outstanding Bonds making written request therefor. Annual Budget. The City shall prepare an annual budget for System operations for each Fiscal Year. A copy of each budget shall be filed with the Trustee and a copy shall be maintained in the office of the Finance and Internal Services Director of the City. Defeasance. Any Bond shall be deemed to be paid within the meaning of the Indenture when payment of the principal of and premium, if any, and interest on such Bond (whether at maturity or upon redemption as provided in the Indenture, or otherwise), either (i) shall have been made or caused to be made in accordance with the terms thereof, or (ii) shall have been provided for by irrevocably depositing with the Trustee, in trust and irrevocably set aside exclusively for such payment, (1) moneys sufficient to make such payment or (2) Government Securities (provided that such deposit will not affect the tax-exempt status of the interest on any of the Bonds or cause any of the Bonds to be classified as "arbitrage bonds" within the meaning of Section 148(a) of the Code, as reflected in an opinion of Bond Counsel delivered to the Trustee), maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys to make such payment, and all necessary and proper fees, compensation and expenses of the Trustee and any Paying Agent pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee and any said Paying Agent. Events of Default. Each of the following events shall constitute and is referred to in the Indenture as an "Event of Default": (a) Default in the due and punctual payment of any interest on any Bond; (b) Default in the due and punctual payment of the principal of or premium, if any, on any Bond, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by declaration; (c) Default in the payment of any other amount required to be paid under the Indenture or the performance or observance of any other of the covenants, agreements or conditions contained in the Indenture, or in the Bonds issued under the Indenture, and continuance thereof for a period of sixty (60) days after written notice specifying such failure and requesting that it be remedied, shall have been given to the City by the Trustee, which may give such notice in its discretion and shall give such notice at the written request of holders of not less than fifty-one percent (51%) in aggregate principal amount of the Bonds then Outstanding, unless the Trustee, or the Trustee and holders of an aggregate principal amount of Bonds not less than the aggregate principal amount of Bonds the holders of which requested such notice, as the case may be, shall agree in writing to an extension of such period prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, the Trustee will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by the City within such period and is being diligently pursued; and 10-58777.3 26 0 (d) The filing of a petition in bankruptcy by or against the City under the United States Bankruptcy Code or the commencement of a proceeding by or against the City under any other law concerning insolvency, reorganization or bankruptcy. The term "default' as used in clauses (a), (b) and (c) above shall mean default by the City in the performance or observance of any of the covenants, agreements or conditions on its part contained in the Indenture, or in the Bonds Outstanding thereunder, exclusive of any period of grace required to constitute a default an "Event of Default' as described above. Acceleration. Upon the occurrence of an Event of Default, the Trustee may, and upon the written request of the holders of not less than 5 1 % in aggregate principal amount of Bonds Outstanding shall, by notice in writing delivered to the City, declare the principal of all Bonds then Outstanding, together with any premium and the interest accrued thereon, immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Other Remedies; Rights of Bondholders. Upon the occurrence of an Event of Default, the Trustee may, as an alternative, pursue any available remedy by suit at law or in equity, including, without limitation, mandamus to enforce the payment of the principal of and premium, if any, and interest on the Bonds then Outstanding. If an Event of Default shall have occurred, and if it shall have been requested so to do by the holders of 5 1 % in aggregate principal amount of Bonds Outstanding and if it shall have been indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred upon it by the Indenture as the Trustee, being advised by counsel, shall deem most expedient in the interests of the bondholders. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or to the bondholders) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient. No waiver of any default or Event of Default under the Indenture, whether by the Trustee or by the bondholders, shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon. Rights and Remedies of Bondholders. No holder of any Bond shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy thereunder, unless a default has occurred of which the Trustee has been notified as provided in the Indenture, or of which by the Indenture it is deemed to have notice, nor unless such default shall have become an Event of Default and the holders of not less than 51% in aggregate principal amount of Bonds Outstanding shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers granted or to institute such action, suit, or proceeding in its own name, nor unless also they have offered to the Trustee indemnity as provided in the Indenture nor unless the Trustee shall thereafter fail or refuse to exercise the powers granted, or to institute such action, suit, or proceeding in its own name; and such notification, request and offer of indemnity are declared in every such case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of the Indenture, and to any action or cause of action for the enforcement of the Indenture or for the appointment of a receiver or for any other remedy thereunder; it being understood and intended that no one or more holders of the Bonds shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Indenture by action of the holder or holders or to enforce any right under the Indenture except in the manner therein provided, and that all proceedings at law or in equity shall be instituted, held and maintained in the manner therein provided for the equal benefit of the holders of all Bonds Outstanding thereunder. Nothing in the Indenture contained shall, however, affect or impair the right of any bondholders to enforce the payment of the principal of and premium, if any, and interest on any Bonds at and after the maturity thereof, or the obligation of the City to pay the principal of and premium, if any, and interest on each of the Bonds issued under the Indenture to the respective holders thereof at the time and place in said Bonds expressed. Supplemental Indentures Not Requiring Consent of Bondholders. The City and the Trustee may, from time to time and at any time, without the consent of or notice to the bondholders, enter into supplemental indentures as follows: 10-58777.3 27 (a) to cure any formal defect, omission, inconsistency or ambiguity in the Indenture; (b) to grant to or confer or impose upon the Trustee for the benefit of the bondholders any additional rights, remedies, powers, authority, security, liabilities or duties which may lawfully be granted, conferred or imposed and which are not contrary to or inconsistent with the Indenture as theretofore in effect, provided that no such additional liabilities or duties shall be imposed upon the Trustee without its consent; (c) to add to the covenants and agreements of, and limitations and restrictions upon, the City in the Indenture other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with the Indenture as theretofore in effect; (d) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, the Indenture, of the Trust Estate or of any other moneys, securities or funds; (e) to comply with the requirements of the Trust Indenture Act of 1939, as from time to time amended; (f) to authorize the issuance and sale of one or more series of Additional Bonds; (g) to make such additions, deletions or modifications as may be necessary to assure compliance with Section 148(f) of the Code relating to required rebate to the United States or otherwise as may be necessary to assure exemption from federal income taxation of interest on the Bonds; or (h) to modify, alter, amend or supplement the Indenture in any other respect which is not materially adverse to the bondholders and which does not involve a change described in clause (a), (b), (c), (d), (e) or (1) below and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Supplemental Indentures Requiring Consent ojBondholders. Subject to the terms and provisions contained in this paragraph, and not otherwise, the holders of not less than 2/3 in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything contained in the Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such indenture or indentures supplemental to the Indenture as shall be deemed necessary and desirable by the City for the purpose of modifying, altering, amending, adding to, or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any supplemental indenture; provided, however, that nothing contained in the Indenture shall permit or be construed as permitting (a) an extension of the maturity (or mandatory redemption date) of the principal of or the interest on any Bond issued thereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Bond issued thereunder, or (c) the creation of any lien on the Trust Estate or any part thereof, except as expressly permitted in the Indenture, or (d) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (e) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indenture, or (f) deprive the holder of any Bond then Outstanding of the lien created on the Trust Estate. If, at any time the City shall request the Trustee to enter into any supplemental indenture for any of the purposes described above, the Trustee shall, at the expense of the City, cause notice of the proposed execution of such supplemental indenture to be mailed by first class mail to each registered owner of the Bonds. Such notice shall briefly set forth the nature of the proposed supplemental indenture and shall state that copies thereof are on file at the principal office of the Trustee for inspection by bondholders. The Trustee shall not, however, be subject to any liability to any bondholder by reason of its failure to mail such notice, and any such failure shall not affect the validity of such supplemental indenture when consented to and approved as provided above. If the holders of not less than 2/3 in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such supplemental indenture shall have consented to and approved the execution thereof, no holder of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the City from executing the same or from taking any action pursuant to the provisions thereof. SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT The City has entered into an undertaking in the form of the Continuing Disclosure Agreement as required by the Indenture for the benefit of the Beneficial Owners of the Series 2004 Bonds to cause certain financial information to be sent to certain information repositories annually and to cause notice to be sent to such information repositories of certain specified events, pursuant to the requirements of Section (b)(5)(i) of Rule 15c2-12 of the Securities Exchange Act of 1934, as amended (the "Rule"). The City has not failed to comply with any previous undertaking pursuant to the Rule. 10-58777.3 28 The Continuing Disclosure Agreement contains the following covenants and provisions: (a) The City shall, not later than August 1 of each year, commencing August 1, 2004, provide to each Repository and the Trustee its Annual Financial Information consistent with the requirements of subsection (d) below. (b) If, on the date specified in subsection (a) above for providing the Annual Financial Information to Repositories, the Trustee has not received a copy of the Annual Financial Information, the Trustee shall contact the Disclosure Representative to determine if the City is in compliance with subsection (a). (c) If the Trustee is unable to verify that the Annual Financial Information has been provided to the Repositories by the date required within subsection (a), the Trustee shall file a notice to such effect with the Repositories and the MSRB. (d) The City's Annual Financial Information shall contain or incorporate by reference the following: (i) The following general categories of financial data and operating data with respect to the City's water and sewer system (the "System") for the prior fiscal year: (A) Changes in wholesale water rates charged by the Beaver Water District; (B) Changes in the City's water and sewer rate structure; (C) Annual System operating revenues, bad debt expense and bad debt expense percentage; (D) Costs for projected System capital improvements for the current fiscal year; (E) Usage percentages of all water users consuming more than 5% of the System's water output; (F) Average daily water use and maximum day's water use; and (G) Average daily sewage flow. (ii) The City's audited financial statements for the prior fiscal year, prepared in accordance with accounting principles generally accepted in the United States ("GAAP") as such principles are modified by the governmental accounting standards promulgated by the Government Accounting Standards Board ("GASB") and by mandated principles of the State of Arkansas, if any, as in effect from time to time, which financial statements have been audited by such auditor as shall then be required or permitted by the laws of the State of Arkansas. If the City's audited financial statements are not available by the time its Annual Financial Information is required to be filed pursuant to subsection (a) above, the Annual Financial Information shall contain the unaudited financial statements of the City in a format similar to its audited financial statements contained in the Official Statement for the Series 2004 Bonds, and the audited financial statements shall be filed in the same manner as the Annual Financial Information when they become available. (e) The City has agreed to instruct the Trustee to deliver to each National Repository, or the MSRB and the Arkansas State Repository, notice of the occurrence of any of the following Specified Events, if deemed material: (i) Principal and interest payment delinquencies; (ii) Non-payment related defaults; (iii) Unscheduled draws on any debt service reserve reflecting financial difficulties; (iv) Unscheduled draws on any credit enhancement reflecting financial difficulties; (v) Substitution of any credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions or events affecting the tax-exempt status of the Series 2004 Bonds; (vii) Modifications to rights of Bondowners; (viii) Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2004 Bonds; or 10-58777.3 29 (xi) Rating changes. (f) The City has agreed that the foregoing undertakings shall be for the benefit of the Beneficial Owners of the Series 2004 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2004 Bonds in an action for specific performance against the City. (g) The continuing obligation of the City to provide Annual Financial Information and notice of the occurrence of Specified Events, if material, will terminate if the City is no longer an "obligated party" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2004 Bonds. The City and the Trustee may amend the Continuing Disclosure Agreement, and any provision of the Continuing Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel, reasonably acceptable to each of the City and the Trustee, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings under the Continuing Disclosure Agreement to violate the Rule, taking into account any subsequent change in or official interpretation of the Rule. (h) The following terms used under this caption shall have the meanings set forth below: "Annual Financial Information" means the annual financial information to be provided by the City of the type described in the Continuing Disclosure Agreement. "Arkansas State Repository" means any public or private repository or entity as may be designated by the State of Arkansas as a state repository for purposes of the Rule and recognized as such by the SEC. As of the date of the Continuing Disclosure Agreement, there is no Arkansas State Repository. "Beneficial Owner" means any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2004 Bonds, including persons holding Series 2004 Bonds through nominees or depositories. "Disclosure Representative" means the City's Finance and Internal Services Director or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee from time to time. "MSRB" means the Municipal Securities Rulemaking Board. "National Repository" means any nationally recognized municipal securities information repository for purposes of the Rule. "Participating Underwriter" means Stephens Inc. "Repository" means each National Repository and the Arkansas State Repository. "Specified Events" means each of the events with respect to the Series 2004 Bonds listed in subsection (e) above. (i) A failure by the City to comply with the provisions of the Continuing Disclosure Agreement will not constitute an Event of Default under the Indenture, and the sole remedy in such an event shall be an action to compel specific performance. Nevertheless, such a failure to comply must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Series 2004 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2004 Bonds. UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), the Series 2004 Bonds are being purchased at a purchase price of S (representing the stated principal amount of the Series 2004 Bonds less an underwriting discount of $ .) plus accrued interest from 2004 to the date of delivery of the Series 2004 Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2004 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2004 Bonds is subject to various conditions contained in the bond purchase agreement, including the absence of pending or threatened litigation questioning the validity of the Series 2004 Bonds or any proceedings in connection with the issuance thereof, and the absence of material adverse changes in the financial condition of the System. The Underwriter intends to offer the Series 2004 Bonds to the public initially at the offering prices as set forth on the cover page of this Official Statement, which offering prices (or bond yields establishing such offering prices) may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join 10-58777.3 30 with dealers and other underwriters in offering the Series 2004 Bonds to the public, and may offer the Series 2004 Bonds to such dealers and other underwriters at a price below the public offering price. The City has agreed to indemnify the Underwriter against certain civil liabilities in connection with the offering and sale of the Series 2004 Bonds, including certain liabilities under federal securities laws. TAX MATTERS Federal Income Taxes. In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2004 Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described in the preceding sentence assumes the accuracy of certain representations and compliance by the City with covenants designed to satisfy the requirements of the Code that must be met subsequent to the issuance of the Series 2004 Bonds. Failure to comply with certain of such requirements may cause interest on the Series 2004 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2004 Bonds. The City has covenanted to comply with such requirements. Notwithstanding Bond Counsel's opinion that interest on the Series 2004 Bonds is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of such corporation's adjusted current earnings over its alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2004 Bonds. The accrual or receipt of interest on the Series 2004 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2004 Bonds. The extent of these other tax consequences will depend upon such owner's particular tax status and other items of income or deduction. Bond Counsel has expressed no opinion regarding any such consequences. Purchasers of the Series 2004 Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise entitled to claim the earned income credit, or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the Series 2004 Bonds. Changes in Federal Tax Law. From time to time, there are legislative proposals in the Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Series 2004 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. Purchasers of the Series 2004 Bonds should consult their tax advisors regarding any pending or proposed tax legislation. The opinions expressed by Bond Counsel are based upon existing legislation as of the date of issuance and delivery of the Series 2004 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. State Taxes. Bond Counsel is of the opinion that, under existing law, the interest on the Series 2004 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. RATINGS [Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), has given the Series 2004 Bonds the rating of "_" based on the delivery of the Financial Guaranty Insurance Policy by [BOND INSURER] and has assigned an underlying rating of "" to the Series 2004 Bonds. Such ratings reflect only the view of S&P at the time such ratings were given. An explanation of the significance of the ratings may be obtained from S&P. There is no assurance that such ratings will continue for any given period of time or that the ratings will not be revised downward or withdrawn entirely by S&P if in its judgment circumstances so warrant. Any downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Series 2004 Bonds. Neither the City nor the Underwriter have undertaken any responsibility subsequent to the issuance of the Series 2004 Bonds to assure the maintenance of the ratings or to oppose any revision or withdrawal of the ratings. No application has been made to any rating agency other than S&P for a rating on the Series 2004 Bonds.] 10-58777.3 31 LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2004 Bonds are subject to the unqualified approving opinion of Kutak Rock LLP, Little Rock, Arkansas, Bond Counsel, a copy of whose approving opinion will be delivered with the Series 2004 Bonds. Certain legal matters will be passed upon for the City by its counsel, Kit Williams, Esq., City Attorney. Litigation. There is no litigation pending seeking to restrain or enjoin the issuance or delivery of the Series 2004 Bonds or questioning or affecting the legality of the Series 2004 Bonds or the proceedings and authority under which the Series 2004 Bonds are to be issued, or questioning the right of the City to issue the Series 2004 Bonds. Except as set forth in the following paragraph, there is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the City in any way which could have a material adverse effect on the City or the System's financial affairs. The City is presently a defendant or co-defendant in an action where the amount of damages sought exceeds $50,000. In this case, the City has prevailed at the trial court level. This case is currently on appeal and is being actively defended by counsel for the City. As of the date of this Official Statement, the City believes the likelihood of an unfavorable outcome is remote. Further, the City does not know of any fact or set of facts from which the liability might arise which individually or collectively would materially affect Net Revenues or the financial position of the System. FINANCIAL STATEMENTS The general purpose financial statements of the City at December 31, 2002 and for the year then ended, included herein as Appendix A, have been audited by BKD, LLP, independent certified public accountants, as set forth in their report dated 2003, which report is also included in Appendix A. The notes set forth in Appendix A are an integral part of the financial statements, and the statements and notes should be read in their entirety. Set forth in Appendix B to this Official Statement are the unaudited financial statements of the City's Water and Sewer Fund for the year ended December 31, 2003. Additional financial information concerning the City may be obtained from the City's Finance and Internal Services Director, City of Fayetteville, City Administration Building, 113 West Mountain, Fayetteville, Arkansas 72701. MISCELLANEOUS Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Series 2004 Bonds. ACCURACY AND COMPLETENESS OF OFFICIAL STATEMENT The information contained in this Official Statement has been taken from sources considered to be reliable, but is not guaranteed. To the best of the knowledge of the City, this Official Statement does not include any untrue statement of a material fact, nor does it omit the statement of any material fact required to be stated herein, or necessary to make the statements herein, in light of the circumstances under which they were made, not misleading. 10-58777.3 32 The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, Arkansas. CITY OF FAYETTEVILLE, ARKANSAS Mayor 10-58777.3 33 APPENDIX A AUDITED GENERAL PURPOSE FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED DECEMBER 31, 2002 10-58777.3 A-1 0 APPENDIX B UNAUDITED FINANCIAL STATEMENTS OF THE CITY'S WATER AND SEWER FUND FOR THE YEAR ENDED DECEMBER 31, 2003 10-58777.3 B-1 APPENDIX C Proposed Form of Bond Counsel Opinion Kutak Rock LLP, Bond Counsel, will render an opinion with respect to the Series 2004 Bonds, dated the date of issuance and delivery thereof, in substantially the following form: City of Fayetteville, Arkansas Fayetteville, Arkansas Bank of Oklahoma, N.A., as Trustee Tulsa, Oklahoma Stephens Inc. Fayetteville, Arkansas [BOND INSURER] 2004 City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 2004 Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance and sale by the City of Fayetteville, Arkansas (the "City"), a political subdivision of the State of Arkansas, of its S • Water and Sewer System Refunding Revenue Bonds, Series 2004 (the "Bonds"). The Bonds are being issued pursuant to the provisions of the Constitution and laws of the State of Arkansas, including, particularly, Amendment 65 and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14- 164401 et seq., §§ 14-234-201 et seq. and §§ 14-235-201 et seq.(collectively, and as from time to time amended, the "Authorizing Legislation"), pursuant to Ordinance No. of the City, duly adopted and approved on April _, 2004 (the "Bond Ordinance" ), and pursuant to a Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of May 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and Bank of Oklahoma, N.A., as trustee (the "Trustee"). Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the conditions for the issuance of parity debt by the City, the nature and extent of the security for the Bonds, the rights, duties and obligations of the City, the Trustee and the holders of the Bonds, and the terms upon which the Bonds are issued and secured. Reference is made to an opinion of even date herewith of Kit Williams, Esq., City Attorney, a copy of which is on file with the Trustee, with respect, among other matters, to the status and valid existence of the City, the power of the City to adopt the Bond Ordinance and enter into and perform its obligations under the Indenture, the valid adoption of the Bond Ordinance and the due authorization, execution and delivery of the Indenture by the City, and with respect to the Indenture being enforceable upon the City. . Preliminary; subject to change. 10-58777.3 C-1 We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the City contained in the Bond Ordinance and the Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly created and validly existing as a municipal corporation of the State of Arkansas. Pursuant to the Constitution and laws of the State of Arkansas, including, particularly, Amendment 65 and the Authorizing Legislation, the City is empowered to adopt the Bond Ordinance, to execute and deliver the Indenture, to perform the agreements on its part contained therein, and to issue the Bonds. 2. The Bond Ordinance has been duly adopted by the City and constitutes a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 3. The Indenture has been duly authorized, executed and delivered by the City and is a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 4. The Bonds have been validly authorized, executed, issued and delivered by the City and represent valid and binding special obligations of the City. The principal, premium, if any, and interest on the Bonds shall be payable from, and shall be secured by an assignment and pledge by the City to the Trustee of, the Net Revenues (as defined in the Indenture) of the City's water and sewer system, subject to a parity pledge of Net Revenues securing the City's Water and Sewer System Refunding Revenue Bonds, Series 2002, and any Additional Bonds (as defined in the Indenture) issued hereafter. 5. The Net Revenues have been duly and validly assigned and pledged to the Trustee under the Indenture, and the Indenture creates, as security for the Bonds, a valid security interest in the Net Revenues. 6. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described in the preceding sentence assumes the accuracy of certain representations and compliance by the City with covenants designed to satisfy the requirements of the Internal Revenue Code of 1986, as amended, that must be met subsequent to the issuance of the Bonds. Failure to comply with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to comply with such requirements. 7. The interest on the Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended, in connection with the offer and sale of the Bonds. It is to be understood that the rights of the registered owners of the Bonds and the enforceability of the Bonds, the Bond Ordinance and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Very truly yours, 10-58777.3 C-2 • • KUTAK ROCK LLP DRAFT 03/09/2004 BOND PURCHASE AGREEMENT April _, 2004 City of Fayetteville 113 West Mountain Fayetteville, Arkansas 72701 City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds, Series 2004 Ladies and Gentlemen: On the basis of the representations, warranties and agreements and upon the terms and conditions contained herein, the undersigned, Stephens Inc. (the "Underwriter"), hereby offers to enter into this Bond Purchase Agreement (this "Bond Purchase Agreement") with the City of Fayetteville, Arkansas (the "City") which, upon your acceptance of this offer, will be binding upon you and upon the Underwriter. Terms not otherwise defined herein shall have the same meanings as set forth in the Authorizing Ordinance defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on April _, 2004. 1. General. Upon the terms and conditions and in reliance upon the respective representations, warranties and covenants herein, the Underwriter hereby agrees to purchase from the City, and the City hereby agrees to sell to the Underwriter, all (but not less than all) of $ City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds, Series 2004 (the "Bonds"), at the purchase price (the "Purchase Price") of $ (equal to the par amount of the Bonds less underwriter's discount of $ ) plus accrued interest, if any, from May 1, 2004, to the Closing Date (hereinafter defined). The Bonds shall be issued by the City pursuant to the provisions of the Constitution and laws of the State of Arkansas, including, particularly, Amendment 65 to the Constitution and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14-234-201 et seq., §§14-235-201 et seq. and §§ 14-164-401 et seq. (collectively, the "Authorizing Legislation"). The Bonds will constitute special and limited obligations of the City, secured solely by and payable solely from (1) a pledge of and lien on the net revenues (the "Net Revenues") of the City's combined water and sewer system (the "System") and (2) moneys on deposit in the Bond Fund and the Debt Service Reserve Fund established by that certain Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture to be dated as of May 1, 2004 (as amended and supplemented, the "Indenture"), each by and between the City and Bank of Oklahoma, N.A., Tulsa, Oklahoma, as trustee (the "Trustee"), all as more 10-58773.2 particularly described in the Indenture. The pledge of Net Revenues securing the Bonds is on a parity basis with an existing pledge of Net Revenues securing the City's outstanding Water and Sewer System Refunding Revenue Bonds, Series 2002 (the "Series 2002 Bonds"). The Bonds shall be issued and secured pursuant to an ordinance of the City Council of the City (the "Authorizing Ordinance") which was adopted on April , 2004, and pursuant to the Indenture. The Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). The proceeds of the Bonds will be utilized (i) to effect a current refunding of $6,365,000 outstanding principal amount of the City's Water and Sewer System Refunding Revenue Bonds, Series 1999 (the "Refunded Bonds"), (ii) to fund a debt service reserve, [(iii) to pay the premium on a policy of municipal bond insurance,] and (iv) to pay the costs of issuance of the Bonds. A portion of the proceeds of the Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Bonds (the "Escrow Agreement"), between the City and Bank of Oklahoma, N.A., Tulsa, Oklahoma, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Refunded Bonds at the times and in the amounts provided in the Escrow Agreement. The City will undertake, pursuant to a Continuing Disclosure Agreement to be dated as of the date of delivery of the Bonds (the "Continuing Disclosure Agreement"), to provide certain annual financial and operating information and notices of the occurrence of certain events, if material, as required by Section (b)(5)(i) of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended (the "Rule"). A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement (each hereinafter defined). The City is not in default with respect to any of its obligations under previous undertakings pursuant to the Rule. In order to ensure compliance with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the City will enter into a Tax Regulatory Agreement dated as of the date of delivery of the Bonds (the "Tax Regulatory Agreement"). 2. Bona Fide Public Offering. The Underwriter agrees to make a bona fide public offering of all of the Bonds at the offering prices set forth on the cover of the final Official Statement described below. 3. Delivery of Official Statement. (a) The City has previously provided the Underwriter with copies of its Preliminary Official Statement, including the cover page and the appendices thereto, dated April , 2004, relating to the Bonds (the "Preliminary Official Statement"). As of its date, the Preliminary Official Statement is "deemed final" by the City for purposes of SEC Rule 15c2-12(b)(1). The Preliminary Official Statement, as amended to conform to the terms of this Bond Purchase Agreement, including Exhibit A hereto, and with such other changes and amendments as are mutually agreed to by the City and the Underwriter, is herein referred to as the "Official Statement." 10-58773.2 2 (b) The City agrees to deliver to the Underwriter, at such address as the Underwriter shall specify, as many copies of the final Official Statement dated April 2004, relating to the Bonds as the Underwriter shall reasonably request as necessary to comply with paragraph (b)(4) of the Rule (as defined above) and with Rule G-32 and all other applicable rules of the Municipal Securities Rulemaking Board. The City agrees to deliver such final Official Statement within seven (7) business days after the execution hereof. (c) The City hereby authorizes and approves the Preliminary Official Statement and the final Official Statement, consents to their distribution and use by the Underwriter and authorizes the execution of the final Official Statement by a duly authorized officer of the City. (d) The Underwriter shall give notice to the City on the date after which no participating underwriter, as such term is defined in the Rule, remains obligated to deliver final Official Statements pursuant to paragraph (b)(4) of the Rule. 4. City's Representation and Warranties. The City represents and warrants to the Underwriter that: (a) The City is a duly organized and existing political subdivision under the Constitution and laws of the State of Arkansas (the "State"). The City is authorized by the provisions of the Authorizing Legislation to issue the Bonds for the purpose of refunding the Refunded Bonds. (b) The City has the full legal right, power and authority (i) to adopt the Authorizing Ordinance authorizing the issuance of and sale of the Bonds, (ii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, (iii) to issue, sell and deliver the Bonds to the Underwriter as provided herein, (iv) to deposit the proceeds of the Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Refunded Bonds, (v) to pledge irrevocably the Net Revenues to the payment of the principal of, premium, if any, and interest on the Bonds, and (vi) to carry out and consummate all other transactions contemplated by each of the aforesaid documents, and the City has complied with all provisions of applicable law, including the Authorizing Legislation, in all matters relating to such transactions. (c) The City has duly authorized (i) the execution and delivery of the Bonds and the execution, delivery and due performance of this Bond Purchase Agreement, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, (ii) the distribution and use of the Preliminary Official Statement and the execution, delivery and distribution of the final Official Statement, and (iii) the taking of any and all such actions as may be required on the part of the City to carry out, give effect to and consummate the transactions contemplated by such instruments. All consents or approvals necessary to be obtained by the City in connection with the foregoing have been received, and the consents or approvals so received remain still in full force and effect. 10-58773.2 3 (d) The Authorizing Ordinance has been duly adopted by City Council of the City, is in full force and effect and constitutes the legal, valid and binding act of the City; and this Bond Purchase Agreement, the First Supplemental Trust Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, when executed and delivered, will constitute legal, valid and binding obligations of the City, and this Bond Purchase Agreement, the First Supplemental Trust Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement are enforceable against the City in accordance with their respective terms, except as enforceability thereof may be limited by bankruptcy, insolvency or other laws affecting creditors' rights generally. (e) When delivered to or at the direction of the Underwriter, the Bonds will have been duly authorized, executed, authenticated, issued and delivered and will constitute legal, valid and binding obligations of the City in conformity with the laws of the State of Arkansas, including the Authorizing Legislation, and will be entitled to the benefit and security of the Authorizing Ordinance and the Indenture. (f) The City has duly approved and authorized the distribution and use of the Preliminary Official Statement and the execution, delivery and distribution of the Official Statement. (g) The information contained in the Preliminary Official Statement is, and as of the Closing Date such information in the final Official Statement will be, true and correct in all material respects, and the Preliminary Official Statement does not and the final Official Statement will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (h) If, at any time prior to the earlier of (i) receipt of notice from the Underwriter pursuant to Section 3(d) hereof that Official Statements are no longer required to be delivered under the Rule or (ii) 25 days after the Closing Date, any event occurs as a result of which the Official Statement, as then amended or supplemented, might include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the City shall promptly notify the Underwriter in writing of such event. Any information supplied by the City for inclusion in any amendments or supplements to the Official Statement will not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Upon the request of the Underwriter therefor, the City shall prepare and deliver to the Underwriter, at the City's expense, as many copies of an amendment or supplement to the Official Statement which will correct any untrue statement or omission therein as the Underwriter may reasonably request. (i) Neither the adoption of the Authorizing Ordinance, the execution and delivery of this Bond Purchase Agreement, the Bonds, the First Supplemental Trust Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or the Tax 10-58773.2 4 Regulatory Agreement, nor the consummation of the transactions contemplated herein or therein or the compliance with the provisions hereof or thereof will conflict with, or constitute on the part of the City a violation of, or a breach of or default under, (i) any statute, indenture, mortgage, commitment, note or other agreement or instrument to which the City is a party or by which it is bound, (ii) any provision of the Constitution of the State of Arkansas, or (iii) any existing law, rule, regulation, ordinance, judgment, order or decree to which the City (or the members of its City Council or any of its officers in their respective capacities as such) is subject. All consents, approvals, authorizations and orders of governmental or regulatory authorities, if any, which are required for the City's execution and delivery of, consummation of the transactions contemplated by, and compliance with the provisions of this Bond Purchase Agreement, the Authorizing Ordinance, the Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 0) The City has never been in default at any time as to the payment of principal of or interest on any obligation which it has issued, including those which it has issued as a conduit for another entity, except as specifically disclosed in the Official Statement. (k) Except as is specifically disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, pending or, to the best knowledge of the City, threatened, which in any way questions the powers of the City referred to in subparagraph 4(b) above, or the validity of any proceeding taken by the City in connection with the issuance of the Bonds, or wherein an unfavorable decision, ruling or finding could materially adversely affect the transactions contemplated by this Bond Purchase Agreement, or of any other document or instrument required or contemplated by the Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement or, to the knowledge of the City, which in any way questions the exclusion from gross income of the recipients thereof of the interest on the Bonds for federal income tax purposes or in any other way questions the status of the Bonds under federal or State of Arkansas tax laws or regulations. (1) Any certificate signed by any official of the City and delivered to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the truth of the statements therein contained. (m) The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. (n) The audited general purpose financial statements and supplemental financial statements of the City for the year ended December 31, 2002, and the unaudited financial statements of the City's Water and Sewer Fund for the year ended 10-58773.2 5 December 31, 2003, included in the Official Statement, present fairly the financial position of the City and its Water and Sewer Fund as of the dates indicated and the results of the City's and its Water and Sewer Fund's operations for the periods specified, and such financial reports and statements have been prepared in conformity with generally accepted governmental accounting principles consistently applied in all material respects to the periods involved, except as otherwise stated in the notes thereto. There has been no material change in the general affairs, management, properties, financial position, capitalization or results of operations of the City or its Water and Sewer Fund since the date of such financial statements except as set forth in the Official Statement. (o) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Bonds to be applied in a manner other than as provided in the Indenture or the Escrow Agreement, or which would cause the interest on the Bonds to be includable in gross income for federal income tax purposes. 5. City's Covenants. The City covenants with the Underwriter as follows: (a) The City will cooperate with the Underwriter in qualifying the Bonds for offer and sale under the securities or Blue Sky laws of such jurisdictions of the United States as the Underwriter may request; provided, however, that the City shall not be required to consent to suit or to service of process in any jurisdiction. The City consents to the use by the Underwriter in the course of its compliance with the securities or Blue Sky laws of the various jurisdictions of the documents relating to the Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. (b) Prior to the earlier of (i) receipt of notice from the Underwriter pursuant to Section 3(d) hereof that final Official Statements are no longer required under the Rule or (ii) 25 days after the Closing Date, the City shall provide the Underwriter with such information regarding the City, its Water and Sewer Fund, and the current financial condition and ongoing operations of the City and its Water and Sewer Fund , all as the Underwriter may reasonably request. 6. Closing. At 10:00 a.m. Fayetteville time on May _, 2004, or at such other time and/or date as shall have been mutually agreed upon by the City and the Underwriter (the "Closing Date"), the City will deliver the Bonds, or cause the Bonds to be delivered, to or at the direction of the Underwriter, said Bonds to be in definitive form duly executed by the City and authenticated by Bank of Oklahoma, N.A., Tulsa, Oklahoma, as trustee (the "Trustee"), together with the other documents hereinafter mentioned; and the Underwriter will accept such delivery and pay the Purchase Price of the Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Bonds shall be delivered to The Depository Trust Company in New York, New York, and the activities relating to the final execution and delivery of the Authorizing Ordinance, the First Supplemental Trust Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the 10-58773.2 6 I Bonds and the payment for the Bonds and the delivery of the certificates, opinions and other instruments as described in Section 8 of this Bond Purchase Agreement shall occur in the offices of Kutak Rock LLP, 425 West Capitol Avenue, Suite 1100, Little Rock, Arkansas ("Bond Counsel") or at such other place as shall have been mutually agreed upon between the City and the Underwriter. The payment for the Bonds and simultaneous delivery of the Bonds to or at the direction of the Underwriter is herein referred to as the "Closing." 7. Underwriter's Right to Cancel. The Underwriter shall have the right to cancel its obligation to purchase the Bonds hereunder by notifying the City in writing or by telegram of its election to do so between the date hereof and the Closing, if at any time hereafter and prior to the Closing: (i) the House of Representatives or the Senate of the Congress of the United States, or a committee of either, shall have pending before it, or shall have passed or recommended favorably, legislation introduced previous to the date hereof, which legislation, if enacted in its form as introduced or as amended, would have the purpose or effect of imposing federal income taxation upon revenues or other income of the general character to be derived by the City or by any similar body under the Authorizing Ordinance or the Indenture or similar documents or upon interest received on obligations of the general character of the Bonds or the Bonds, or of causing interest on obligations of the general character of the Bonds, or the Bonds, to be includable in gross income for purposes of federal income taxation, and such legislation, in the Underwriter's opinion, materially adversely affects the market price of the Bonds; or (ii) a tentative decision with respect to legislation shall be reached by a committee of the House of Representatives or the Senate of the Congress of the United States, or legislation shall be favorably reported or rereported by such a committee or be introduced, by amendment or otherwise, in or be passed by the House of Representatives or the Senate, or recommended to the Congress of the United States for passage by the President of the United States, or be enacted or a decision by a federal court of the United States or the United States Tax Court shall have been rendered, or a ruling, release, order, regulation or official statement by or on behalf of the United States Treasury Department, the Internal Revenue Service or other governmental agency shall have been made or proposed to be made having the purpose or effect, or any other action or event shall have occurred which has the purpose or effect, directly or indirectly, of adversely affecting the federal income tax consequences of owning the Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Bonds to be included in gross income for purposes of federal income taxation, or imposing federal income taxation upon revenues or other income of the general character to be derived by the City or by any similar body under the Authorizing Ordinance or the Indenture or similar documents or upon interest received on obligations of the general character of the Bonds, or the Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Bonds; or (iii) legislation shall have been enacted, or actively considered for enactment with an effective date prior to the Closing, or a decision by a court of the United States shall have been rendered, the effect of which is that the Bonds, including any underlying 10-58773.2 7 obligations, or the Indenture, as the case may be, is not exempt from the registration, qualification or other requirements of the Securities Exchange Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (iv) a stop order, ruling, regulation or official statement by the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall have been issued or made or any other event occurs, the effect of which is that the issuance, offering or sale of the Bonds, including any underlying obligations, or the execution and delivery of the Indenture as contemplated hereby or by the Official Statement, is or would be in violation of any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, the Securities Exchange Act of 1934, as amended and as then in effect, or the Trust Indenture Act of 1939, as amended and as then in effect; or (v) any event shall have occurred or any information shall have become known to the Underwriter which causes the Underwriter to reasonably believe that the Official Statement as then amended or supplemented includes an untrue statement of a material fact, or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; or (vi) there shall have occurred any outbreak of hostilities or any national or international calamity or crisis, including a financial crisis, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would materially adversely affect the market for or market price of the Bonds; or (vii) there shall be in force a general suspension of trading on the New York Stock Exchange, the effect of which on the financial markets of the United States is such as, in the reasonable judgment of the Underwriter, would materially adversely affect the market for or market price of the Bonds; or (viii) a general banking moratorium shall have been declared by federal, New York or State authorities; or (ix) any proceeding shall be pending or threatened by the Securities and Exchange Commission against the City; or (x) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange; or (xi) the New York Stock Exchange or other national securities exchange, or any governmental authority, shall impose, as to the Bonds or obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of the Underwriter. 10-58773.2 8 I Ll 8. Conditions to Underwriter's Obligations. The obligation of the Underwriter to purchase the Bonds shall be subject (a) to the performance by the City of its obligations to be performed hereunder at and prior to the Closing, (b) to the accuracy of the representations and warranties of the City herein as of the date hereof and as of the time of the Closing, and (c) to the following conditions, including the delivery by the City of such documents as are enumerated herein in form and substance satisfactory to the Underwriter: (a) The Bonds shall have been duly authorized, executed and delivered in the forms approved by the City in the Indenture with only such changes therein as the Underwriter and the City shall mutually agree upon, which shall in all instances be as described in the final Official Statement; (b) At the time of Closing, (i) the Official Statement, this Bond Purchase Agreement, the Indenture, the Authorizing Ordinance, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement shall be in full force and effect and shall not have been amended, modified or supplemented from the date hereof, except as may have been agreed to in writing by the Underwriter, (ii) the proceeds of the sale of the Bonds and other funds shall be deposited and applied as described in the Indenture and the Escrow Agreement, (iii) no default or event of default under the Indenture shall have occurred and be continuing, and (iv) no material adverse change affecting the City or its water and sewer system (the "System") shall have occurred, nor shall any development involving a prospective and material adverse change in, or affecting the business, financial condition, results of operations, prospects or properties of the City or the System have occurred; (c) Receipt of fully executed originals of the First Supplemental Trust Indenture, the Continuing Disclosure Agreement, the Escrow Agreement and the Tax Regulatory Agreement at or prior to the Closing; (d) At or prior to the Closing, the Underwriter shall receive the following documents in such number of counterparts as shall be mutually agreeable to the Underwriter and Bond Counsel: (1) A final approving opinion of Bond Counsel, dated the Closing Date, in substantially the form set forth in Exhibit B hereto; (2) A supplemental opinion of Bond Counsel, addressed to the City, the Trustee and the Underwriter and dated the Closing Date, in substantially the form set forth in Exhibit C hereto; (3) An opinion of Bond Counsel, addressed to the City and the trustee for the Refunded Bonds, to the effect that upon deposit of the moneys as described under the Escrow Agreement with the Escrow Trustee, the Refunded Bonds will be deemed to be paid and discharged and the lien on revenues and net revenues of the System securing the Refunded Bonds will be released; (4) The Official Statement executed by a duly authorized officer of the City; 10-58773.2 9 (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Bonds; (6) Photocopies of the Bonds as executed and delivered; [(7) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Bonds have been assigned a rating of no less than "AAA" based on the delivery of the Policy (as defined below) and an underlying rating of "A-", which ratings shall be in effect as of the Closing Date;] [(8) The Insurance Policy (the "Policy") issued by [BOND INSURER] (" "), together with such supporting certificates of and opinions of counsel to as shall be satisfactory to Bond Counsel;] (9) A letter from BKD, LLP, independent certified public accountants, in which consent is given to the use of its report on the audited financial statements of the City in the Official Statement and to the references made to the firm in the Official Statement; (10) A letter from BKD, LLP, independent certified public accountants, stating the results of the application of certain procedures to the financial statements of the City, which results satisfy the requirements regarding the issuance of additional bonds contained in Section 213 of the Indenture, pursuant to which the Series 2002 Bonds are insured and secured; (11) A certificate, in form and substance satisfactory to the Underwriter, of any duly authorized officer or official of the City satisfactory to the Underwriter, dated as of the Closing Date, to the effect that: (i) each of the City's representations, warranties and covenants contained herein are true and correct as of the Closing Date; (ii) the City has duly adopted the Authorizing Ordinance by all action necessary under the Authorizing Legislation and the laws and Constitution of the State of Arkansas, and has duly authorized the execution, delivery and due performance of the Bonds, the First Supplemental Trust Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement, the Official Statement and this Bond Purchase Agreement; (iii) no litigation is pending, or to the knowledge of the officer or official of the City signing the certificate after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Bonds or in any way affecting any authority for or the validity of the Bonds, the Official Statement, the Authorizing Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement, or this Bond Purchase Agreement; (iv) the Bonds, the First Supplemental Trust Indenture, the Escrow Agreement, this Bond Purchase Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement, as executed and delivered by the City, are in the form or in substantially the form approved for such execution by 10-58773.2 10 appropriate proceedings of the City; (v) since December 31, 2003, there has not been any material adverse change in the financial condition or results of operations of the City or the System whether or not arising in the ordinary course of business, other than as set forth in the Official Statement; (vi) the Authorizing Ordinance has not been amended, modified or repealed as of the Closing Date, and the Authorizing Ordinance remains in full force and effect; (vii) none of the proceedings of the City taken preliminary to the issuance of the Bonds, as certified in such certificate, has been in any manner repealed, amended or changed; (viii) the City has complied in all respects with the provisions of the Authorizing Legislation and has full legal right, power and authority to issue the Bonds for the purposes stated in the Authorizing Legislation and to enter into this Bond Purchase Agreement, to adopt the Authorizing Ordinance, to issue, sell and deliver the Bonds as provided in this Bond Purchase Agreement, and to carry out and consummate all other transactions contemplated by this Bond Purchase Agreement, the Authorizing Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement; (ix) neither the Official Statement nor any amendment or supplement thereto contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading; and (x) to the best knowledge of the officer or official of the City signing the certificate, no event affecting the City or the System has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is used that is necessary to disclose therein in order to make the statements and information therein not misleading in any respect; (12) An opinion of Kit Williams, Esq., City Attorney, dated the Closing Date and addressed to the Underwriter, Bond Counsel and the Trustee, to the effect that (i) the City is a duly organized and validly existing political subdivision and city of the first class, organized under the laws of the State of Arkansas, with full power and authority to adopt the Authorizing Ordinance and to execute and deliver the Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement and this Bond Purchase Agreement; (ii) the City has duly approved the Preliminary Official Statement and the Official Statement; (iii) the Authorizing Ordinance has been duly adopted by the City by all action necessary under the Authorizing Legislation and the laws and Constitution of the State of Arkansas, and remains in full force and effect; (iv) the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement and this Bond Purchase Agreement have been duly authorized, approved, executed and delivered by the City and, subject to the extent that the enforceability of the rights and remedies set forth therein may be limited by bankruptcy, insolvency or other laws affecting creditors' rights generally, constitute valid and binding agreements of the City enforceable in accordance with their terms; (v) the information in the Official Statement under the captions "THE CITY," "THE SYSTEM" and "LEGAL MATTERS" (apart from financial or statistical data contained or incorporated therein, as to which no view need be expressed) is fair, accurate and complete and 10-58773.2 11 does not omit any matter which, in such counsel's opinion, for the purposes for which the Official Statement is to be used, should be included or referred to therein; (vi) excepting those matters discussed in the Official Statement, there is no action, suit or proceeding at law or in equity before or by any court, public board or body, pending or threatened, against or affecting the City, challenging the validity of the transactions contemplated by the Official Statement or the validity of the Bonds, the Authorizing Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement and, to the best of such counsel's knowledge, there is no investigation, pending or threatened, and no threatened action, suit or proceeding involving any of the matters hereinabove mentioned in this clause (vi); (vii) the execution and delivery of the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement and this Bond Purchase Agreement, and compliance with the provisions hereof and thereof, under the circumstances contemplated hereby and thereby, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or any existing law, regulation, court order or consent decree to which the City is subject; and (viii) based upon the examinations which such counsel has made as counsel to the City, which shall be specified, nothing has come to such counsel's attention which would lead such counsel to believe that the Official Statement (except for the financial statements and other financial data included in the Official Statement, as to which no view need be expressed) contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (13) Evidence that Federal Form 8038-G has been executed by the City and is ready for filing with the Internal Revenue Service. (14) Evidence that, except as disclosed in the Official Statement, all necessary approvals, whether legal or administrative, have been obtained from applicable federal, state and local entities and agencies, and (15) Such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter and Bond Counsel may reasonably request to evidence compliance by the City with legal requirements, the truth and accuracy, as of the time of Closing, of the representations of the City herein contained and the due performance or satisfaction by the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied. If the City shall be unable to satisfy the conditions to the obligations of the Underwriter contained in this Bond Purchase Agreement, or if the obligation of the Underwriter to purchase and accept delivery of the Bonds shall be terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase Agreement shall terminate and neither the Underwriter 10-58773.2 12 nor the City shall be under further obligation hereunder; except that the respective obligations to pay expenses, as provided in Section 12 hereof, shall continue in full force and effect. 9. Conditions to Obligations of the City. The obligations of the City hereunder are subject to the performance by the Underwriter of its obligations hereunder. 10. Survival. All representations, warranties and agreements of the City shall remain operative and in full force and effect, regardless of any investigations made by or on behalf of the Underwriter, and shall survive the Closing. The obligations of the City under Sections 11 or 12 hereof shall survive any termination of this Bond Purchase Agreement by the Underwriter pursuant to the terms hereof. 11. Indemnification. The City, to the extent permitted by law, agrees to indemnify and hold harmless the Underwriter, each member, officer, director, partner or employee of the Underwriter and each person who controls the Underwriter within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended (collectively called the "Indemnified Parties"), against any and all losses, claims, damages, liabilities or expenses (including any legal or other expenses incurred by an Indemnified Party in connection with investigating any claims against an Indemnified Party and defending any actions) whatsoever caused by any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in the Official Statement or caused by any omission or alleged omission from the Official Statement of any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading insofar as such losses, claims, damages, liabilities or expenses are caused by any such untrue or misleading statement or omission or alleged untrue or misleading statement or omission in the information contained in the Official Statement; provided, however, that the City shall not be liable to an Indemnified Party in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any of such documents in reliance upon and in conformity with written information furnished to the City by the Underwriter specifically for use therein. No Indemnified Parties shall be indemnified hereunder for any losses, claims, damages or liabilities resulting from the negligence of such Indemnified Parties. 12. Payment of Expenses. The City will pay or cause to be paid all reasonable expenses incident to the performance of its obligations under this Bond Purchase Agreement, including, but not limited to, expenses of mailing or delivery of the Bonds, costs of printing the Bonds, the Preliminary and final Official Statements, any amendment or supplement to the Preliminary or final Official Statement and this Bond Purchase Agreement, fees and disbursements of Bond Counsel, any fees charged by investment rating agencies for the rating of the Bonds, bond insurance premiums, if any, fees of the Trustee and any paying agent fees, and any fees and disbursements in connection with the qualification of the Bonds for sale under the securities or "Blue Sky" laws of the various jurisdictions and the preparation of "Blue Sky" memoranda. In the event this Bond Purchase Agreement shall terminate because of the default of the Underwriter, the City will, nevertheless, pay, or cause to be paid, all of the expenses specified above. The Underwriter shall pay all advertising expenses in connection with the public offering of the Bonds, and all other expenses incurred by it in connection with the public 10-58773.2 13 offering and distribution of the Bonds, including the fees and expenses of any counsel retained by the Underwriter. If the City defaults under this Bond Purchase Agreement, the Underwriter may bring whatever legal action it may have against the City to recover damages, if any, incurred by the Underwriter. 13. Notices. Any notice or other communication to be given to the City under this Bond Purchase Agreement may be given by delivering the same in writing at the address set forth above, and any notice or other communication to be given to the Underwriter under this Bond Purchase Agreement may be given by delivering the same in writing to Stephens Inc., 3425 North Futrall, Suite 201, Fayetteville, AR 72703, Attention: Mr. Dennis Hunt. 14. Nonassignability. This Bond Purchase Agreement is made solely for the benefit of the City and the Underwriter (including any successor or assign of the Underwriter), and no other person, including any purchaser of the Bonds, shall acquire or have any right hereunder or by virtue hereof. 15. Applicable Law. This Bond Purchase Agreement shall be governed by and construed in accordance with the laws of the State of Arkansas. 16. Counterparts. This Bond Purchase Agreement shall become effective upon your acceptance hereof and may be executed in counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. Very truly yours, STEPHENSINC. By: Authorized Representative Accepted and agreed to as of the date first above written: CITY OF FAYETTEVILLE, ARKANSAS By: Title: Mayor 1 o-58773.2 14 MATURITY SCHEDULE SERIES 2004 BONDS (August 15) Principal Interest (August 15) Principal Maturity Amount Rate Maturity Amount 2004 $ % 2009 $ 2005 2010 2006 2011 2007 2012 2008 (with accrued interest on all Series 2004 Bonds from May 1, 2004) Interest Rate 10-58773.2 A-1 EXHIBIT B PROPOSED FORM OF BOND COUNSEL APPROVING OPINION Upon delivery of the Series 2004 Bonds in definitive form, Kutak Rock LLP, Little Rock, Arkansas, proposes to deliver its approving opinion in substantially the following form: City of Fayetteville, Arkansas Fayetteville, Arkansas Bank of Oklahoma, N.A., as Trustee Tulsa, Oklahoma Stephens Inc. Fayetteville, Arkansas [BOND INSURER] May _, 2004 City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 2004 Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance and sale by the City of Fayetteville, Arkansas (the "City"), a $ Water and Sewer "Bonds"). political subdivision of the State of Arkansas, of its System Refunding Revenue Bonds, Series 2004 (the The Bonds are being issued pursuant to the provisions of the Constitution and laws of the State of Arkansas, including, particularly, Amendment 65 and Arkansas Code Annotated (1998 Repl. & Supp. 2003) §§14-164-401 et seq., §§14-234-201 et seq. and §§14-235-201 et seq. (collectively, and as from time to time amended, the "Authorizing Legislation"), pursuant to Ordinance No. of the City, duly adopted and approved on April _, 2004 (the "Bond Ordinance" ), and pursuant to a Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of May 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and Bank of Oklahoma, N.A., as trustee (the "Trustee"). Reference is hereby made to the Indenture and to all indentures supplemental thereto for the provisions, among others, with respect to the conditions for the issuance of parity debt by the City, the nature and extent of the security for the Bonds, the rights, duties and obligations of the City, the Trustee and the holders of the Bonds, and the terms upon which the Bonds are issued and secured. 10-58773.2 B-1 Reference is made to an opinion of even date herewith of Kit Williams, Esq., City Attorney, a copy of which is on file with the Trustee, with respect, among other matters, to the status and valid existence of the City, the power of the City to adopt the Bond Ordinance and enter into and perform its obligations under the Indenture, the valid adoption of the Bond Ordinance and the due authorization, execution and delivery of the Indenture by the City, and with respect to the Indenture being enforceable upon the City. We have examined the law and such certified proceedings and other papers as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the City contained in the Bond Ordinance and the Indenture and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The City is duly created and validly existing as a municipal corporation of the State of Arkansas. Pursuant to the Constitution and laws of the State of Arkansas, including, particularly, Amendment 65 and the Authorizing Legislation, the City is empowered to adopt the Bond Ordinance, to execute and deliver the Indenture, to perform the agreements on its part contained therein, and to issue the Bonds. 2. The Bond Ordinance has been duly adopted by the City and constitutes a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 3. The Indenture has been duly authorized, executed and delivered by the City and is a valid and binding obligation of the City enforceable upon the City in accordance with its terms. 4. The Bonds have been validly authorized, executed, issued and delivered by the City and represent valid and binding special obligations of the City. The principal, premium, if any, and interest on the Bonds shall be payable from, and shall be secured by an assignment and pledge by the City to the Trustee of, the Net Revenues (as defined in the Indenture) of the City's water and sewer system, subject to a parity pledge of Net Revenues securing the City's Water and Sewer System Refunding Revenue Bonds, Series 2002, and any Additional. Bonds (as defined in the Indenture) issued hereafter. 5. The Net Revenues have been duly and validly assigned and pledged to the Trustee under the Indenture, and the Indenture creates, as security for the Bonds, a valid security interest in the Net Revenues. 6. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax. The opinion described in the preceding sentence assumes the accuracy of certain representations and compliance by the City with covenants designed to satisfy the requirements of the Internal Revenue Code of 1986, as amended, that must be met subsequent to the issuance of the Bonds. Failure to comply with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The City has covenanted to comply with such requirements. 10-58773.2 B-2 7. The interest on the Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended, in connection with the offer and sale of the Bonds. It is to be understood that the rights of the registered owners of the Bonds and the enforceability of the Bonds, the Bond Ordinance and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Very truly yours, 10-58773.2 B-3 EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION May , 2004 City of Fayetteville, Arkansas Fayetteville, Arkansas Bank of Oklahoma, N.A., as Trustee Tulsa, Oklahoma Stephens Inc. Fayetteville, Arkansas [BOND INSURER] City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 2004 Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Bonds"). Except as otherwise defined herein, the terms used herein shall have the meanings prescribed for them in said opinion. In addition to the documents specifically mentioned in that opinion, we have examined the portions of the Official Statement dated April _, 2004, with respect to the Bonds (the "Official Statement'), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2004 BONDS," "SECURITY FOR THE BONDS," "ESTIMATED SOURCES AND USES OF FUNDS," "DEFINITIONS OF CERTAIN TERMS," "SUMMARY OF THE INDENTURE," "SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT," "TAX EXEMPTION," and "APPENDIX C — Form of Opinion of Bond Counsel' (the "Relevant Captions") insofar as they relate to this opinion. In connection with this opinion, we have also examined: (a) An executed counterpart of the Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of May 1, 2004 (as amended and supplemented, the "Indenture"), by and between the City and Bank of Oklahoma, N.A., as trustee (the "Trustee"); (b) An executed counterpart of the Escrow Deposit Agreement dated May _, 2004 (the "Escrow Agreement'), by and between the City and Bank of Oklahoma, N.A., as escrow trustee (the "Escrow Trustee"); 10-58773.2 C- I (c) An executed counterpart of the Continuing Disclosure Agreement dated May , 2004 (the "Continuing Disclosure Agreement"), by and between the City and the Trustee; (d) An executed counterpart of the Tax Regulatory Agreement dated May 1, 2004 (the "Tax Regulatory Agreement'), by and between the City and the Trustee; and (e) An executed counterpart of the Bond Purchase Agreement dated April _, 2004 (the "Bond Purchase Agreement'), by and between the City and Stephens Inc. (the "Underwriter"). Based on our examination, we are of the opinion, as of the date hereof and under existing law, as follows: I. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Bonds, the Indenture and the Continuing Disclosure Agreement, or conclusions of law and legal opinions, are true, accurate and correct summaries thereof in all material respects and do not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. The Indenture has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, the Indenture represents the valid and binding agreement of the City enforceable in accordance with its terms. J 3. The Escrow Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Escrow Trustee, the Escrow Agreement represents the valid and binding agreement of the City enforceable in accordance with its terms. 4. The Continuing Disclosure Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, the Continuing Disclosure Agreement represents the valid and binding agreement of the City enforceable in accordance with its terms. 5. The Tax Regulatory Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, the Tax Regulatory Agreement represents the valid and binding agreement of the City enforceable in accordance with its terms. 6. The Bond Purchase Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Underwriter, the Bond Purchase Agreement represents the valid and binding agreement of the City enforceable in accordance with its terms. 10-58773.2 C-2 CI The obligations of the parties, and the enforceability thereof, with respect to the documents and other items described above are subject, in part, to the provisions of the bankruptcy laws of the United States of America and to other applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally, now or hereafter in effect. Certain of the obligations, and the enforcement thereof, are also subject to general equity principles, which may limit the specific enforcement of certain remedies but which do not affect the validity of such item. This opinion is being rendered to you solely for your benefit. Very truly yours, 10-58773.2 C-3 E ESCROW DEPOSIT AGREEMENT Dated May _, 2004 Between CITY OF FAYETTEVILLE, ARKANSAS Issuer mms BANK OF OKLAHOMA, N.A. Escrow Trustee Pertaining to the Current Refunding of: $6,365,000 City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 1999 Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 KUTAK ROCK LLP DRAFT 03/09/2004 10-58775.2 ESCROW DEPOSIT AGREEMENT THIS ESCROW DEPOSIT AGREEMENT (this "Agreement"), dated May _, 2004, by and between the City of Fayetteville, Arkansas (the "City"), a city of the first class organized and existing by virtue of the laws of the State of Arkansas, and Bank of Oklahoma, N.A., as escrow trustee (the "Escrow Trustee"), a banking corporation organized under and existing by virtue of the laws of the United States of America and having its principal corporate trust office in Tulsa, Oklahoma; WITNESSETH: WHEREAS, the City has heretofore issued its $8,365,000 Water and Sewer System Refunding Revenue Bonds, Series 1999, dated May 1, 1999, of which $6,365,000 in aggregate principal amount remain outstanding and are stated to mature on August 15, 2004 to 2012, inclusive (the "Series 1999 Bonds"), as identified on the attached Schedule I; and WHEREAS, pursuant to Ordinance No. adopted and approved by the City Council of the City on April , 2004, and the Constitution and laws of the State of Arkansas, the City has authorized the issuance of $ aggregate principal amount of its Water and Sewer System Refunding Revenue Bonds, Series 2004 (the "Series 2004 Bonds"), a portion of the proceeds of which are to be utilized, together with other available funds and investment earnings thereon, to accomplish a current refunding of all of the Series 1999 Bonds in accordance with the requirements of Section 25 of Ordinance No. 4159 of the City adopted and approved on April 20, 1999; and WHEREAS, the City has made arrangements for the Escrow Trustee to purchase, with (a) a portion of the proceeds derived from the sale of the Series 2004 Bonds, (b) amounts released from the Bond Fund for the Series 1999 Bonds, and (c) amounts released from the Debt Service Reserve Fund for the Series 1999 Bonds, the 1999 Government Obligations (hereinafter defined), the principal of and interest on which, when due, together with an initial cash deposit, will provide sufficient moneys to enable the Escrow Trustee: (i) to deposit with itself as the trustee and the paying agent for the Series 1999 Bonds (the "1999 Paying Agent") sufficient moneys to pay, as the same shall become due and payable, the principal of all of the Series 1999 Bonds at maturity and upon redemption to and including August 15, 2004; and (ii) to deposit with itself as the 1999 Paying Agent sufficient moneys to pay, as the same shall become due and payable, the interest to accrue on all Series 1999 Bonds to their respective dates of payment or redemption; and WHEREAS, the schedule of principal and interest requirements for retiring the Series 1999 Bonds upon redemption prior to maturity is attached hereto as Schedule II; and WHEREAS, the City has entered into this Agreement with the Escrow Trustee prior to the delivery of the Series 2004 Bonds in order to make adequate provision for the retirement and 10-58775.2 0 • redemption of the Series 1999 Bonds and to make provision for the payment of the fees and expenses of the Escrow Trustee; NOW, THEREFORE, in consideration of the mutual covenants and benefits hereinafter set forth and for other valuable consideration, the receipt of which is hereby acknowledged by each party hereto, the Issuer and the Escrow Trustee agree as follows: Section 1. There is hereby created and established with the Escrow Trustee a special, segregated and irrevocable escrow account designated "City of Fayetteville, Arkansas - 1999 Refunding Escrow Fund" (the "1999 Escrow Fund") to be held in the custody of the Escrow Trustee as a trust fund for the benefit of the registered owners of the Series 1999 Bonds, separate and apart from other funds of the City and the Escrow Trustee. The Escrow Trustee hereby accepts the Escrow Fund and acknowledges the receipt and irrevocable deposit to the credit of the Escrow Fund of the sum of $ in immediately available funds consisting of (a) $ of proceeds received by the City from the sale and delivery of the Series 2004 Bonds (the "2004 Bond Proceeds"), (b) $ released from the Bond Fund for the Series 1999 Bonds (the "1999 Bond Fund Moneys"), and (c) $ released from the Debt Service Reserve Fund for the Series 1999 Bonds (the "1999 Reserve Fund Moneys"). Section 2. The Escrow Trustee represents and acknowledges that, concurrently with the deposit of the amounts set forth in Section 1 above, it will use the 2004 Bond Proceeds, the 1999 Bond Fund Moneys and the 1999 Reserve Fund Moneys (i) to purchase on behalf of and for the account of the City from the United States Treasury certain [United States Treasury Certificates of Indebtedness and Notes —State and Local Government Series ("SLGS")], which are the noncallable direct obligations of the United States of America in book -entry form in the aggregate principal or par amount of $ , as further described in Schedule III hereto (the "1999 Government Obligations"), by payment of said principal or par amount to the U.S. Federal Reserve Bank, and (ii) to make a cash deposit in the 1999 Escrow Fund in the amount of $ (the "1999 Cash Deposit'). The Escrow Trustee will receive book -entry credits for the 1999 Government Obligations and will credit the 1999 Government Obligations to the 1999 Escrow Fund. The 1999 Cash Deposit will be made from 2004 Bond Proceeds and will be held uninvested as cash and disbursed by the Escrow Trustee to pay a portion of the interest due on the Series 1999 Bonds. Section 3. The City has determined that the interest on and the principal amounts successively maturing on the 1999 Government Obligations in accordance with their terms and the 1999 Cash Deposit are sufficient in the aggregate to assure that moneys will be available to the Escrow Trustee in amounts sufficient, without further investment, to pay and redeem the Series 1999 Bonds and to pay the interest thereon as described in the preamble to this Agreement and in Schedule II hereto. If the City shall fail to deposit initially with the Escrow Trustee cash and the 1999 Government Obligations the interest on and principal of which shall be sufficient, together with such cash, to make such payments as they become due and payable, the City shall timely deposit in the 1999 Escrow Fund such additional amounts as may be required to meet fully the amount so to become due and payable. Notice of any insufficiency shall be given by the 10-58775.2 2 Escrow Trustee to the City as promptly as possible, but the Escrow Trustee shall in no manner be responsible for any insufficiency of funds or the City's failure to make deposits. Section 4. The Escrow Trustee shall, from the moneys and investments in the 1999 Escrow Fund, timely provide the 1999 Paying Agent with amounts sufficient to pay the principal of and interest on each of the Series 1999 Bonds as the same become due and payable in accordance with Schedule II hereto. Section 5. The Escrow Trustee shall hold the 1999 Government Obligations and the 1999 Cash Deposit in the 1999 Escrow Fund at all times as a special and separate trust fund irrevocably pledged for the benefit of the registered owners of the Series 1999 Bonds, wholly segregated from other funds and securities on deposit with it, shall never commingle the 1999 Government Obligations or the 1999 Cash Deposit with other funds or securities owned or held by it, and shall never at any time use, loan or borrow the same in any way other than as provided in this Agreement. Section 6. The Escrow Trustee shall from time to time collect and receive the interest accruing and payable on the 1999 Government Obligations and the maturing principal amounts of the 1999 Government Obligations as the same become due and immediately credit the same to the 1999 Escrow Fund so that the interest on and principal of the 1999 Government Obligations, as such become due, will be available, together with the 1999 Cash Deposit, to meet the payment requirements of the Series 1999 Bonds, as shown on Schedule I1 hereto. Section 7. As shown on Schedule IV hereto, the Escrow Trustee shall apply the principal and interest received from the 1999 Government Obligations and the 1999 Cash Deposit to the payment of the interest on and the maturing principal of the Series 1999 Bonds. Principal and interest received on the 1999 Government Obligations and not needed at the time to make the aforesaid payments on the Series 1999 Bonds shall remain in trust and be held in cash uninvested. The 1999 Escrow Fund shall continue in effect to and including the date upon which the Escrow Trustee makes the final deposit with itself as the 1999 Paying Agent in an amount sufficient to pay the balance of the principal of and interest coming due on the Series 1999 Bonds, whereupon the Escrow Trustee shall transfer any remaining balance in the 1999 Escrow Fund, together with any remaining receipts in the Bond Fund and Debt Service Reserve Fund for the Series 1999 Bonds, to the Bond Fund for the Series 2004 Bonds. Section 8. At the written request of the City and upon compliance with the conditions hereinafter set forth, the Escrow Trustee shall have the power to sell, transfer or otherwise dispose of or request the redemption of the 1999 Government Obligations acquired hereunder and to substitute for the 1999 Government Obligations (a) other direct noncallable obligations of, or direct noncallable and nonprepayable obligations the full and timely payment of principal of and interest on which is unconditionally guaranteed by, the United States of America, and/or (b)to the extent then authorized by law, evidences of direct ownership of future interest and principal payments on either direct noncallable obligations of the United States of America or direct non -callable and nonprepayable obligations, the full and timely payment of principal of and interest on which is unconditionally guaranteed by the United States of America, which obligations are held by a bank or trust company organized and existing under the laws of the 10-58775.2 3 United States of America or any state thereof in the capacity of custodian in safekeeping on behalf of the holders or owners of such securities or interests (collectively, the "1999 Substitute Defeasance Obligations"). The City hereby covenants that it will not request the Escrow Trustee to exercise any of the powers described in the preceding sentence in any manner which, if reasonably expected on the date of issuance hereof, would cause any of the Series 2004 Bonds or any of the Series 1999 Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder in effect on the date of such request and applicable to obligations issued on the issue date of the Series 2004 Bonds. The Escrow Trustee shall purchase such 1999 Substitute Defeasance Obligations with the proceeds derived from the sale, transfer, disposition or redemption of the 1999 Government Obligations together with any other funds available for such purpose. The foregoing transactions may be effected only if. (i) an independent certified public accountant shall certify that after such transactions the principal amount of and interest income on the 1999 Substitute Defeasance Obligations will, together with any remaining 1999 Government Obligations and other moneys available for the purpose, be sufficient without further investment to pay, as the same become due at maturity or earlier redemption, all principal of and interest on the Series 1999 Bonds which have not been paid previously; (ii) the amounts and dates of the anticipated transfers from the 1999 Escrow Fund to the 1999 Paying Agent for the Series 1999 Bonds will not be diminished or postponed thereby; (iii) the 1999 Substitute Defeasance Obligations will be of comparable credit standing to the 1999 Government Obligations originally purchased; (iv) notification will be given to Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and any other rating agency that the City selects, and (v) the Escrow Trustee shall receive an unqualified opinion of attorneys nationally recognized on the subject of municipal bonds to the effect that such disposition, substitution or purchase would not cause any of the Series 2004 Bonds or any of the Series 1999 Bonds to be an "arbitrage bond" within the meaning of Section 148 of the Code and the regulations thereunder in effect on the date of such disposition, substitution or purchase and applicable to obligations issued on the issue date of the Series 2004 Bonds. Section 9. The Escrow Trustee shall not be liable or responsible for any loss resulting from any investment made in the 1999 Government Obligations or any 1999 Substitute Defeasance Obligations. Section 10. In the event of the Escrow Trustee's failure to account for any funds or securities received by it for the City's account under this Agreement, such funds and securities shall be and remain the property of the 1999 Escrow Fund, and the City and the registered owners of the Series 1999 Bonds shall be entitled to the preferred claim and shall have the first lien upon such funds and securities enjoyed by a trust beneficiary. The funds and securities received by the Escrow Trustee under this Agreement shall not be considered as a banking deposit by the City, and the City shall have no right or title with respect thereto. The funds and securities so received by the Escrow Trustee as escrowee and trustee under this Agreement shall not be subject to checks or drafts drawn by the City or claims against the City by any creditor of the City other than the holders or registered owners of the Series 1999 Bonds. Section 11. [Reserved]. 10-58775.2 4 Section 12. The City has specifically and irrevocably elected to redeem on August 15, 2004 all of the Series 1999 Bonds maturing on and after August 15, 2005. The Escrow Trustee is hereby irrevocably authorized and directed, and hereby agrees, to give or cause to be given notice of such redemption of the Series 1999 Bonds in substantially the form set forth in Appendix A to this Agreement as provided below and to inform the City promptly and in writing of the giving of such notice. Such notice of redemption shall be mailed by first class mail to all registered owners of the Series 1999 Bonds at their addresses appearing on the registration books of the City maintained by the 1999 Paying Agent, such notice to be placed in the mails not less than 30 days nor more than 60 days prior to the redemption date. The Escrow Trustee is also hereby irrevocably authorized and directed, and hereby agrees, to mail by first class mail, as soon as practicable, to all registered owners of the Series 1999 Bonds at their addresses appearing on such registration books a notice in substantially the form set forth in Appendix B to this Agreement that the Series 1999 Bonds are deemed to have been paid, and the Escrow Trustee will inform the City promptly and in writing of the giving of such notice. The cost of the giving of such notices shall be borne by the City. Section 13. The Escrow Trustee shall have no responsibility to the City or any person in connection herewith except as specifically provided herein and shall not be responsible for anything done or omitted to be done by it except for its own negligence or default in the performance of any obligation imposed on it hereunder. The Escrow Trustee, except as herein specifically provided for, is not a party to, nor is it bound by nor need it give consideration to the terms or provisions of, any other agreement or undertaking between the City and any other person, and the Escrow Trustee assents to and is to give consideration only to the terms and provisions of this Agreement. Unless specifically provided herein, the Escrow Trustee has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the City with respect to arrangements or contracts with others, the Escrow Trustee's sole duty hereunder being to safeguard the 1999 Escrow Fund, to invest moneys therein and to dispose of and deliver the same in accordance with the provisions of this Agreement. If, however, the Escrow Trustee is called upon by the terms of this Agreement to determine the occurrence of any event or contingency, the Escrow Trustee shall be obligated in making such determination to exercise reasonable care and diligence, and in event of error in making such determination the Escrow Trustee shall be liable for its own misconduct or its negligence. In determining the occurrence of any such event or contingency, the Escrow Trustee may request from the City or any person such reasonable additional evidence as the Escrow Trustee in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency and in this connection may inquire and consult with the City, among others, at any time. The Escrow Trustee may consult with legal counsel, and the opinion of such counsel shall be full and complete authority and protection to the Escrow Trustee as to any action taken or omitted by it in good faith and in accordance with such opinion. Section 14. This Agreement is between the City and the Escrow Trustee only, and in connection therewith the Escrow Trustee is authorized by the City to rely upon the representations of the City with respect to the adequacy of the calculations made in connection 10-58775.2 5 with this Agreement, and the Escrow Trustee shall not be liable to any person in any manner for such reliance. The duty of the Escrow Trustee hereunder shall be only to the City and the registered owners of the Series 1999 Bonds. Neither the City nor the Escrow Trustee shall assign or attempt to assign or transfer its interest or obligations hereunder or any part hereof. Any such assignment or attempted assignment shall be in direct conflict with this Agreement and without effect. Section 15. The Escrow Trustee may act upon any written notice, request, waiver, consent, certificate, receipt, authorization, power of attorney or other instrument or document which the Escrow Trustee in good faith believes to be genuine and to be what it purports to be. Section 16. Any notice, authorization, request or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when mailed by first class mail, postage prepaid, addressed as follows: If to the City: City of Fayetteville, Arkansas 113 West Mountain Fayetteville, AR 72701 Attention: Finance and Internal Services Director If to the Escrow Trustee: Bank of Oklahoma, N.A. P.O. Box 2300 Tulsa, OK 74192 Attention: Cynthia Wilkinson Any of such addresses may be changed at any time upon written notice of such change sent by first class mail, postage prepaid, to the other persons named in this Section 16 by the person effecting the change. Section 17. Whenever under the terms of this Agreement the performance date of any act to be done hereunder shall fall on a day which is not a legal banking day and upon which the Escrow Trustee is not open for business, the performance thereof on the next succeeding business day of the Escrow Trustee shall be deemed to be in full compliance with this Agreement. Whenever time is referred to in this Agreement, it shall be the time recognized by the Escrow Trustee in the ordinary conduct of its normal business transactions. Section 18. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Trustee by this Agreement. Section 19. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective personal representatives, successors and assigns. Section 20. The Escrow Trustee will bill the City $ annually as compensation for all of its fees as Escrow Trustee and 1999 Paying Agent for the services rendered or to be rendered pursuant to this Agreement. The Escrow Trustee will also bill the City for its expenses incurred in connection with serving as Escrow Trustee and 1999 Paying Agent; provided, however, that expenses of publication of the defeasance notice attached as Appendix B shall first 10-58775.2 6 be paid from available moneys in the Cost of Issuance Fund established with respect to the Series 2004 Bonds. In addition, to the extent permitted by law, the City agrees to indemnify the Escrow Trustee and hold it harmless against any liability which it may incur while acting in good faith and without negligence in its capacity as Escrow Trustee under this Agreement, including, but not limited to, any court costs and reasonable attorneys' fees. Such costs and fees and any other expenses related to such indemnification of the Escrow Trustee shall be paid by the City, and in no event shall such costs and fees and any other expenses related to such indemnification give rise to any claim against the 1999 Escrow Fund, the moneys in which are solely for the benefit of the registered owners of the Series 1999 Bonds until the payment thereof. Section 21. The Escrow Trustee agrees to serve under this Agreement until all of the Series 1999 Bonds have been redeemed and to accept as full compensation for its services hereunder and its services as 1999 Paying Agent the amount paid pursuant to Section 22. The provisions of this Section 21 shall be binding upon any successor to the Escrow Trustee. Section 22. This Agreement shall terminate when the Series 1999 Bonds and the interest thereon have been paid and discharged in accordance with the proceedings authorizing the Series 1999 Bonds. Series 23. If any one or more of the covenants or agreements provided in this Agreement on the part of the City or the Escrow Trustee to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Jurisdiction for the resolution of any conflict arising from this Agreement shall lie with the Washington County Circuit Court with venue in Fayetteville, Arkansas. Section 24. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. Section 25. This Agreement shall be governed by the laws of the State of Arkansas. 10-58775.2 7 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers and their corporate seals to be hereunto affixed and attested as of the date first above written. CITY OF FAYETTEVILLE, ARKANSAS LOZ ATTEST: City Clerk Mayor BANK OF OKLAHOMA, N.A. 0 Authorized Officer ATTEST: Authorized Officer 10-58775.2 8 SCHEDULEI OUTSTANDING SERIES 1999 BONDS Maturity Date Principal Interest (August 15) Amounts Rates 2004 $ 525,000 3.90% 2005 5455000 3.95 2006 565,000 4.00 2007 5902000 4.05 2008 615,000 4.15 2009 640,000 4.20 2010 665,000 4.25 2011 695,000 4.35 2012 1,5259000 4.45 10-58775.2 1-1 r 11 SCHEDULEII REQUIREMENTS TO PAY AND REDEEM THE SERIES 1999 BONDS Principal Payment Date Interest Principal Due Redeemed Total Payment August 15, 2004 $ $ 525,000.00 $ 5,840,000.00 $ 10-58775.2 II -I SCHEDULE III 1999 GOVERNMENT OBLIGATIONS Maturity Principal Interest Type Dates Amounts Rates August 15, 2004 $ % • [United States Treasury Obligations — State and Local Government Series] 10-58775.2 III-1 Is SCHEDULEIV AVAILABILITY AND APPLICATION OF 1999 ESCROW FUND Cash Balance at Receipts from 1999 Debt Service Requirement Cash Balance at Period Ending Beginning of Period Government Obligations to Retire Series 1999 Bonds End of Period _ _-04 $ $ $ 8-15-04 10-59775.2 IV -I APPENDIX A NOTICE OF REDEMPTION City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 1999 NOTICE IS HEREBY GIVEN by the Bank of Oklahoma, N.A., Tulsa, Oklahoma, the trustee and paying agent (the "Trustee") for the Water and Sewer System Revenue Refunding Bonds, Series 1999, of the City of Fayetteville, Arkansas (the "City"), dated May 1, 1999 (the "Bonds"), that all of the outstanding Bonds maturing on August 15, 2005 and thereafter are hereby called for redemption and prepayment on August 15, 2004. Each of the Bonds so called for redemption and prepayment shall be redeemed and prepaid at a redemption price of 100% of the principal amount thereof plus accrued interest to the date of redemption. The Bonds so called for redemption shall be payable upon presentation and surrender at the corporate trust offices of the Trustee at Bank of Oklahoma, N.A., c/o Corporate Trust Services, 1525 W. W.T. Harris Boulevard, 3C3, Charlotte, NC 28288-1153, and such Bonds shall cease to bear interest as of August 15, 2004. Withholding of 30% of gross redemption proceeds of any payment made within the United States may be required by the Economic Growth and Tax Relief Reconciliation Act of 2001, unless the paying agent has the correct taxpayer identification number (social security or taxpayer identification number) or exemption certificate or equivalent when presenting your securities for payment. Dated this day of 2004. BANK OF OKLAHOMA, N.A., as Trustee By: _ Title: Instructions: Mail by first class mail, postage prepaid, to the registered owner of each Series 1999 Bond to be redeemed, addressed to the owners' registered addresses, and placed in the mails between June 16, 2004 and July 16, 2004. 10-58775.2 A-1 APPENDIX B NOTICE OF DEFEASANCE City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 1999 NOTICE IS HEREBY GIVEN by the Bank of Oklahoma, N.A., Tulsa, Oklahoma, the trustee and paying agent (the "Trustee") for the Water and Sewer System Refunding Revenue Bonds, Series 1999, of the City of Fayetteville, Arkansas (the "City"), dated May 1, 1999 (the `Bonds"), that all of the outstanding Bonds maturing on August 15, 2005 and thereafter will be called for redemption and prepayment on August 15, 2004. Each of the Bonds so called for redemption and prepayment shall be redeemed and prepaid at a redemption price of 100% of the principal amount thereof plus accrued interest to the date of redemption. The Bonds so called for redemption shall be payable upon presentation and surrender at the corporate trust offices of the Trustee at Bank of Oklahoma, N.A., c/o Corporate Trust Services, 1525 W. W.T. Harris Boulevard, 3C3, Charlotte, NC 28288-1153, and such Bonds shall cease to bear interest as of August 15, 2004. Pursuant to Ordinance No. 4159, adopted by the City Council of the City on April 20, 1999 and providing for the issuance of the Bonds (the "1999 Bond Ordinance"), there have been deposited, with the Trustee, [United States Treasury Certificates of Indebtedness and Notes — State and Local Government Series ("SLGS")], the principal of and the interest on which when due will provide moneys which, together with other moneys which have also been deposited with the Trustee, shall be sufficient to pay when due the principal of and interest due and to become due on the Bonds on or prior to August 15, 2004, as required by Section 9 of the 1999 Bond Ordinance, and the Bonds are deemed to have been paid in accordance with Section 25 of the 1999 Bond Ordinance. Dated this day of 2004. BANK OF OKLAHOMA, N.A., as Trustee By_ Title: Instructions: Mail by first class mail, postage prepaid, to the registered owner of each Series 1999 Bond to be redeemed, addressed to the owners' registered addresses, and placed in the mails within thirty (30) days after the date of delivery of this Escrow Agreement. 10-58775.2 B-I KUTAK ROCK LLP DRAFT 03/09/2004 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement dated May _, 2004 (this "Agreement"), is executed and delivered by the City of Fayetteville, Arkansas (the "City") and the Bank of Oklahoma, N.A., as trustee (the "Trustee"), in connection with the issuance of the City's S Water and Sewer System Refunding Revenue Bonds, Series 2004 (the "Bonds"). The Bonds are being issued pursuant to the terms and provisions of Ordinance No. duly adopted by the City Council of the City on April _, 2004 (the "Authorizing Ordinance"), and a Trust Indenture dated as of May 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of May 1, 2004, each by and between the City and the Trustee. In connection with the issuance of the Bonds, the City and the Trustee agree as follows: Section 1. Purpose of this Agreement. This Agreement is being executed and delivered by the City and the Trustee for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with, and constitutes the written undertaking for the benefit of the Beneficial Owners of the Bonds required by, Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 under the Securities Act of 1934, as amended (17 C.F.R. Section 240.15c2-12) (the "Rule"). The City hereby represents that it has not failed to comply with any previous undertaking pursuant to the Rule. Section 2. Definitions. In addition to the definitions set forth in the Authorizing Ordinance, which apply to any capitalized term used in this Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Financial Information" shall mean the annual financial information provided by the City pursuant to, and as described in, Sections 3 and 4 of this Agreement. "Arkansas State Repository" shall mean any public or private repository or entity as may be designated by the State of Arkansas as a state repository for the purpose of the Rule and recognized as such by the SEC. As of the date of this Agreement, there is no Arkansas State Repository. "Beneficial Owner" shall mean any person which has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories. "Disclosure Representative" shall mean the City's Finance and Internal Services Director or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee from time to time. "MSRB" shall mean the Municipal Securities Rulemaking Board established in accordance with the provisions of Section 1513(b)(1) of the 1934 Act. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission are'set forth in Exhibit B hereto. .0-58778.2 "Participating Underwriter" shall mean Stephens Inc. "Repository" shall mean each National Repository and the Arkansas State Repository, if any. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as the same may be amended from time to time ("1934 Act"). "Specified Events" shall mean any of the events with respect to the Bonds listed in Section 5(a) of this Agreement. Section 3. Provision of Annual Financial Information. (a) The City shall, not later than August 1 of each year, commencing August 1, 2004, provide to each Repository, to the Trustee, [and to BOND INSURER], its Annual Financial Information which is consistent with the requirements of Section 4 of this Agreement. The City's Annual Financial Information may be submitted as a single document or as separate documents comprising a package, and may cross- reference other information as provided in Section 4(b) hereof; provided that the audited financial statements of the City may be submitted separately from the balance of its Annual Financial Information and later than the date required above for the filing of the Annual Financial Information if they are not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a material Specified Event under Section 5 of this Agreement. (b) If, on the date specified in subsection (a) for providing the Annual Financial Information to Repositories, the Trustee has not received a copy of the Annual Financial Information, the Trustee shall contact the Disclosure Representative to determine if the City is in compliance with subsection (a). (c) If the Trustee is unable to verify that the Annual Financial Information has been provided to the Repositories by the date required in subsection (a), the Trustee shall file a notice with the Repositories, [BOND INSURER] and the MSRB in substantially the form set forth in Exhibit A and as required by the Rule. (d) The City shall: (i) determine each year prior to the date for providing the Annual Financial Information the name and address of each Repository; and (ii) file a report with the Trustee certifying that the Annual Financial Information has been provided pursuant to this Agreement, stating the date it was provided, and listing all of the Repositories to which it was provided. 10-5s77s.2 2 Section 4. Content of Annual Financial Information. (a) The City's Annual Financial Information shall contain or incorporate by reference the following: (i) The following general categories of financial information and operating data with respect to the City's water and sewer system (the "System") for the prior fiscal year: (A) Changes in wholesale water rates charged by the Beaver Water District; (B) Changes in the City's water and sewer rate structure; (C) Annual System operating revenues, bad debt expense and bad debt expense percentage; (D) Costs for projected System capital improvements for the current fiscal year; (E) Usage percentages of all water users consuming more than 5% of the System's water output; (F) Average daily water use and maximum day's water use; and (G) Average daily sewage flow. (ii) The City's audited financial statements for the prior fiscal year, prepared in accordance with generally accepted accounting principles ("GAAP") as such principles are modified by the governmental accounting standards promulgated by the Government Accounting Standards Board ("GASB") and by mandated principles of the State of Arkansas, if any, as in effect from time to time, which financial statements have been audited by such auditor as shall then be required or permitted by the laws of the State of Arkansas. If the City's audited financial statements are not available by the time its Annual Financial Information is required to be filed pursuant to Section 3(a) hereof, the Annual Financial Information shall contain the unaudited financial statements of the City in a format similar to its audited financial statements contained in the Official Statement for the Bonds, and the audited financial statements shall be filed in the same manner as the Annual Financial Information when they become available. (b) Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document has been incorporated by reference in a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City must clearly identify each such other document incorporated by reference. 10-58778.2 3 Section 5. Reporting of Specified Events. (a) This Section 5 shall govern the giving of notices of the occurrence of any of the following events with respect to the Bonds, if material: (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 any 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 Bondowners; (8) Bond calls; (9) Defeasances; (10) Release, substitution, or sale of property securing repayment of the Bonds; and (11) Rating changes. (b) The Trustee, upon obtaining actual knowledge of the occurrence of any of the Specified Events, shall promptly inform the Disclosure Representative of any Specified Event that has occurred, and shall request that the City promptly notify the Trustee in writing whether to report the event pursuant to subsection (e). (c) If the City determines that the occurrence of a Specified Event is material to a Beneficial Owner of the Bonds, the Disclosure Representative shall promptly notify the Trustee in writing. Such notice shall instruct the Trustee to report the occurrence pursuant to subsection (e) below. (d) If the City determines that the occurrence of a Specified Event is not material, the Disclosure Representative shall so notify the Trustee in writing and instruct the Trustee not to report the occurrence pursuant to subsection (e) below. (e) If the Trustee has been instructed by the Disclosure Representative to report the occurrence of a Specified Event, the Trustee shall file a notice of such occurrence with [BOND INSURER (at its address as provided in Section 3(a) hereof) 10-58778.2 4 and] each National Repository, or with [BOND INSURER], the MSRB and the Arkansas State Repository. The Trustee shall not be obligated to report the occurrence of a Specified Event if there is no instruction to do so from the Disclosure Representative. Notwithstanding the foregoing: (i) notice of the occurrence of a Specified Event described in subsections (a)(1), (4) or (5) shall be given by the Trustee unless the Disclosure Representative gives the Trustee affirmative instructions not to disclose such occurrence; and (ii) notice of the Specified Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Beneficial Owners of affected Bonds pursuant to the Indenture. Section 6. Termination of Reporting Obligation. The City's obligations under this Agreement shall terminate if the City is no longer an "obligated person" within the meaning of the Rule. The City's obligations under this Agreement shall terminate upon the maturity, defeasance, prior redemption or payment in full of all of the Bonds. Section 7. Amendment; Waiver. Notwithstanding any other provision of this Agreement, the City and the Trustee may amend this Agreement (and the Trustee shall consent in its discretion, such consent not to be unreasonably withheld, to any amendment so requested by the City), and any provision of this Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel, reasonably acceptable to each of the City and the Trustee, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule taking into account any subsequent change in or official interpretation of the Rule. Section 8. Additional Information. Nothing in this Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Annual Financial Information or notice of occurrence of a Specified Event, in addition to that which is required by this Agreement. If the City chooses to include any information in any Annual Financial Information or notice of occurrence of a Specified Event in addition to that which is specifically required by this Agreement, the City shall have no obligation under this Agreement to update such information or include it in any future Annual Financial Information or notice of occurrence of a Specified Event. Section 9. Default. (a) In the event of a failure of the City to provide to the Repositories the Annual Financial Information as undertaken by the City in this Agreement, the Beneficial Owner of any Bonds may take such actions as may be necessary and appropriate, including seeking mandamus or specific performance by court order, to cause the City to comply with its obligations to provide Annual Financial Information or notices under this Agreement. 10.58778.2 5 (b) Notwithstanding the foregoing, no Beneficial Owner of the Bonds shall have the right to challenge the content or adequacy of the information provided pursuant to Sections 3, 4 or 5 of this Agreement by mandamus, specific performance or other equitable proceedings unless the City shall have been given ninety (90) days' written notice by a Beneficial Owner of the Bonds to remedy the alleged inadequacy of the information provided and unless Beneficial Owners of Bonds representing at least 25% aggregate principal amount of outstanding Bonds shall join in such proceedings. (c) A default under this Agreement shall not be deemed an Event of Default under the Trust Indenture, and the sole remedy under this Agreement in the event of any failure of the City or the Trustee to comply with this Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee. Article X of the Trust Indenture is hereby made applicable to this Agreement as if this Agreement were (solely for this purpose) contained in the Trust Indenture The Trustee shall have only such duties as are specifically set forth in this Agreement, and the City agrees to indemnify and save the Trustee, its officers, directors, employees and agents, harmless against any liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys' fees and expenses) of defending against any claim of liability, but excluding liabilities due to its own negligence or willful misconduct. Section 11. Beneficiaries. This Agreement shall inure solely to the benefit of the City, the Trustee and the Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 12. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. CITY OF FAYETTEVILLE, ARKANSAS By: Title: Mayor BANK OF OKLAHOMA, N.A., as Trustee By:_ Title: 10-58778.2 6 r-I L'i EXHIBIT A NOTICE TO REPOSITORIES REGARDING FINANCIAL INFORMATION NAME OF ISSUER: City of Fayetteville, Arkansas NAME OF BOND ISSUE: $ Water and Sewer System Refunding Revenue Bonds, Series 2004 DATE OF ISSUANCE: , 2004 NOTICE IS HEREBY GIVEN that the City of Fayetteville, Arkansas (the "City") has not yet provided Annual Financial Information with respect to the above -named Bonds as required by Section 3 of the Continuing Disclosure Agreement dated May _, 2004, between the City and Bank of Oklahoma, N.A., as trustee. [The City anticipates that the Annual Financial Information will be filed by .] Dated: BANK OF OKLAHOMA, N.A., as Trustee cc: City of Fayetteville Stephens Inc. 10-58778.2 A-1 E EXHIBIT B List of Nationally Recognized Municipal Securities Information Repositories at the time of execution and delivery of the Continuing Disclosure Agreement This list may change from time to time. The Agreement requires that information and notices be provided to each Repository. This list should be checked for changes each time information or notice is to be provided. A current list may be obtained from the Securities and Exchange Commission over the Internet at http://www.see.gov/info/municipal/nrmsir.htm. Bloomberg Municipal Repository 100 Business Park Drive Skillman, New Jersey 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 E-mail: Munis@Bloomberg.com DPC Data Inc. One Executive Drive Fort Lee, New Jersey 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 E-mail: nrmsir@dpcdata.com FT Interactive Data Attn: NRMSIR 100 William Street New York, New York 10038 Phone: (212) 771-6999 Fax: (212) 771-7390 (Secondary Market Information) (212) 771-7391 (Primary Market Information) Email: NRMSIR@FTID.com Standard & Poor's Securities Evaluations, Inc. 55 Water Street 45`h Floor New York, NY 10041 Phone: (212) 438-4595 Fax: (212) 438-3975 Email: nrmsir repository a sanda.com 10-58778.2 13-1 NORTHWAT ARKANSAS �ITION AFFIDAVIT OF PUBLICATION I, do solemnly swear that I am LecW Clerk of the Arkansas Democrat-Gazette/Northwest Arkansas Times newspaper, printed and published in Lowell, Arkansas, and that from my own personal knowledge and reference to the files of said publication, that advertisement of: oal�ol was inserted in the regular editions on .% Po# &1-60066S'9-00/ ** Publication Charge: $ 411q 59 Subscribed and sworn to before me this day of l J 4 W, , 2004. Notary Public ,;., . My Commission, Expires: ** Please do not pay from Affidavit. .An invoice will be sent. RECElvED OCj 2 0 2004 Cif CLERKS f:scE 212 NORTH EAST AVENUE 9 P.O. BOX 1607 • FAYETTEVILLE, ARKANSAS 72702 9 (501) 442-1700. n 4Nuurance No. raze AN E OF NOT T EXCEED AUTHORIZING THE ISSUANCESALAND 541E OF NOT IT EXCEED IMPROVEMENT OF SALES ANDSye ev e USE TAX CAPITAL F FAY TEMBI I BONDS SERIES 2004, BY THE E O R FANCING LLE, ARKAPORTION OF FOR THE PURPOSE OF RENTS TO A E CrIrS OF THE AgsANSAe WTE OF TREATMENT, SEWERAGE G THE RELATED WASTE- ASTE- TIES: AUTHORIZING SEWERAGE AND RELATED PUS ANT TO ZING THE EXECUTION AND BONDS WIDELIVERY OF A SUED AN SEC TRUST INDENR N PURSUANT EXECUTION WHICH THE SERIES 2W4 BONDS WILL BE ISSUED AND PURSUANT TO WHI: H THE S I RIE THE EBONDS WI L BE OFFERED;UVERY OF TH OIZING T STATEMENT MOMOE WHICH THE SERIE COOS BONDS WILL T OFFERED; FOR SAL THE HE SERIES AND 13ON S: OFA BOND PUI CHASE AGREEMENT PROVIDING FOR THE SALE DI THE SERIES 200E BONDS; AND PREO'ING TF OTHER A AND RELATING THERETO A CONTINUING DISCLOSURE AGREEMENT, AND PRESCRIBIN OTHER MATTERS RELATING THERETO WHEREAS, the Dry Council of the City of Fayetteville, Arkansas (the'Cltyl hap determined that them Is a great need for a sauce of revenue to finance the costs of acquLdhon, construction, recOnsiruction, extension, Improving and equipping of wastewater treatment plants, sawaage as related ectfism (the WNENEYH, the Dry 6 an ommut ad em[gw2Rd under he INWLsions of the Constitution a o Ism of the State Of AMerem. inOLatng pan cuffiry Amerrri ent 62 to the Constitution of the Stale of Arkansas CArtenNnent fill ad Arkansas Cade Annotated (1 SW Rep. & 2003 But Sections 14-164-301 s seq. has from taro to taro anertdad, the 'Local Government Bond Atalk to is" and was its capial imprrnarlent Odds to fvWde tM costs of vanous capital improvements suctn As those completing The Ptgett. wfich cim a brproverrWt bonds may be secured by and payable tram the recepts of the spar- eel ciy-vide saes who use tax authomi by the Ioi Government Boni Act: and WNENEAS6 pursuant to the ways" of Ordnance No. 4327 of the Gty, adopted and approved On August 7, 2001 (the -Section Oditancei there ryas submitted to Me querfifid nectars of Ma City are question of ere issuance of not to exceed $125,000,000 in aggregate pIntdpal chant of chi improvement bons pursuant to Amendment 62 and the Local Government Bond Act to finsroe the Project Impnrements described in the Election Ordinance. said bons to be soured by a pledge of an Ilon upon as of the recaps of a special ay -wide sales an use tax levied at the rate of threbqualere of oho percent (0.75%) Pursuant to the Local Government Bad Ad (the'Sales ad Use Taxj: and WHEREAS, at a sPedal election held November 6, 2001, a majority of the qualtfted electors of the City voting on the question Approved the issuance of said capita Improvement bonds lard the cortespon- ding levy of the Sales an Use Tax and the pledge of Sales and Use Tax receipts to the payment of the capital improvemet odds); and "ERB", pursuant to such authority, the City has previously issued its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 the -Series 2002 Bonds, in order to provide for the fund- ing Of Wtial DWI" of the Project; and WHEREAS, as auhorized under the provisions of Amendment 62 AM the Loco Government Sold Act and As aPPrwed by the qualified seccas of the Ciry, the City hiss navy determined to Isere and sea its Sales and Use Tax Capita Impnwerment Bads, Series 2004, In the principal annount of rot to expect $35.000,000 IMe'Swiss 2OD4 Boti in order to provide attddrel ic+dng fa laprtiora of a s PrO1eq and WHEREAS, his Seres 2004 Bads win he issued an seared by the Saes and Use Tax receipts an a pony bass vnth ere Sales 2002 Bons: aid WHEREAS, tle Dry has made arrangements far the asa of ere Sedes 2004 Bads to Stephens Inc:. Fayellsv0s, Arkansas; (tha'Uneroyrii pursuant to the terms of a Bond Purchase Agreement between the Cry aid Me Und rnmer (the -Bold Purchase Agreement n substantially, Me form presented to and before Mis me"; NOW, THEREFORE, SS R ORDAINED BY THE CRY COUNCIL OF THE CT' OF FAYST- TEVILLE, ARNAMSAS: Social 1: Utter one authority of the Constit Won anal laws of Vol State of Arkansas, including patiar- lay Amendment 62 to the Constitution of he State of Arkansas an the Local Government Bond Act, there is hereby authorized the Issuance of bons Of ere City to be designated as 'Saw and Use Tax Capital Improvement Bontls, Sates 2004' (the'Swiss 200E Bons. The Series 2004 Bonds shall be Issued in the original aggregate pnrdpel amount of not to exceed Thirty -Five Million Dollars ($35,W0,000), shall mature not later ten December 31, 2009, and shall bear interest at the rates spec Mod in the Bon Purchase Agreement. The all inclusive cast of the Series 2004 Bonds to the City, inca- ing the Interest rates bonne by the Series 2004 Bonds as the costs of issuance and any bond insur- ance pranivm krded with proceeds of the Sens 2004 Bons, Wit not exceed 3,00%. The proceeds of the Series 200E Bands win be uebed to finance a portion of the cast of the ecqu Shun, corstrucaon. reconstruction. ex ereson. smproving as equipping of Mo Project, to estaaisl a debt service reserve fair the Series 20D4 Bonds or purchase a surety bond for reserve purposes, to pay a premium fair bond Insurance. If deemed economcady berneficel, and to pay printing, underwriting, legal and other expei es manta to The avarice of the Series 200E Raids. The Setae 200E Bonds wall he issued III the fours and tlentarmlaatlOnss, that be dated. chat be numbered. shall mature. shall be subject To nedemp lion prior t0 maturiy, end shrel contan such other terms, covenants ad wnditions. as m set forth in tat roan That laertum dated as of June 1. 2002 (Ma -Oigna Irdentua-). by and oblivion the City as Shmors First That Compaq, N.A.. AS trustee (Mte'Tneteei as amended acl supplemented by a First Sup Amental Trust Indenture (the 'Fist Supplemental Inclannint aid together with the Ongnal Videmure, tle'I dentuel to W entered into by the Gry an the Trustee n substantially the farm sD mined to have meeting. The Mayor Ie hereby authorized! and directed to execute and deliver the Series 2004 Bons in one air more sense. each series to be in subaarciasy the form thereof canceled in the Fire) Supplemental laentu) submitted to this meeting, an the City Clank's hereby a Mai as directed to exeeae and deliver the Sores 2004 Bads an to affix the seal of the Dry thereto, as the Mayor and Coy Clerk she hereby authorized as direr d to cause the Series 2004 Bons to be accepted an authenticated by the Trustee. The Maya Is hereby authorize] to confer with the Trustee, the Undemhler as Ku12k Rock LLP, Little Rwk, Arkansas CBond Cwnswi in Order to complete the Series 2004 Sonds in substantat y the form contained In the First Supplemental Indenture submitted to this meeting, with such changes as eras W approved by such persons exacting Me Series 2004 Boas, their executlm to constha Conclusive ve evidorce of such approval. Section 2; In Order to pay the pnndpal of and Interest on the Seas 2004 Bads as they mature or are teed fa mdempli Prior to maturity, Mae is hereby pledged all of the recepts of the Sales an Use Tao Laurin by the Section (Ldsan e. As permitted under fins Indenture, such pledge is made an a par- ry bass with the waiting Pledge of recepts of the Sales as Use Tax securing the payment Of Me series 2002 Bads. The Lxy anal co:actdn W she Sam and Use Tax sal contnw ate con eta as Mo Saks 2002 Bads an Series 2004 Bonds am no lags aulsadag a crews nt fads ere an deposit with are TnGea and Fri Lrd. bur. to redeem Me Saks 2002 Buds and Series 2004 Bads In ad. The Dry wwernn l col a7ec0 Mal a1 reow s hum the Sava will Use Tax AD be Accounted for seperetaly as spcc= AmSi cn fa books Were City. and recepm W seed Some and 11s9 Tat V4 be deposited as vr_ be urs0 ci as pmuded in to Indenture. Sf AIGiL 70 proscribe, The terms and con¢Ums upon wttvr the Sauk 2OD4 Bonds ere W be exewit ad. auftnticatad. e9toO, accepted. hat as secured. to Maya Is hereby aWpdzed and direction to exec le And! acknw/zdge this First Suppernei Indenture. and the Cry Clerk Is hereby suhorti ad directed to execute ad adaoiM,ange the First Supplemental Inoenare an to ass ere seal of the City thereto, And the Mayor and Ia Gry Clark are he" alntorizm and directed to cNua the Rrsl SuPP'rnnemal Indenture to be accepted, exec and and ackroMedged by the Trustee. The First Supplemental Indenture is hereby approved in substantially the form submitted to this meaning, vlaud- ing, wthout Imitation, the prwWons thereof perlaurng to the pledge of Sales and Use Tax receipts end Me terns of the Sales 2004 Bonds. The Mayor is hereby euMtorlied to wnfor with ere Trustee, the Underwriter and Band Counsel in order to complete the First SupplanNrraw Indenture In substantialN the form submitted to this meeting, with such changes as shad be approved by such persons execrdhg the First Supplemental Indenture, their execution to mnstituta conclusive evdarce of such approval. (Advice is given that a copy of the First Supplemental Indennum in substantially the farm aunarized to be executed is on file with the City Clerk and is available for inspection by any interested person.) Section 4, There is hereby authorized and approved a Preliminary Official Statement of the Dry, induct- ingthe cover page and appendices attached thereto, relating to the Series 2004 Bonds. The Preliminary Chi Statement Is hereby 'deemed final' by the City within the meaning of U.S. Securities and Exchange Commission Rule 15c2-12. The distribution of the Preliminary Omclal Statement is hereby appraved. The Pramnay Official Statement, as amended to conform to the toms of the Bond Purchase Agreement, including Edict A thereto, and witi such other charges end Amerian" es am malualN agreed to by the Dry an the Undervmter, is herein referred to As the 'Official Statement; At Me Mayo is hereby authorized to execute the Official Statement fa and on bens of the Dry. The OtfcjW Statement is hereby approved In subsaataaN the form of the PreEminay Olfgbl Statement ammined to this meeting, and Me Maya is hereby aufionzed to confer with the Trustee, Me lhhdarwriler and Bond Ccreel in order to oonplsa The Offttal Stammi in stbstantlady the farm of Me Pnefmanary Official Statement submitted to ft momig, vv1M such barges as shall be approved by such persons, Me Mayas execution to constitute carcaehre evidence W such approval, (Advioe a given Met a OOPY Of Ube Pramrwy ORcal Statement is an Re who the CTry park end is ovaa- able for nspecuon by ay Inta05ted person) Section.5: In order to presWbs the tome and conditions upon wrich the Series 2004 Bons are to be sold to the Underwriter. Ire Mayor is hereby aMonzad and directed to execute a Bad Purchase Agreement on beats of the Gry, to be dated As of the date of to execution (the -Bed purchase Agreenni by as heryneern the Dry and Ile Underwriter, and the Bond Purchase Agreement is hens - try approved in subsfanikly the form submitted to this meeting, and me Maya is hereby outhorzed to confer with the Undavniter an Bond Course in order to complete the Bond Purchase Agreement in substantially the form submitted to this meeting, with arch changes As still be approved by such per- sons executing the Bond Purchase Agreement, their execution to constitute contusive evidence of such (Advice Is given that a copy of the Bond Purchase Agreement in substanney the forth authorized to be execued is on file Wlth the City Clerk and is available for Inspection by any Interested person) Section 6: In order to provide for continuing disclosure of certain firtertdal end operating information win respect to the Saes an Use Tax an the City in compiarce win Me provisions of Rule 15c2-12 of the U. S. Securities and Exchange Commission, the Mayor is hereby autanzed and Otrectsd to execute a Continuing Disdosue Agreement to M dated W of Me date of its exacuah IfM'Continuing Dedcaurs Agreement"), by aid between the Cry ad the Trustee, and the Mayor is hereby aulhobed as drect- ad to cause the COntnu tg Discosre Agreement to be executed by the Trustee. The Continuing Disclosure Agreement is hereby approved In wtostenaaly ifs farm sudrcned to the meeting. end the Mayor is hereby athorized to confer with the Trustee, ere Unarwraor and Band Courea in order to compete Me Contnting Disclosure Agreement In substatiaay the form admitted to his meeting, with such charges as sisal be approved by such persons exeenag the Continuing Dlsdosum Agreement car execution to coscum contusive evitlox;e of sxn Approval. Wdvice'e given bet a copy of the Continuing Dmdosoa Agreement In substenaaN the form auMwized to be exacted is on fie Wah the Dry Clerk and is avallaae for Inspection by any interested peragn.) Section 7: In cos to secure lovver interest rates on Mo Series 2004 Bons, Me UnerwWer has Pro- Posed that me Gry consider the purchase of a policy of bad ns rarde with a Damon of the proceeds of the Series 2004 Bonds, which policy Woad guarantee the payment of the principal W and interest on the Sous 2004 Bonds when due. If dammed economically advantageous by the Maya, upon the advice DI the Unenvntei the Mayo Is hereby authorized to execute an Insurance commitment and to do any and all things necessary to accomplish the delivery of a bon Insurance policy with respect to the Series 2M4 Bontls, Section : The Mayor and Oty Clark, for acl on behal of the City, are hereby aulMnzed an directed to co any as all thngs necessary to effect the issuance, sae. execution antl delivery of the Sense 2004 3Ords and to effect the execution and delivery of the Fast Supplemental Identurs, the Bond Purchase Agreement, the 0111i Statement, the COnanuing Disclosure Agreement and a Tau Regulatory Agreement relating to the tax exemPaon of Interest an the Series 2004 Bondi and to perform as of the ablgaaons of the Dry under aci pursuant thereto. The Mayo and the Dry Clark are further authorized and drected, fa as On behalf of the Dry, to exeane as papas, documents Catiftnates end other nsmunnerim Met may be requirea for the carrying out of such authority or to evidence he exercise Ihob of. Section 9* KWak Rock LLP, torte Rock. Arkansas, is hereby appointed to act as Bon Cotnse on behalf of the Dry In connection Wtlh hate Isstarca ea safe of the Sales 2004 Bonds. Section TO- The proisxis of his Ordatatce are hereby declared to be severeae. and it any section, Mrase or provision Shall la any reason a declared to be Bagel or Invalid, sdh declaration shad not affect the vadtN of Me remanaer of the sections, phrases or provisions of his Ordnance. 3ecfon 11 al ordinances. rewilttera and Pais Merest in conflict nemwtfn am hereby repealed to the adeM of such Conilta. PASSED and APPROVED this 5th day of October, 200E DAN GOODY, Mayor O ATTEST By: SPUDRA SMRM, City CI¢A 7 0 FAYETTEIALLE THE CITY OF FAYETTEVILLE, ARKANSAS City Clerk Division 113 West Mountain Fayetteville, AR 72701 Telephone: (479) 575-8323 Fax: (479) 718-7695 city_clerk@ci.fayefteville.ar.us DEPARTMENTAL CORRESPONDENCE To: Steve Davis FIS Director From: Clarice Buffalohead-Pearman City Clerk Division Date: October 11, 2004 Re: Ordinance No. 4624 The City Council passed the above ordinance October 5, 2004, authorizing the Sales and Use Tax Capital Improvement Bonds, Seriers 2004 in an not exceed amount of $35,000,000.00. 1 have attached a copy of the ordinance. This ordinance will be recorded in the city clerk's office and microfilmed. If anything else is needed please let the clerk's office know. Attachment(s) cc: Nancy Smith, Internal Auditor • F}t� w/gL.I. g6z�l a ooq Taye MICROFILMELY City Clerk Division ARKANSAS 113 West Mountain Fayetteville, AR 72701 Telephone: (479) 575-8323 Fax: (479)718-7695 c ity_c Jerk@ci.fayettevi l le.a r. us January 4, 2005 Mr. Gordon M. Wilbourn Kutak Rock LLP 425 West Capitol Avenue, Ste. 1100 Little Rock, AR 72201-3409 Re: City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Dear Mr. Wilbourn: I am returning to you the enclosed signatory and acknowledgement pages of the First Supplemental Trust Indenture on the behalf of the City of Fayetteville with the appropriate signatures. If anything else is needed please let me know. Cordially, Sondra Smith City Clerk/Treasurer SS/cbp Encls. KUTAK ROCK LLP ATLANTA CHICA00 SUITE 1100 OENVER 425 WEST CAPITOL AVENUE OES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE • THE THREE SISTERS BUILDING 501-975-3000 KANSAS CITY 214 WEST DICKSON STREET LOB ANGELES FACSIMILE 501-975-3001 FAYETTEVILLE. ARKANSAS 72701-5221 OKLAHOMA CITY 479-975-4200 www.kutakrock.com OMAHA PASAUENA RICHMOND SCOTTSDALE WASHINGTON GORBON M. WILBOURN December 30 2004 w1e HITw go1don.wIIbo m®L15HIQ k.com , (501)975-3101 Ms. Sondra Smith, City clerk City of Fayetteville, Arkansas 113 West Mountain RECEIVED Fayetteville, AR 72701 JAN 0 3 204 $35,000,000 CITY OF FAYETTEVILLE1 CITY CLERK'S OFFICL: CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2004 Dear Sondra: The signatory and acknowledgment pages of the First Supplemental Trust Indenture in this matter will need to be executed again on behalf of the City of Fayetteville. The notary we used on the morning of closing mistakenly added her signature and seal where the Trustee was to sign. I have enclosed five originals of each page and request that Mayor Coody and you sign (together with your seal) the signature pages and then have a notary complete the five acknowledgment pages. Once I have these pages back, I will be able to complete and distribute the transcript. If you have any questions, please give me a call. Very truly yours, t. vo1. ---- . Wilbourn paj Enclosures 10-71271.1 IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. Y i c ;FAYETTEVILLE; ATTEST: By: City Clerk (SEAL) SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By:_ Title: ATTEST: By: Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.4 Ll ACKNOWLEDGMENT STATE OF ARKANSAS ss. COUNTY OF WASHINGTON Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Dan Coody and Sondra Smith, Mayor and City Clerk, respectively, of the City of Fayetteville, Arkansas, to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the City, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 16'h day of November, 2004. `�"oaMrt`t" Notary Public My Commission expires: k%W%J1111" ll0, �'YILLy p pt0/d _U: NOTARY V =ir• (SEAL) V0. PUBLIG [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.4 IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. S CITY OF FA TTEVILLE ARKANSAS _U• % c *FAYETTEVILLE• Zz c By: �9s' 9:;KAN`;P� J2�' Mayor ATTEST: %;,/a 66490 649 % By:an4�� l City Jerk (SEAL) SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Title: ATTEST: By: Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.4 ACKNOWLEDGMENT STATE OF ARKANSAS ss. COUNTY OF WASHINGTON Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Dan Coody and Sondra Smith, Mayor and City Clerk, respectively, of the City of Fayetteville, Arkansas, to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the City, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 16t° day of November, 2004. My Commission expires: =U:' NOTAgy '3 ZO! PUBLIC (SEAL) .0 4 dye �. [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] w-67223.4 IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. "' 'SG' CITY OF FA TETTEVILLE, ARKANSAS '�\SY Oc •. P / I n ;FAYETTEVILLE; By: ATTEST: City Clerk (SEAL) SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Title: ATTEST: By: Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] IPb7223.4 STATE OF ARKANSAS ss. COUNTY OF WASHINGTON Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Dan Coody and Sondra Smith, Mayor and City Clerk, respectively, of the City of Fayetteville, Arkansas, to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the City, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 16'h day of November, 2004. /J Notary Public My Commission expires: olc111 If 'F PL9NEa�9i $ti: NOTAAY Gam• SJ PU1300 (SEAL) •- [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.4 IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. G� :•...ag1oG, a; 'p\ZY �F ••�, CITY OF FAYETTEVILLE, ARKANSAS ;FAYETiEVILLE• • :�3 By. 9s 9RKANSP�J�~� Mayon ATTEST: IQ I By: �4�� GQ.�-a� City Clerk (SEAL) SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Title: ATTEST: By:_ Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] 1 o-67223.4 ACKNOWLEDGMENT STATE OF ARKANSAS ) ) ss. COUNTY OF WASHINGTON ) Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Dan Coody and Sondra Smith, Mayor and City Clerk, respectively, of the City of Fayetteville, Arkansas, to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the City, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 16`h day of November, 2004. o My Commission expires: 'oO .,� 0< zU; V60TARy � LU% PUBL\G (SEAL) ��i.9s2't... , • ��: [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.4 E IN WITNESS WHEREOF, the City has caused these presents to be signed in its name and behalf by its Mayor and its corporate seal to be hereunto affixed and attested by its City Clerk, and to evidence its acceptance of the trust hereby created, the Trustee has caused these presents to be signed in its behalf by its duly authorized officers and its corporate seal to be hereto affixed. pF'0GP ; CITY OF FAXETTEVILLE, ARKANSAS n *FAYETTEVILLE: _ By: ATTEST: I: City Clerk (SEAL) Mayor SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By:_ Title: ATTEST: By:_ Title: (SEAL) [SIGNATURE PAGE TO FIRST SUPPLEMENTAL TRUST INDENTURE] ACKNOWLEDGMENT STATE OF ARKANSAS ) ) ss, COUNTY OF WASHINGTON ) Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Dan Coody and Sondra Smith, Mayor and City Clerk, respectively, of the City of Fayetteville, Arkansas, to me personally known, who stated that they were duly authorized in their respective capacities to execute the foregoing instrument for and in the name of the City, and further stated and acknowledged that they had signed, executed and delivered the foregoing instrument for the consideration, uses and purposes therein mentioned and set forth. IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this 160' day of November, 2004. 11/ 'Notary Public My Commission expires: �U: It%0TAAY J� PUB00 ; (SEAL) �'�._�"-600Q [ACKNOWLEDGEMENT TO FIRST SUPPLEMENTAL TRUST INDENTURE] 10-67223.4 The City has agreed to indemnify the Underwriter against certain civil liabilities in connection with the offering and sale of the Series 2004 Bonds, including certain liabilities under federal securities laws. Stephens Inc. has served the City in the capacity of a financial advisor in connection with the financing of the Project. For the purpose of facilitating a negotiated bond financing or financings to finance a portion of the cost. of the Project, the City and Stephens Inc. have amended their financial advisory agreement to limit the scope of the agreement solely to the portion of the financing of the Project to be provided by an RLF Loan and to exclude from the scope of the agreement any financial advisory services relating to the Series 2002 Bonds, the Series 2004 Bonds or any other bond financing of the Project. The City and Stephens Inc. acknowledge that a conflict of interest could arise from the change of the role of Stephens Inc. from financial advisor to Underwriter. Stephens Inc. will receive compensation for its services as Underwriter in an amount equal to the underwriting discount, as set forth in the second preceding paragraph. TAX EXEMPTION Federal Income Taxes. In the opinion of Kutak Rock LLP, Bond Counsel, under existing law, the interest on the Series 2004 Bonds is excludable from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for purposes of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings and profits. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2004 Bonds in order that the interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2004 Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Series 2004 Bonds. Bond Counsel expresses no opinion regarding other federal tax consequences arising with respect to the Series 2004 Bonds. Prospective purchasers of the Series 2004 Bonds should be aware that ownership of tax-exempt obligations may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain Subchapter S corporations with excess passive income, 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. Prospective purchasers of the Series 2004 Bonds should consult their tax advisors as to applicability of any such collateral consequences. State Taxes. Bond Counsel is of the opinion that, under existing law, the interest on the Series 2004 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. RATING Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc. ("S&P"), has given the Series 2004 Bonds the rating of " . Such rating reflects only the view of S&P at the time such rating was given. An explanation of the significance of the rating may be obtained from S&P. There is no assurance that such rating will continue for any given period of time or that the rating will not be revised downward or withdrawn entirely by S&P if in its judgment circumstances so warrant. Any downward revision or withdrawal of the rating may have an adverse effect on the market price of the Series 2004 Bonds. Neither the City nor the Underwriter have undertaken any responsibility subsequent to the issuance of the Series 2004 Bonds to assure the maintenance of the rating or to oppose any revision or withdrawal of the rating. No application has been made to any Rating Agency other than S&P for a rating on the Series 2004 Bonds. 10-57124.t 30 Bond3esource Partners, LP An affiliate of Ballard Spahr $359000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 For the Period November 16, 2004 to December 31, 2005 INTERIM CALCULATION OF ARBITRAGE REBATE f/5 y 113114 Rrblt soxi esg� ord. 0 )-Y BondResource Partners, LP An alPoiare of SalMnd Spahr April 13, 2006 The City of Fayetteville. Arkansas 113 West Mountain Street Fayetteville, Arkansas 72701 INTERIM CALCULATION OF ARBITRAGE REBATE $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 For the Period November 16, 2004 to December 31, 2005 I kla,ket Street Phil, delphia PA I )10i 2- "n tV I:) San Pedre Sm[_•__J ...._: :'1r♦'.'S O I. r'. P_a We have completed our consulting engagement to prepare certain computations to determine the rebatable arbitrage, if any, relating to the above -captioned bond issue (the "Bonds"). Rebate of arbitrage is required by Section 148(f)(2) of the Internal Revenue Code of 1986 (the "Code'). Our computations are in accordance with the applicable regulations currently in effect. The computation of the interim rebate amount covers the investment of gross proceeds from November 16, 2004 (the delivery date of the Bonds) through December 31, 2005 (the computation date). The amount shown below reflects the amount of arbitrage, if any, which is attributable to the period ended December 31, 2005. In connection with our engagement, we: 1. Read applicable bond documents. 2. Recomputed the bond yield and agreed the results to the relevant bond documents. 3. Obtained bond, investment, and expenditure data. 4. Computed rebatable arbitrage in accordance with the regulations applicable to the Bonds, as described below. In performing the above, we have been provided certain information from the City of Fayetteville, Arkansas, including trust statements detailing the investment activities of the bond proceeds and debt service payments, as well as other information deemed necessary. The computational information included herein is an integral part of the computations. The interim arbitrage calculation, as you know, was prepared from data made available to but not audited or otherwise verified directly by us. We have assumed the data's accuracy and 0 ■ ■ • ■ • City of Fayetteville ■ Page 2 April 13, 2006 • ■ completeness. We suggest that a careful review be made of the information to determine that • there are no omissions or misstatements of facts. ■ Our computations are summarized as follows: • Rebatable Arbitrage as of December 31, 2005 (Schedule 1) $109 570 22 ■ • The amount stated above is an interim calculation to determine the estimated rebatable arbitrage on investment activity from November 16, 2004 to December 31, 2005. The actual ■ amount due as of the next Installment Computation Date is subject to change due to bond and investment activity, if any, occurring after December 31, 2005. ■ The rebatable arbitrage has been determined as described in the Regulations under Code ■ Section 148(f). The IRS has published regulations effective for bonds issued after June 30, 1993 (the "1993 Regulations"). Our methodology for calculating the rebate liability was ■ developed based on the 1993 Regulations. • This letter is intended solely for the information of, and assistance to the City of Fayetteville, • Arkansas, in connection with the determination of the arbitrage amount. It is not to be used, referred to or distributed for any other purposes. • We have no responsibility to update this letter for events and circumstances, including changes • in regulations or interpretations thereof, occurring after the date of this letter. ■ • ■ • ■ • • • • INTERIM CALCULATION OF ARBITRAGE REBATE $35,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2004 FOR THE PERIOD NOVEMBER 16, 2004 TO DECEMBER 31, 2005 TABLE OF CONTENTS Summary of Computational Information and Definitions .......................... 1 Computation of Rebatable Arbitrage........................................................ 3 SUMMARY OF COMPUTATIONAL INFORMATION AND DEFINITIONS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004 COMPUTATIONAL INFORMATION 1. For purposes of calculating rebatable arbitrage, investment activity is reflected from November 16, 2004, the delivery date of the Bonds, to December 31, 2005 (the "Computation Period"). 2. Computations of yield are based upon a 360 day year and semiannual compounding. 3. For investment cash flow, debt service and yield computation purposes, all payments and receipts are assumed to be paid or received, respectively, as shown in the attached schedules. 4. Purchase prices of investments are assumed to be at fair market value, excluding brokerage or other acquisition fees, representing an arm's length transaction, which did not reduce the rebate amount required to be paid to the United States. 5. Investment valuations have been calculated as of December 31, 2005 using the present value and disposition assumptions contained in Code Section 1.148-5(d) of the 1993 Regulations. 6. It is assumed that the Bond Fund Interest and the Redemption Fund meets the definitional and timing requirements of a "bona fide debt service fund" as such term is defined in Regulation Section 1.148-1(b), except for the bond year ended December 1, 2005. In any year in which the bond funds fail to satisfy the requirements of a "bona fide debt service fund," the activity is included in the rebate computation. 7. On November 29, 2005, the Bonds were advance refunded to a December 1, 2008 redemption date by the City's Sales & Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Refunding Bonds""). Proceeds and amounts considered to be proceeds of the Bonds become proceeds of the Refunding Bonds ("transferred proceeds") and cease to be proceeds of the Bonds at the time ("transfer date") that proceeds of the Refunding Bonds discharge principal of the Bonds. A pro rata share of all future receipts from securities purchased with the proceeds of the Bonds' principal discharged at the transfer date become transferred proceeds. 8. We have allocated the mixed non restricted refunding escrow based upon the rules under . Regulation Section 1. 1 48-9(c(2)(ii). Under these provisions, we have allocated the Series 2004 non Reserve Fund proceeds to the earliest maturing investments in the mixed . escrow. The transferred Reserve Fund monies are allocated to the Restricted Escrow as identified in the Series 2005 Verification Report. DEFINITIONS Computation Date: The last day of the fifth and each succeeding fifth bond year, where the bond year is each one-year period (or shorter period from the date of issue) selected by the issuer. The final computation date is the date an issue is retired. 2. Bond Yield: The discount rate that, when used in computing the present value of all unconditionally payable payments of principal and interest and all the payments for a qualified guarantee paid and to be paid with respect to the Bonds, produces an amount equal to the present value of the issue price of the Bonds. Present value is computed as of the date of issue of the Bonds and at the beginning of each subsequent yield period. We have not audited or otherwise verified these amounts. 3. Issue Price: The price determined on the basis of the initial offering price to the public at which price a substantial amount of the Bonds were sold to the public. 4. Rebatable Arbitrage: The excess of the amount earned on all nonpurpose investments over the amount which would have been earned if such nonpurpose investments were invested at the Bond Yield, plus any income attributable to the excess. This amount is computed as the excess of the future value of all the nonpurpose receipts over the future value of all the nonpurpose payments. The future value is computed as of the Installment Computation Date using the Bond Yield. 2 Schedule I(A) I(B) I(C) I(D) I(E) I(F) I(G) I(H) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Arbitrage Rebate Summary Project Fund Debt Service Reserve Cost of Issuance Bond Fund Interest Account Redemption Fund 2005 Escrow Fund - from bona fide debt service fund 2005 Escrow Fund - Restricted (from transferred reserve) Computational Credits Total $85,864.88 1,706.31 0.00 20,136A4 2,878,67 (4,054.08) (12.78) (1,003,00) $105,516. 14 SCHEDULE Rebatable $85,864.88 1,706.31 0.00 20.136.14 2,878.67 BDSF (12,78) (1,003.00) $109, 570.22 NOTE THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE SCHEDULE I(A) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Days To 12/31/05 Future Value Future Value @ Date Protect Fund 30/360 Day Year Factor 2.40834287 % 11/16/04 ($33,756,691.58) 404 1.027230 ($34,675,874.81) 12/13/05 14,113.65 17 1.001131 14,129.61 12/13/05 18,329.66 17 1.001131 18,350.39 12/22/05 773,221.51 8 1.000532 773,632.97 12/28105 555,872.25 2 1.000133 555,946.18 12/31/05 19,353.82 0 1.000000 19,353.82 12/31/05 93,380.76 0 1.000000 93,380.76 12/31/05 33,286,945.95 0 1.000000 33,286,945.95 $1,0049526.02 $85,864.88 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. SCHEDULE I(B) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Days To 12/31/05 Future Value Future Value @ Date Debt Service Reserve 30/360 Day Year Factor 2.40834287 % 11/16/04 ($1,750,000.00) 404 1.027230 ($1,797,651.90) 01/05/05 3,427.88 355 1.023888 3,509.76 02/02/05 2,546.36 328 1.022051 2,602.51 03/02/05 2,688.34 298 1.020014 2,742.15 04/04/05 3,169.87 266 1.017846 3,226.44 05/03/05 3,326.39 237 1.015885 3,379.23 06/02/05 3,708.97 208 1.013928 3,760.63 06/29/05 38,750.00 181 1.012109 39,219.22 07/05/05 3,674.40 175 1.011705 3,717.41 08/02/05 4,046.30 148 1.009890 4,086.32 09/02/05 4,389.71 118 1.007878 4,424.29 10/04/05 4,395.59 86 1.005735 4,420.80 11/02/05 4,799.59 58 1.003864 4,818.14 11 /29/05 1,711,250.00 31 1.002064 1,714,781.32 12/09/05 4,663.48 21 1.001397 4,670.00 $44,836.88 $1 706.31 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. SCHEDULEI(C) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Days To 12/31/05 Future Value Future Value @ Date Cost of Issuance 30/360 Day Year Factor 2.40834287 % 11/16/04 ($75,337.97) 404 1.027230 ($77,389.40) 11/16/04 54,500.00 404 1.027230 55,984.02 11/16/04 15$00.00 404 1.027230 15,716.61 11116/04 3,000.00 404 1.027230 3,081.69 11/16/04 479.39 404 1.027230 492.44 11/16/04 408.98 404 1.027230 420.12 11/16/04 1,649.60 404 1.027230 1,694.52 $0.00 $0.00 NOTE- THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. SCHEDULEI(D) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Days To . 12/31/05 Future Value Future Value @ Date Bond Fund Interest Account 30/360 Day Year Factor 2.40834287 % ■ 11/16/04 ($50,775.52) 404 1.027230 ($52,158.12) 01/05/05 (3,427.88) 355 1.023888 (3,509.76) • 01/24/05 (968,517.08) 336 1.022595 (990,400.82) 01/24/05 193,731.98 336 1.022595 198,109.37 ■ 02/02/05 (2,546.36) 328 1.022051 (2,602.51) 02/23/05 (1,203,453.95) 307 1.020625 (1,228,275.13) . 02/23/05 428,668.85 307 1.020625 437,510.13 03/02/05 (2,688.34) 298 1.020014 (2,742.15) 03/28/05 (840,974.93) 272 1.018252 (856,324.62) . 03/29/05 66,189.83 271 1.018185 67,393.46 04/04/05 (3,169.87) 266 1.017846 (3,226.44) . 04126/05 (862,529.25) 244 1,016358 (876,638.56) 04/26/05 87,744.15 244 1.016358 89,179.47 . 05/03/05 (3,326.39) 237 1.015885 (3,379.23) 05/25/05 (954,005.42) 215 1.014400 (967,743.04) 06/01/05 775,021.04 209 1.013995 785,867.68 ■ 06/01/05 710,857.29 209 1.013995 720,805.94 06/02/05 (388,538.83) 208 1.013928 (393,950.34) 06/02/05 (772.52) 208 1.013928 (783.28) 06/02/05 (3,708.97) 208 1.013928 (3,760.63) 06/02/05 (1,710,29) 208 1.013928 (1,734.11) ■ 06/23/05 (906,509.67) 187 1.012513 (917,852.75) 06/29/05 (38,750.00) 181 1.012109 (39,219.22) . 07/05/05 (3,674,40) 175 1.011705 (3,717.41) 07/05/05 (26.34) 175 1.011705 (26.65) 07/27/05 (944,103.09) 153 1.010226 (953,757.73) 08/02/05 (4,046.30) 148 1.009890 (4,086.32) 08/25/05 (974,901.75) 125 1.008347 (983,039.25) 09/02/05 (4,389.71) 118 1.007878 (4,424.29) 09/23/05 (924,584.37) 97 1.006471 (930,567.57) ■ 10/04/05 (4,395.59) 86 1.005735 (4,420.80) 10/25/05 (1,009,942.77) 65 1.004332 (1,014,317.62) r 10/26/05 348,949.36 64 1.004265 350,437.63 11/02/05 (4,799.59) 58 1.003864 (4,818.14) 11/23/05 (958,923.03) 37 1.002463 (961,285.32) t 11/23/05 934,350.70 37 1.002463 936,652.46 11/23/05 24,572.33 37 35 1.002463 1.002330 24,632.86 24,629.59 11/25/05 11/29/05 24,572.33 7,557,400.00 31 1.002064 7,572,995.38 12/09/05 2,000.00 21 1.001397 2,002.79 12/09/05 500.00 21 1.001397 500.70 . 12/09/05 18,155.13 21 1.001397 18,180.50 $103,520.78 $20,136.14 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. ■ SCHEDULE I(E) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Days To 12/31/05 Future Value Future Value @ Date Redemption Fund 30/360 Day Year Factor 2.40834287 % 01/24/05 ($193,731.98) 336 1.022595 ($198ol09.37) 02/23/05 (428,668.85) 307 1.020625 (437,510.13) 03/29/05 (66,189.83) 271 1.018185 (67,393.46) 04/26/05 (87,744.15) 244 1.016358 (89,179.47) 10/26/05 (348,949.36) 64 1.004265 (350,437.63) 11/23/05 (934,350.70) 37 1.002463 (936,652.46) 11/23/05 (24,572.33) 37 1.002463 (24,632.86) 11/25/05 (24,572.33) 35 1.002330 (24,629.59) 11/29/05 2,123,363.27 31 1.002064 2,127,745.02 11 /29/05 0.60 31 1.002064 0.60 12/09/05 3,672.89 21 1.001397 3,678.02 $18 257.23 $2,878.67 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 2005 Escrow Fund - from Date bona fide debt service fund 11/29/05 ($967,084.75) 06101 /06 9,70322 12/01/06 976,683.07 $19 301.54 SCHEDULE I(F) Days To 12/31/05 Future Value Future Value @ 30/360 Day Year Factor 2.40834287 % 31 1.002064 ($969,080.42) (151) 0.990009 9,606.27 (331) 0.978229 955,420.06 ($4,054.08) NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE SCHEDULE I(G) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Days To 12/31/05 Future Value Future Value @ 2005 Escrow Fund - Restricted (from transferred Date reserve 30/360 Day Year Factor 2.40834287 % 11/29/05 ($1,736,178.00) 31 1.002064 ($1,739,760.76) 06/01/06 29,068.22 (151) 0.990009 28,777.80 12/01/06 715,597.89 (331) 0.978229 700,018.87 06/01/07 16,626.89 (511) 0.966590 16,071.38 12/01/07 728,364.89 (691) 0.955089 695,653.33 06101/08 6,804.41 (871) 0.943725 6,421.50 12/01/08 314,001.41 (1,051) 0,932496 292,805.10 $74 285.72 ($12.78) NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Computational Date Credits 11/15/05 ($1000.00) 1000.00) Days To 12/31 /05 30/360 Day Year 45 Future Value Factor 1.002997 SCHEDULE I(H) Future Value @ 2.40834287 % ($1,003.00) ($11003.00) NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Purchase Price of Bonds for Yield Purposes Par Accrued Interest Bond Premium/(Discount) Bond Insurance Purchase Price for Arbitrage Purposes SCHEDULE II(A) $35,000,000.00 50,775.52 818,279.55 0.00 $35 869,055.07 Present value of bond principal and interest from November, 16, 2004 using a discount rate of 2.40834287% $35,86g,055.07 Result: Since the present value of all payments of principal and interest on the bonds from November, 16, 2004 to maturity using a discount rate of 2.40834287% is equal to the purchase price of such obligations, the yield on the bonds is 2.40834287%. NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. SCHEDULE 11(B) $35,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 Debt Service and Arbitrage Yield Calculation Days From 2.40834287% Coupon Total 11/16/04 Present Value Date Principal Coupon Interest Debt Service 30/360 Day Year Factor Present Value O6/01/05 $710,857.29 $710,857.29 195 0.987116" $701,698.92 12/01/05 $6,955,000.00 4.000 609,306.25 7,564,306.25 375 0.97537130 7,378,007.21 O6101/06 470,206.25 470,206.25 555 0.96376590 453,168.75 12/01/06 7,335,000.00 4.000 470,206.25 7,805,206.25 735 0.95229860 7,432,886.96 06/01/07 323,506.25 323,506.25 915 0.94096773 304,408.94 12/01/07 7,630,000.00 4.000 323,506.25 7,953,506.25 1,095 0.92977169 7,394,944.92 O6/01/08 170,906.25 170,906.25 1,275 0.91870886 157,013.09 12/01/08 7,155,000.00 2.500 170,906.25 7,325,906.25 1,455 0.90777766 6,650,294.02 O6/01/09 81,468.75 81.468.75 1,635 0.89697652 73,075.56 12/01/09 5,925,000.00 2.750 81,468.75 6,006,468.75 1,815 0.88630390 5,323,556.71 $35,000,000.00 $3.412,338.54 $38,412,338.54 $35,869,055.07 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. 1 ' SCHEDULE II(C) r $35,000,000 City of Fayetteville, Arkansas ■ Sales and Use Tax Capital Improvement Bonds Series 2004 ■ Sources and Uses of Funds ■ r Sources of Funds: Principal Amount of the Bonds $35,000,000.00 Original Issue Premium/(Discount) 818,279.55 ■ Accrued Interest 50,775.52 Total Sources of Funds $35,869,055.07 ■' Uses of Funds: Project Fund $33,756,691.58 r Debt Service Reserve 1,750,000.00 Cost of Issuance 75,337.97 Bond Fund Interest Account 50,775.52 Underwriter's Discount 236,250.00 Total Uses of Funds $35 869,055.07 ■ NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. ■ r r r s ■ r ■ ■ ■ SCHEDULE III $35,0009000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series2004 Calculation of Transferred Proceeds Percentage Refunded by Series 2005 Cumulative Principal Transfer Date Redeemed Percentage 12/01/06 $10,485,000.00 40.1186% 12/01/07 10,870,000.00 81.7104% 12/01 /08 4.780 000.00 100.0000% $26,135 000.00 HE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SC' BOndResource Partners, LP An offiliare of Ballard Spahr $6,090,000 City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 2004 For the Period May 20, 2004 to December 31, 2005 INTERIM CALCULATION OF ARBITRAGE REBATE Fi5 t�nd �ni(rC0 ®�t^ltua"5�f1 r l��re� era yrc� 9 BondResource Partners, LP An affiliate of Ballard Spahr March 16, 2006 The City of Fayetteville, Arkansas 113 West Mountain Street Fayetteville, Arkansas 72701 INTERIM CALCULATION OF ARBITRAGE REBATE $6,090,000 City of Fayetteville, Arkansas Water and Sewer System Refunding Revenue Bonds Series 2004 For the Period May 20, 2004 to December 31, 2005 We have completed our consulting engagement to prepare certain computations to determine the rebatable arbitrage, if any, relating to the above -captioned bond issue (the "Bonds"). Rebate of arbitrage is required by Section 148(f)(2) of the Internal Revenue Code of 1986 (the "Code"). Our computations are in accordance with the applicable regulations currently in effect. The computation of the interim rebate amount covers the investment of gross proceeds from May 20, 2004 (the delivery date of the Bonds) through December 31, 2005 (the computation date). The amount shown below reflects the amount of arbitrage, if any, which is attributable to the period ended December 31, 2005. In connection with our engagement, we: 1. Read applicable bond documents. 2. Recomputed the bond yield and agreed the results to the relevant bond documents. 3. Obtained bond, investment, and expenditure data. 4. Computed rebatable arbitrage in accordance with the regulations applicable to the Bonds, as described below. In performing the above, we have been provided certain information from The City of Fayetteville, Arkansas, including trust statements detailing the investment activities of the bond proceeds and debt service payments, as well as other information deemed necessary. The computational information included herein is an integral part of the computations. City of Fayetteville, Arkansas Page 2 March 16, 2006 The interim arbitrage calculation, as you know, was prepared from data made available to but not audited or otherwise verified directly by us. We have assumed the data's accuracy and completeness. We suggest that a careful review be made of the information to determine that there are no omissions or misstatements of facts. Our computations are summarized as follows: Rebatable Arbitrage as of December 31, 2005 (Schedule 1) NONE Yield Reduction Payment )NONE The amount stated above is an interim calculation to determine the estimated rebatable arbitrage on investment activity from May 20, 2004 to December 31, 2005. The actual amount due as of the next Installment Computation Date is subject to change due to bond and investment activity, if any, occurring after December 31, 2005. The rebatable arbitrage has been determined as described in the Regulations under Code Section 148(f). The IRS has published regulations effective for bonds issued after June 30, 1993 (the "1993 Regulations"). Our methodology for calculating the rebate liability was developed based on the 1993 Regulations. This letter is intended solely for the information of, and assistance to The City of Fayetteville, Arkansas, in connection with the determination of the arbitrage amount. It is not to be used, referred to or distributed for any other purposes. We have no responsibility to update this letter for events and circumstances, including changes in regulations or interpretations thereof, occurring after the date of this letter. INTERIM CALCULATION OF ARBITRAGE REBATE $6,090,000 CITY OF FAYETTEVILLE, ARKANSAS WATER AND SEWER SYSTEM REFUNDING REVENUE BONDS SERIES 2004 FOR THE PERIOD MAY 20, 2004 TO DECEMBER 31, 2005 TABLE OF CONTENTS Summary of Computational Information and Definitions .......................... 1 Computation of Rebatable Arbitrage........................................................ 3 SUMMARY OF COMPUTATIONAL INFORMATION AND DEFINITIONS CITY OF FAYETTEVILLE, ARKANSAS COMPUTATIONAL INFORMATION For purposes of calculating rebatable arbitrage, investment activity is reflected from May 20, 2004, the delivery date of the Bonds, to December 31, 2005 (the "Computation Period"). 2. Computations of yield are based upon a 360 day year and semiannual compounding. 3. For investment cash flow, debt service and yield computation purposes, all payments and receipts are assumed to be paid or received, respectively, as shown in the attached schedules. 4. Purchase prices of investments are assumed to be at fair market value, excluding brokerage or other acquisition fees, representing an arm's length transaction, which did not reduce the rebate amount required to be paid to the United States. 5. We have included the insurance premium as a qualified guarantee cost based on your understanding that the payment of such premium has resulted in a present value savings in reduction of bond interest attributable to the guarantee. Additionally, it is our understanding that none of the premium was for any nonguarantee services associated with the guarantee that do not qualify as a qualified guarantee cost. 6. Investment valuations have been calculated as of December 31, 2005 using the valuation provisions for "plain par" investments contained in Code Section 1.148-5(d) of the 1993 Regulations. Such investments are valued at their par value plus accrued interest. 7. It is assumed that the Bond Fund meets the definitional and timing requirements of a "bona fide debt service fund" as such term is defined in Code Section 1.148-1(b). In the case of a fixed rate, governmental bond with an average maturity of five years or more, earnings on a bona fide debt service fund are not taken into account for arbitrage rebate purposes. 8. On May 20, 2004 the $6,365,000 Water and Sewer System Refunding Revenue Bonds, Series 1999 (the "Refunded Bonds") were current refunded to an August 16, 2004 redemption by the $6,090,000 Water and Sewer System Refunding Revenue Bonds Series 2004. Funds held with respect to the Refunded Bonds in the bond fund and Reserve fund were deposited into the escrow account for the Refunded Bonds together with proceeds of the Bonds. The portion of the escrow fund funded with Bond proceeds has been included in the calculation of arbitrage rebate. DEFINITIONS Computation Date: The last day of the fifth and each succeeding fifth bond year, where the bond year is each one-year period (or shorter period from the date of issue) selected by the issuer. The final computation date is the date an issue is retired. 2. Bond Yield: The discount rate that, when used in computing the present value of all unconditionally payable payments of principal and interest and all the payments for a qualified guarantee paid and to be paid with respect to the Bonds, produces an amount equal to the present value of the issue price of the Bonds. Present value is computed as of the date of issue of the Bonds and at the beginning of each subsequent yield period. We have not audited or otherwise verified these amounts. Issue Price: The price determined on the basis of the initial offering price to the public at which price a substantial amount of the Bonds were sold to the public. 4. Rebatable Arbitrage: The excess of the amount earned on all nonpurpose investments over the amount which would have been earned if such nonpurpose investments were invested at the Bond Yield, ■ plus any income attributable to the excess. This amount is computed as the excess of the ■ future value of all the nonpurpose receipts over the future value of all the nonpurpose payments. The future value is computed as of the Installment Computation Date using the Bond Yield. 5. Yield Reduction Amount: The excess of the amount earned on all yield restricted nonpurpose investments ("Restricted Investments") over the amount which would have been earned if such Restricted Investments were invested at a yield not materially higher than the Bond Yield (Bond Yield plus .125%). This amount is computed as the excess of the future value of all the Restricted Investment receipts over the future value of all the Restricted Investment payments. The future value is computed as of the Installment Computation Date using the Bond Yield plus .125%. Any yield reduction amount is treated as a credit against the rebatable arbitrage. . 2 W J D 0 W 2 U C) O 0 0 c v 0 m a N a a N z z G fA N W � U _N S H 0 O t0 O r Qa O O N (O O) N W O (O (G N N O (O W N OI w � 00 r. N v 0 N a 7 (X C W N w C O (O O (7 l4 cm O N W O) z a O r. q* V N O (O (L O NwOp O 0) e- 00 ~ ... 0 O > m y O = m W >% (L z w a � 3 a UCDz 0 mo U C a z o cc co a 3 E N Y N 2 v a cq m co U za m L c� C N .030 N C Z () 0 m N N N `1 W (n O a O f0 « OE w U ui w 0 0 z Q (n U D U SCHEDULE I(A) $6,090,000 City Of Fayetteville, Arkansas Water And Sewer System Refunding Revenue Bonds Series 2004 Days To 12/31/05 Future Value Inclusion Future Value Date 1999 Escrow Fund 30/360 Dav Year Factor Percentage 3.13936738 0520/04 ($5,222,145.07) 580 1.051466 80.52428% ($4,421,516.33) 05/20/04 (465,492.72) 580 1.051466 80.52428% (394,126.10) 052O/O4 (797,542.66) 580 1.051466 80.52428% (675,268.08) o8/16/04 6,49a,628.75 494 1.043671 80.52428% 5,461,504.45 08/19/04 0.01 491 1.043400 80.52428% 0.01 $13,448.31 ($29,406.05) NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. W t0 t0� ONtOr OI YIN O�Od NNSO>NNr N<CNO t0�l t0�1 S J lh aorr r dtONOlh ¢1 aD 0� � �r (GAOtOrth rtOrO W t0 Y1�p W r rNNOr rr a Wyt0 the Yl for (001 O t7 Q�NIh i0O rrA��N(h t7m tO r U > C4 W 32 5 LL p Y)N O�NNmNOOtyO NtDNfD O��tpp N{�p r YI Y)S O N tONN mOCOdOf Old rOl �thr t0 � ON YOIN O thN OI naa'IOOD Y1NNNtP tOQ�aD Y)Ih 3 LL } eea�aeeea�aea�ee�eXeeoeoaeaeo fee Nth th Oth th NlhPl�Np{NpfNp ��pO �l�Opphf�pO �Nph N(Np ��pO YI �Np �N(pp C W CC! W YlNw W W N0D 0aD tO0 aODSSmSEO CDmfOm O mm O uC cc!m mCD a000 .j C aim OI Oi Oi W A � Oi OI Oi Oi W O A W OI OI A OI m OI Ol T a -a g v m pIr d(O *00I.0 a�0,00)NNthNOrNrfNO,N� OrNN100 N M! r m fy Yl 0 r{p d h uOt7N Nr mN W 00 QOYIN ((pp A S yN O W.-reoy �r�.-�OrYD thNSAYI Nan O 70 T�YI t0 ra00lO th lh Nfh th Yl t0 tO r 0)� �thY Y Y N O ON ? W W m .d.. pp U j V Of�O tOppppON�Yf O���CO CIO W ON O r S" 0 88 yry0 0 0 0 0 0 0 0 0 " " 0 0 0 0 0 0 0 0 A N hiO�S 00 Yl�'I th th MCN'INNNN� �o'mSN00 O 10} H O N � OrtO 00dNN�S0t0 NthdrOtOOaD� � OI W O r y NON0tth7 aD N 0; N pi YI IO NMrN QIO ID Nth M6 NY1 N W 0i 01 1F.:� ttpp S Oi th th aD t7 Y1 Yl Ih O C W lV Z r m Ni 4V N Y Y Y r tC t0 .- N Cl W N t w M g S�aagSSSSS�_�_o000000000000_II0 00000000[IN`a0000ra0 OlOOf�fJN N C7 .d. tp ttpp SCHEDULE I(C) $6,090,000 City Of Fayetteville, Arkansas Water And Sewer System Refunding Revenue Bonds Series 2004 Days To 12/31/05 Future Value Future Value @ Date Cost of Issuance 30/360 Day Year Factor 3.13936738 % 05/20/04 ($50,640.10) 580 1.051466 ($53,246.37) 05/20/04 (24,410.10) 580 1.051466 (25,666.40) 05/20/04 24,410.10 580 1.051466 25,666.40 06/24/04 2,750.00 576 1.051103 2,890.53 05125/04 37,000.00 575 1.051012 38,887.43 05/25/04 8,000.00 575 1.051012 8,408.09 05125/04 890.10 575 1.051012 935,51 05/26/04 2,000.00 574 1.050921 2,101.84 $0.00 ($22.96) NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. SCHEDULE I(D) $6,090,000 City Of Fayetteville, Arkansas Water And Sewer System Refunding Revenue Bonds Series2004 Days To Computational 12/31/05 Future Value Future Value Date Credits 301360 Day Year Factor 3.13936738 % 05/01/05 ($1,000.00) 239 1.020895 ($1,020.90) ($1 000.00) ($1,020.90) NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. $6,090,000 City Of Fayetteville, Arkansas Water And Sewer System Refunding Revenue Bonds Series 2004 Purchase Price of Bands for Yield Purposes Par Accrued Interest Bond Premiuml(Discount) Bond Insurance Purchase Price for Arbitrage Purposes SCHEDULE 11(A) $6,090,000.00 10,051.26 60,720.95 (24,410.10) $6,1361362.11 Present value of bond principal and interest from May 20, 2004 using a discount rate of 3.13936738% $6.136.362.11 Result: Since the present value of all payments of principal and interest on the bonds from May 20, 2004 to maturity using a discount rate of 3.13936738% is equal to the purchase price of such obligations, the yield on the bonds is 3.13936738%. NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. mm �nm�m a nm a rcnoNo J th th m l7 m to O V N m � t7 N l7 N m l7 aG N m N N aD {Opp OI Oi C6 m m N r O m� �O m S m V m 0 OI c0 m A Oi O� M LL Ma m N m N m O N< f00 C4 S lN0 Omi Q y GGO .- N fV N N N N LL y � � � WT � � O N O pp NS S O N po N N pp N N h h N O O S S n N r N n O m O m N N N N n Ol r A N r lV r (V O N O Y1 m Y1 m O O fV WI O m N N N m m h N O O m m Nl lh `YD C h♦♦ m h N 01 O YI r a O O O O O O O O C O O O O O O O O A E g00000vpi m m a 32 yy pp p o v i O h Lo O O 8 i0 i00 O N N r tV V V N u m 0 0 d N A r n m m N N OI Oi r n O O m m 0 0 mwi 'Q Z O h N N N m m h m O OO�A m mt7 t7 �,E 4 �.. in �'mmmnmormnmr�n�'�i n d yy LL N m O 2 v000 00000000000o v V p N V N m O S ry N N N N m Uf N h O O O O O C (n C n r r S t00 N N T O� r r O O amD aOD O S O Q � O O�♦YO �lyyl N N m m h �O O O T� �O �O t'1 th O O O n f 1 m N 0 0 m O O N Y1 S S m O t0'l O N N t7 O N th N O U O) m m ld N top C O N OI QI � d O O O O O T O� O1 O O O S S S S S S O O C G O O C O O O G O N i0 m m m m m h O a w O O O O O O O O O Q O w 1n 1A m lA 1A � 1n h � Q N 1A In N m Yl 1A OI mt�mN�aa a4 �aZ.I ;B w O O O O O O O O O O O O O O O O O $6,090,000 City Of Fayetteville, Arkansas Water And Sewer System Refunding Revenue Bonds Series 2004 Sources and Uses of Funds Sources of Funds SCHEDULE 11(C) Principal Amount of the Bonds $6,090,000.00 Original Issue Premium/(Discount) 60,720.95 Accrued Interest 10,051.26 Total Sources of Funds $6.160,772.21 Uses of Funds 1999 Escrow Fund $5,222,145.07 Debt Service Reserve 7869432.50 Bond Fund 10,154.44 Cost of Issuance 50,640.10 Underwriter's Discount 66,990.00 Bond Insurance 24,410.10 Total Uses of Funds $6 160,772.21 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE. SCHEDULE III $6,090,000 City Of Fayetteville, Arkansas Water And Sewer System Refunding Revenue Bonds Series2004 Calculation of Transferred Proceeds Percentage Series1999 Cumulative Principal Transfer Date Redeemed Percentage 08/16/04 $8,1602000.00 100.0000% $8,160,000.00 NOTE: THE COMMENTS AND ASSUMPTIONS CONTAINED IN THE ACCOMPANYING LETTER ARE AN INTEGRAL PART OF THIS SCHEDULE.