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Ordinance 4768
ORDINANCE NO, 4768 AN ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF THE CITY' S NOT TO EXCEED ( 1 ) $27,0007000 OF SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS, SERIES 2005A, AND (2) $6590009000 OF SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2005B, FOR THE PURPOSE OF REFUNDING THE CITY' S OUTSTANDING SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004, AND 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 TRUST INDENTURE PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE ISSUED AND SECURED; AUTHORIZING THE EXECUTION AND DELIVERY OF AN OFFICIAL STATEMENT PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE OFFERED; AUTHORIZING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT PROVIDING FOR THE SALE OF THE SERIES 2005 BONDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE AGREEMENT; AUTHORIZING THE EXECUTION AND DELIVERY OF AN ESCROW DEPOSIT AGREEMENT PROVIDING FOR THE DEFEASANCE AND REDEMPTION OF THE SERIES 2004 BONDS; 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 . & 2005 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 1 Government Bond Act to finance all or a portion of 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 ( 1 ) its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (2) its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), in order to provide for the funding of initial portions of the Project; and WHEREAS, the Series 2002 Bonds have been paid in full from Sales and Use Tax Receipts and the Series 2004 Bonds are presently outstanding in the aggregate principal amount of $34,250,000; 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 (1 ) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in principal amount not to exceed $27,000,000 (the "Series 2005A Bonds"), and (2) its Sales and Use Tax Capital Improvement Bonds, Series 2005B, in principal amount not to exceed $65,000,000 (the "Series 2005B Bonds") in order to defease all of the outstanding Series 2004 Bonds and to provide additional funding for portions of the Project; and WHEREAS, the Series 2005A Bonds and the Series 2005B Bonds will be issued and secured by the Sales and Use Tax receipts on a parity basis; and WHEREAS, the City has made arrangements for the sale of the Series 2005 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 ( 1 ) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" (the "Series 2005A Bonds"), and (2) "Sales and Use Tax Capital Improvement Bonds, Series 200513" (the "Series 2005B Bonds"). The Series 2005A Bonds shall be issued in the original aggregate principal amount of not to exceed Twenty-Seven Million Dollars ($27,000,000), shall 2 0 0 mature not later than December 1 , 2011 , and shall bear interest at the rates specified in the Bond Purchase Agreement. The Series 2005B Bonds shall be issued in the original aggregate principal amount of not to exceed Sixty-Five Million Dollars ($65,000,000), shall mature not later than December 1 , 2019, and shall bear interest at the rates specified in the Bond Purchase Agreement. The true interest cost of the Series 2005 Bonds to the City, including the interest rates home by the Series 2005 Bonds and the costs of issuance funded with proceeds of the Series 2005 Bonds, will not exceed 4.00% per annum, and no Series 2005 Bond will bear a coupon interest rate in excess of 4.00% per annum. The proceeds of the Series 2005 Bonds will be utilized (i) to defease the Series 2004 Bonds, (ii) to finance a portion of the cost of the acquisition, construction, reconstruction, extension, improving and equipping of the Project, (iii) to establish a debt service reserve for the Series 2005 Bonds or to purchase a surety bond for reserve purposes, (iv) to pay premiums for bond insurance, if deemed economically beneficial, and (v) to pay printing, underwriting, legal and other expenses incidental to the issuance of the Series 2005 Bonds. The Series 2005 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 November 1 , 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), to be entered into by the City and the Trustee in substantially the form submitted to this meeting. The Mayor is hereby authorized and directed to execute and deliver the Series 2005A Bonds and the Series 2005B Bonds, each series to be in substantially the form thereof contained in the Indenture submitted to this meeting, and the City Clerk is hereby authorized and directed to execute and deliver the Series 2005A Bonds and the Series 2005B 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 2005A Bonds and the Series 2005B 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 2005A Bonds and the Series 2005B Bonds in substantially the form thereof contained in the Indenture submitted to this meeting, with such changes as shall be approved by such persons executing the Series 2005A Bonds and the Series 2005B Bonds, their execution to constitute conclusive evidence of such approval. Section 2: In order to pay the principal of and interest on the Series 2005 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 as to the Series 2005A Bonds and the Series 2005B Bonds. The levy and collection of the Sales and Use Tax shall continue until such time as the Series 2005 Bonds are no longer outstanding or sufficient funds are on deposit with the Trustee under the Indenture to redeem the Series 2005 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 2005 Bonds are to be executed, authenticated, issued, accepted, held and secured, the Mayor is hereby authorized 3 and directed to execute and acknowledge the Indenture, and the City Clerk is hereby authorized and directed to execute and acknowledge the 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 Indenture to be accepted, executed and acknowledged by the Trustee. The 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 2005 Bonds. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Indenture in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Indenture, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the 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 2005 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 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 2005 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.) 4 0 0 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 provide for the defeasance and redemption of the Series 2004 Bonds, the Mayor is hereby authorized and directed to execute an Escrow Deposit Agreement to be dated as of the date of its execution (the "Escrow Agreement'), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"), and the Mayor is hereby authorized and directed to cause the Escrow Agreement to be executed by the Escrow Trustee. The Escrow Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Underwriter, the Escrow Trustee and Bond Counsel in order to complete the Escrow Agreement in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Escrow Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Escrow 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 8 : In order to secure lower interest rates on the Series 2005A Bonds and the Series 2005B Bonds, the Underwriter has proposed that the City consider the purchase of a policy or policies of bond insurance with a portion of the proceeds of the Series 2005 Bonds, which policy or policies would guarantee the payment of the principal of and interest on the Series 2005 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 or policies with respect to the Series 2005 Bonds. In order to that the maximum amount of proceeds of the Series 2005 Bonds be available to pay costs of the Project, the Underwriter has proposed that the City consider the purchase of a surety bond or bonds with a portion of the proceeds of the Series 2005 Bonds, which surety bond or bonds would satisfy the funding requirements of the debt service reserve. If deemed economically advantageous by the Mayor, upon the advice of the Underwriter, the Mayor is 5 0 hereby authorized to execute a commitment and to do any and all things necessary to accomplish the delivery of a surety bond or bonds with respect to the debt service reserve for the Series 2005 Bonds. Section 9: 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 2005 Bonds and to effect the execution and delivery of the Indenture, the Bond Purchase Agreement, the Official Statement, the Continuing Disclosure Agreement, the Escrow Agreement and a Tax Regulatory Agreement relating to the tax exemption of interest on the Series 2005 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 10: 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 2005 Bonds. Section 11 : 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 12 : Upon the issuance and delivery of the Series 2005 Bonds, Ordinance No. 4718, adopted and approved by the City Council on July 5, 2005, will be deemed to be repealed. All other ordinances, resolutions and parts thereof in conflict herewith are hereby repealed to the extent of such conflict. PASSED and APPROVED this 4`h day of October, 2005. APPRO D: By: &Xz�� DAN COODY, Mayor ATTEST: .� Eq By �`�G•0&1 Y �0,o SO DRA SMITH, City Clerk & a• •�;P� _ ; FAYETTEVILLE ; �9S�9;P�fAN54:�' '� GT01`1 GO 6 City of Fayetteville ` 00 Staff Review Form City Council Agenda Items ql�2 or Contracts 4-Oct-05 City Council Meeting Date Stephen Davis FIS Director Finance & Internal Services Submitted By Division Department Action Required: Approval of a bond ordinance authorizing the Mayor to execute a bond purchase agreement authorizing the issuance of up-to $27 million in Sles and Use Tax Refunding and Capital Improvement Bonds to be used to fund a portion of the costs associated with the Wastewater System Improvements Project (West-sideTreatment Plant) and authorize City Staff to prepare the required budget amendments/payments to implement the bond purchase agreement. ebt Service Funded By a Dedicated 3/4% Sales & Use Tax WSIP Cost of this request Category/Project Budget Program Category / Project Name Account Number Funds Used to Date Program / Project Category Name $ Wastewater Construction Improvement Project Number Remaining Balance Fund Name Budgeted Item Budget Adjustment Attached 4624, 4389 & a Previous Ordinance or Resolution # 43270jJ gllr DepaFtment Iffirector Date Original Contract Date: Original Contract Number: City Attorney / Received in City Clerk's Office Financec nod Internal Service Director Date Received in Mayor's Office Mayor Date Comments: FAYETTEALLE THE CITY OF FAYETTEVILLE. ARKANSAS DEPARTMENTAL CORRESPONDENCE TO: Mayor Coody and Fayetteville City Council FROM: Stephen Davis, Finance & Internal Services Director/ DATE: September 21 , 2005 //��777777��'���-�� SUBJECT: Bond Ordinance - Wastewater System Improvements Project Sales & Use Tax Refunding and Capital Improvement Bonds 2005A Recommendation Approval of a bond ordinance authorizing the Mayor to execute a bond purchase agreement authorizing the City to issue refunding bonds in the amount of$27 million and capital improvements bonds in the amount of $65 million to be used to fund a portion of the costs associated with the Wastewater System Improvements Project (West-side Treatment Plant and associated Lines/Lift Stations) and authorize City Staff to prepare the required budget amendments/payments to implement the bond purchase agreement. Background/Discussion Fayetteville citizens by public vote authorized the issuance of up-to $ 125 million in sales tax backed bonds to fund the projects costs associated with the WSIP improvements. This request will utilize the remaining voter authorization for the sales tax backed bond issues. Budget Impact The annual debt service cost is included in the City's Adopted Budget. ORDINANCE NO, AN ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF THE CITY' S NOT TO EXCEED ( 1 ) $273000,000 OF SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS, SERIES 2005A, AND (2) $65,0009000 OF SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2005B, FOR THE PURPOSE OF REFUNDING THE CITY' S OUTSTANDING SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004, AND 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 TRUST INDENTURE PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE ISSUED AND SECURED; AUTHORIZING THE EXECUTION AND DELIVERY OF AN OFFICIAL STATEMENT PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE OFFERED; AUTHORIZING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT PROVIDING FOR THE SALE OF THE SERIES 2005 BONDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE AGREEMENT; AUTHORIZING THE EXECUTION AND DELIVERY OF AN ESCROW DEPOSIT AGREEMENT PROVIDING FOR THE DEFEASANCE AND REDEMPTION OF THE SERIES 2004 BONDS; 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. & 2005 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 1 0 0 Government Bond Act to finance all or a portion of 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 ( 1 ) its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (2) its $35 ,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), in order to provide for the funding of initial portions of the Project; and WHEREAS, the Series 2002 Bonds have been paid in full from Sales and Use Tax Receipts and the Series 2004 Bonds are presently outstanding in the aggregate principal amount of $34,250,000; 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 ( 1 ) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in principal amount not to exceed $27,000,000 (the "Series 2005A Bonds"), and (2) its Sales and Use Tax Capital Improvement Bonds, Series 2005B, in principal amount not to exceed $65,000,000 (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds") in order to defease all of the outstanding Series 2004 Bonds and to provide additional funding for portions of the Project; and WHEREAS, the Series 2005A Bonds and the Series 2005B Bonds will be issued and secured by the Sales and Use Tax receipts on a parity basis; and WHEREAS, the City has made arrangements for the sale of the Series 2005 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 ( 1 ) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" (the "Series 2005A Bonds"), and (2) "Sales and Use Tax Capital Improvement Bonds, Series 2005B" (the "Series 2005B Bonds"). The Series 2005A Bonds shall be issued in the original 2 0 0 aggregate principal amount of not to exceed Twenty-Seven Million Dollars ($27,000,000), shall mature not later than December 1 , 2011 , and shall bear interest at the rates specified in the Bond Purchase Agreement. The Series 2005B Bonds shall be issued in the original aggregate principal amount of not to exceed Sixty-Five Million Dollars ($65,000,000), shall mature not later than December 1 , 2019, and shall bear interest at the rates specified in the Bond Purchase Agreement. The true interest cost of the Series 2005 Bonds to the City, including the interest rates bome by the Series 2005 Bonds and the costs of issuance and any bond insurance premium funded with proceeds of the Series 2005 Bonds, will not exceed 4.00% per annum, and no Series 2005 Bond will bear a coupon interest rate in excess of 4.00% per annum. The proceeds of the Series 2005 Bonds will be utilized (i) to defease the Series 2004 Bonds, (ii) to finance a portion of the cost of the acquisition, construction, reconstruction, extension, improving and equipping of the Project, (iii) to establish a debt service reserve for the Series 2005 Bonds or to purchase a surety bond for reserve purposes, (iv) to pay premiums for bond insurance, if deemed economically beneficial, and (v) to pay printing, underwriting, legal and other expenses incidental to the issuance of the Series 2005 Bonds. The Series 2005 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 November 1 , 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), to be entered into by the City and the Trustee in substantially the form submitted to this meeting. The Mayor is hereby authorized and directed to execute and deliver the Series 2005A Bonds and the Series 2005B Bonds, each series to be in substantially the form thereof contained in the Indenture submitted to this meeting, and the City Clerk is hereby authorized and directed to execute and deliver the Series 2005A Bonds and the Series 2005B 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 2005A Bonds and the Series 2005B 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 2005A Bonds and the Series 2005B Bonds in substantially the form thereof contained in the Indenture submitted to this meeting, with such changes as shall be approved by such persons executing the Series 2005A Bonds and the Series 2005B Bonds, their execution to constitute conclusive evidence of such approval. Section 2: In order to pay the principal of and interest on the Series 2005 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 as to the Series 2005A Bonds and the Series 2005B Bonds. The levy and collection of the Sales and Use Tax shall continue until such time as the Series 2005 Bonds are no longer outstanding or sufficient funds are on deposit with the Trustee under the Indenture to redeem the Series 2005 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. 3 Section 3 : To prescribe the terms and conditions upon which the Series 2005 Bonds are to be executed, authenticated, issued, accepted, held and secured, the Mayor is hereby authorized and directed to execute and acknowledge the Indenture, and the City Clerk is hereby authorized and directed to execute and acknowledge the 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 Indenture to be accepted, executed and acknowledged by the Trustee. The 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 2005 Bonds. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Indenture in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Indenture, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the 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 2005 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 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 2005 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. 4 (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 provide for the defeasance and redemption of the Series 2004 Bonds, the Mayor is hereby authorized and directed to execute an Escrow Deposit Agreement to be dated as of the date of its execution (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"), and the Mayor is hereby authorized and directed to cause the Escrow Agreement to be executed by the Escrow Trustee. The Escrow Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Underwriter, the Escrow Trustee and Bond Counsel in order to complete the Escrow Agreement in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing the Escrow Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Escrow 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 8: In order to secure lower interest rates on the Series 2005A Bonds and the Series 2005B Bonds, the Underwriter has proposed that the City consider the purchase of a policy or policies of bond insurance with a portion of the proceeds of the Series 2005 Bonds, which policy or policies would guarantee the payment of the principal of and interest on the Series 2005 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 or policies with respect to the Series 2005 Bonds. F7 In order to that the maximum amount of proceeds of the Series 2005 Bonds be available to pay costs of the Project, the Underwriter has proposed that the City consider the purchase of a surety bond or bonds with a portion of the proceeds of the Series 2005 Bonds, which surety bond or bonds would satisfy the funding requirements of the debt service reserve. If deemed economically advantageous by the Mayor, upon the advice of the Underwriter, the Mayor is hereby authorized to execute a commitment and to do any and all things necessary to accomplish the delivery of a surety bond or bonds with respect to the debt service reserve for the Series 2005 Bonds. Section 9: 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 2005 Bonds and to effect the execution and delivery of the Indenture, the Bond Purchase Agreement, the Official Statement, the Continuing Disclosure Agreement, the Escrow Agreement and a Tax Regulatory Agreement relating to the tax exemption of interest on the Series 2005 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 10: 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 2005 Bonds. Section 11: 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 12: Upon the issuance and delivery of the Series 2005 Bonds, Ordinance No. 4718, adopted and approved by the City Council on July 5, 2005, will be deemed to be repealed. All other ordinances, resolutions and parts thereof in conflict herewith are hereby repealed to the extent of such conflict. PASSED and APPROVED this 4th day of October, 2005. APPROVED: By: ATTEST: By: SONDRA SMITH, City Clerk DAN COODY, Mayor GM CT KUTAK ROCK LLP : DRAFT 09/27/05 U$ v 0 N y ,. N PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER _, 2005 00 n O 8 NEW ISSUE •RATINGS: "_" (Underlying"_ a BOOK -ENTRY ONLY ( Insured) o v In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain C 5 representations and continuing compliance with certain covenants, interest on the Series 2005 Bonds is excluded from gross income for federal income tax os purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Under existing laws, regulations, rulings and judicial T H decisions, Bond Counsel is of the opinion that the Series 2005 Bonds and the interest thereon are exempt from allstate, county and municipal taxes in the State E a ofArkansas. For a more complete description, see the caption "TAX MATTERS" herein. o g I I$26,235,000I** CITY OF FAYETTEVILLE, ARKANSAS a o - .SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A ' T O C $65,000,000•• d 9 :_ - CITY OF FAYETTEVILLE, ARKANSAS 3 „ ^ SALES AND USE TAX CAPITAL IMPROVEMENT BONDS u y SERIES 2005B o o Dated: November 1, 2005 Due: December 1, as shown below V on N 0I - The Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and the Sales and Use Tax Capital .— Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), are being issued by the City of Fayetteville, Arkansas (the "City") for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement c „ Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, . sewerage and related facilities, (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, .o a and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF I FUNDS," "REFUNDING PROGRAM" and "THE PROJECT' herein. d c `o H .9 The Series 2005 Bonds are issuable only as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The e a Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2005 Bonds will be - made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only �yin book -entry c� c form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. S 2 The Series 2005 Bonds shall bear interest from their dated date, payable on June I and December I of each year, commencing June 1, 2006. All such v v H interest payments shall be payable to the persons in whose name such Series 2005 Bonds are registered on the bond registration books maintained by Simmons a"oo First Trust Company, N.A., Pine Bluff, Arkansas as trustee (the "Trustee"), as of the fifteenth day of the calendar month preceding the calendar month in N N ` which the applicable interest payment date falls. Principal of and premium, if any, on the Series 2005 Bonds shall be payable at the principal corporate trust t office of the Trustee. So long as DTC or its nominee is the registered owner of the Series 2005 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 Lu more fully described herein. $ 3 Pursuant to a Trust Indenture dated as of November 1, 2005 (the "Indenture"), between the City and the Trustee, the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds is secured by a pledge of the receipts from a three-quarters of one percent (0.75%) city-wide sales and E ,g use tax (the "Sales and Use Tax"). See the caption "SECURITY FOR THE BONDS" herein. Assuming the satisfaction of certain coverage tests, the City has c'0'2 reserved the right to issue additional indebtedness to be secured on a parity basis with the Series 2005 Bonds. See the caption "THE SERIES 2005 BONDS — .0 oc 3 Additional Bonds" herein. The Series 2005 Bonds are subject to mandatory redemption prior to maturity as more fully described herein under the caption "THE SERIES 2005 BONDS - Redemption." o 'ems o The Series 2005 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2005 € c Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance s v° o of the Series 2005 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 2005 Bonds, except as described herein with respect to the Sales and Use Tax. u = o C N t= MATURITY SCHEDULE** rn a o a Series 2005A Bonds r Maturity Principal Interest Maturity Principal Interest O.. c ,c (December I) Amount Rate Yield (December I) Amount Rate Yield 2006 $ % % 2009 $ % % c °1'� 2007 2010 2008 N� y S� F o �NFD Series 2005B Bonds Maturity Principal Interest Maturity (December 1) Amount Rate Yield (December 1) 2010 $ % "/0 2015 2011 2016 2012 2017 2013 2018 2014 (Plus acemed interest) Principal Interest Amount Rate Yield $ % % The Series 2005 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 2005 Bonds will be available for delivery in New York, New York, on or about November __.2005. Stephens Inc. The date of this Official Statement is November ___,2005. * See the caption "RATINGS" herein. •• Preliminary; subject to change. CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bobby Ferrell Lioneld Jordan Shirley Lucas Don Man Robert Reynolds Robert Rhoads Brenda Thiel Stephen Davis, Finance and Internal Services Director David Jurgens, Water and 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 STEPHENS INC. Fayetteville, Arkansas Underwriter 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 2005 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 2005 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 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 2005 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......................................................................................................................................... I TheSeries 2005 Bonds......................................................................................................................................... 2 Securityfor the Bonds.......................................................................................................................................... 4 Book -Entry Only System...................................................................................................................................... 5 TheProject............................................................................................................................................................ 7 RefundingProgram............................................................................................................................................... 8 Historical Sales and Use Tax Collections............................................................................................................. 8 Estimated Sources and Uses of Funds.................................................................................................................. 9 Estimated Debt Service Requirements.................................................................................................................. 10 Estimated Debt Service Coverage........................................................................................................................ 10 Projected Mandatory Redemptions....................................................................................................................... 10 TheCity................................................................................................................................................................ 1 I TheSales and Use Tax.......................................................................................................................................... 14 Definitions of Certain Terms................................................................................................................................ 20 Summaryof the Indenture.................................................................................................................................... 24 Summary of the Continuing Disclosure Agreement............................................................................................. 29 Underwriting......................................................................................................................................................... 31 TaxMatters........................................................................................................................................................... 31 Ratings................................................................................................................................................................... 33 LegalMatters........................................................................................................................................................ 33 Miscellaneous....................................................................................................................................................... 33 Accuracy and Completeness of Official Statement.............................................................................................. 33 APPENDIX A - Form of Bond Counsel Opinion................................................................................................. A-1 [THIS PAGE LEFT BLANK INTENTIONALLY] PRELIMINARY OFFICIAL STATEMENT [$26,235,000] * CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $65,000,000* CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B INTRODUCTORYSTATEMENT 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 by the City of Fayetteville, Arkansas (the "City") of (i) Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in the principal amount of [$26,235,000]* (the "Series 2005A Bonds"), and (ii) Sales and Use Tax Capital Improvement Bonds, Series 2005B, in the principal amount of $65,000,000* (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). 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. & 2005 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 2005 Bonds are to be issued by the City pursuant to Amendment 62, the Act and Ordinance No. adopted and approved on October _, 2005 (the "Authorizing Ordinance"), for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities (the "Project"), (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and 'THE PROJECT" herein. The Series 2005 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"). 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 2005 Bonds, and the Series 2005 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 2005 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 2005 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 2005 Bonds under certain circumstances set forth in the Indenture (hereinafter defined). The Series 2005 Bonds and any Additional Bonds are herein collectively referred to as the "Bonds." See the caption "THE SERIES 2005 BONDS - Additional Bonds" herein. Preliminary; subject to change. 4852-0231-0656.2 The Series 2005 Bonds are subject to redemption from excess moneys in the Project Fund following completion of the Project and from Surplus Tax Receipts. So long as the Series 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the early redemption of the Series 2005B Bonds prior to their application to early redemption of the Series 2005A Bonds. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS." Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2005 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 2005 Bonds, the Sales and Use Tax, the Continuing Disclosure Agreement, and the Trust Indenture dated as of November I, 2005 (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 2005 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 2005 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the forms of Series 2005A Bond and Series 2005B 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 2005 BONDS Description. The Series 2005 Bonds will be initially dated as of November 1, 2005, and will bear interest payable semiannually on June 1 and December I of each year, commencing June 1, 2006, at the rates set forth on the cover page hereof. The Series 2005 Bonds will mature on December 1 in the years and in the principal amounts set forth on the cover page hereof. The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2005 Bonds shall be payable to the persons in whose name such Series 2005 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 2005 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 2005 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 2005 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. (a) The Series 2005A Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund moneys in excess of the amount needed to complete the Project. 4852-0231-0656.2 (ii) The Series 2005A 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, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. (b) The Series 2005B Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005B 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, (ii) maintain the Debt Service Reserve Fund in an amount equal to the Reserve Requirement, (iii) pay any arbitrage rebate due under Section 148(O 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. In the case of any defeasance of the Series 2005B Bonds, the dates of redemption, the principal amounts and the maturities of the Series 2005B Bonds to be redeemed will be determined by taking into consideration the mandatory redemption requirements set forth above and the Sales and Use Tax receipts for the most recent twelve months. Partial Redemption of a Series 2005 Bond. If less than all of the Series 2005 Bonds of a maturity are called for redemption, the particular Series 2005 Bonds or portions of Series 2005 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 2005 Bonds, the procedures established by DTC shall control with respect to the selection of the particular Series 2005 Bonds to be redeemed. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2005 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 2005 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2005 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 2005 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 Project Costs in connection with the acquisition, construction, reconstruction, extension, improving or equipping of the Project, (ii) refunding the Series 2005 Bonds or any series of Additional Bonds, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the Series 2005 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 4852-0231-0656.2 i • 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. 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, 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. No Additional Bonds shall be issued unless there is no default at the time of issuance under the Indenture. 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. 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 2005 Bonds, transfers of beneficial interests in the Series 2005 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 2005 Bonds pursuant to Ordinance No. I duly adopted by the City Council of the City on October , 2005 (the "Authorizing Ordinance"). 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 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 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 appropriate Account within the Debt Service Reserve Fund an amount sufficient to cause the amounts on deposit therein to be equal to 5% of the aggregate principal amount on such series of Bonds (the "Reserve Requirement"). The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds as due for which there are no available funds in the Bond Fund to make such payments. The Reserve Requirement may be satisfied by cash or by Investment Securities, including surety bonds. If the amount in an Account of 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 such Account of 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 Accounts and Principal Accounts of the Bond Fund, as provided in the Indenture). If a surplus shall exist in an Account of the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the appropriate Interest Account of the Bond Fund. 4852-0231-0656.2 4 [Application has been made to (" ") for the issuance of surety bonds for the purpose of funding the required portion of the Debt Service Reserve Fund for the Series 2005A Bonds (the "2005A Surety Bond") and for the Series 2005B Bonds (the "2005B Surety Bond," and together with the 2005A Surety Bond, the "Surety Bonds" ). The Series 2005 Bonds will only be delivered upon the issuance of the Surety Bonds. The premiums on the Surety Bonds are to be fully paid from the proceeds of the Series 2005 Bonds upon their issuance and delivery. The Surety Bonds provide that on the later of (i) _ U days after receipt by of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Series 2005 Bonds when due has not been made or (ii) the interest payment date specified in the Demand for Payment submitted to will promptly deposit funds with the Trustee sufficient to enable the Trustee to make such payments due on the Series 2005 Bonds, but in not event exceeding the applicable Surety Bond Coverage, as defined in the Surety Bonds. Pursuant to the teens of the each of the Surety Bonds, the applicable Surety Bond Coverage is automatically reduced to the extent of each payment made by under the terms of such Surety Bond, and the City is required to reimburse for any draws under such Surety Bond with interest at a market rate, subject to Arkansas usury limits. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the applicable Surety Bond Coverage. The reimbursement obligation of the City is subordinate to the City's obligations under the Indenture with respect to the Series 2005 Bonds. In the event the amount on deposit in, or credited to, an Account of the Debt Service Reserve Fund exceeds the amount of the applicable Surety Bond, any draw on that Surety Bond shall be made only after all of the funds in such Account have been expended. The Surety Bonds do not insure against nonpayment caused by the insolvency or negligence of the Trustee or any Paying Agent. For information on see the caption "BOND INSURANCE" herein.] BOOK -ENTRY ONLY SYSTEM The Series 2005 Bonds will be issued only as one fully registered Series 2005 Bond for each maturity of each series, 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 2005 Bonds. The fully registered Series 2005 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 2005 Bonds. Owners of any book entry interests in the Series 2005 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2005 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 2005 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 4852-0231-0656.2 5 0 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 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2005 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 2005 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 2005 Bonds, except in the event that use of the Book -Entry System for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 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 2005 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 2005 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005 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 2005 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 2005 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 2005 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 2005 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. 4852-0231-0656.2 6 The Trustee and the City, so long as a book entry method of recording and transferring interest in the Series 2005 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 2005 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 2005 Bonds made to DTC or its nominee as the registered owner of the Series 2005 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 2005 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. 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 12.6 million gallon per day advanced wastewater treatment plant and 33 wastewater pumping stations. These facilities serve an estimated population equivalent of 75,000 and transport an average daily flow of approximately 11 million gallons. Growth of the service area population and excess wet weather flows have consumed the available wastewater system capacity and have 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 new wastewater treatment plant with a capacity of 10 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 30 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 11.2 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 presently expected to be approximately $_ million. [DISCUSS CONTRACTING STATUS] This cost estimate has been developed by the various design firms and includes allowances for inflation. Within the $_ 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 in the quarter of 200_.] $ of the costs of the Project have previously been financed with proceeds of the City's $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002, and $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004. The remaining costs of the Project are expected to be financed by a combination of the Series 2005 Bonds and other bonds secured by City sales and use taxes (subject to approval by the voters of the City) and/or bonds secured by revenues of the City's water and sewer system. 4852-0231-0656.2 7 REFUNDING PROGRAM A portion of the proceeds of the Series 2005A Bonds will be used to accomplish an advance refunding of [$26,235,000] outstanding principal amount of the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of December 1, 2004 (the "Series 2004 Bonds"). The Series 2004 Bonds were issued to finance a portion of the Project. Upon delivery of the Series 2005A Bonds, certain proceeds thereof will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an irrevocable Escrow Deposit Agreement (the "Escrow Agreement") between the City and the Escrow Trustee, and will be utilized, together with available bond fund and debt service reserve fund moneys, to defease the Series 2004 Bonds. The proceeds of the Series 2005A Bonds and other available moneys to be deposited with the Escrow Trustee will be held in trust for the owners of the Series 2004 Bonds and will be utilized to purchase United States Treasury obligations or held as cash, and will be sufficient, together with the investment earnings on such obligations, to pay the principal and interest due on the Series 2004 Bonds on their respective maturity or redemption dates. After such deposit, the Series 2004 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. The accuracy of (a) the arithmetical computations of the adequacy of the maturing principal amounts of the United States Treasury obligations and uninvested cash on hand in the Series 2004 escrow account under the Escrow Agreement to pay, when due, the principal of and interest on the Series 2004 Bonds, and (b) the mathematical computations supporting the conclusion that the Series 2005A Bonds are not "arbitrage bonds" under Section 148 of the Code, will be verified by BKD, LLP, Little Rock, Arkansas, independent certified public accountants. Such verification of mathematical accuracy and mathematical computations will be based upon the mathematical computations provided by the Underwriter. HISTORICAL SALES AND USE TAX COLLECTIONS Collection of the Sales and Use Tax commenced April 1, 2002. Set forth below is a table showing City sales and use tax receipts over the last eight years and for the -month period from January 1, 2005 to 2005. Sales and Use Tax receipts for the most recent twelve-month period ( 1, 2004 to 2005) were $ Historical Collections Year (0.75%) Growth Percentage 1997 $ 7,201,068[1) n/a 1998 7,833,820(1) 8.78% 1999 8,238,781[11 5.17% 2000 8,685,643[11 5.42% 2001 8,951,902'1 3.07% 2002 9,338,322'1 4.32% 2003 9,721,700(2) 4.11% 2004 10,637,825(2) 9.42% 2005 (3) n/a (I) Reflects 75% of the collections of the City's 1% general sales and use tax. (2) Reflects actual collections of the Sales and Use Tax. (3) Reflects actual collections of the Sales and Use Tax for the _____-month period from January 1, 2005 to 2005. 4852-0231-0656.2 8 ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series 2005A Bonds are expected to be used as follows: Sources of Funds') Par Amount of Series 2005A Bonds Net Reoffering [Premium][Discount] Series 2004 Bond Fund and Debt Service Reserve Fund Total Sources: Uses of Funds'1 Deposit to 2004 Escrow Fund 2005A Surety Bond Premium 2005A Bond Insurance Premium Deposit to Project Fund Costs of Issuance and Underwriter's Discount Total Uses: The proceeds of the Series 2005B Bonds are expected to be used as follows: Sources of Fundsl'1 Par Amount of Series 2005B Bonds Net Reoffering [Premium][Discount] Total Sources: Uses of Funds'l Deposit to Project Fund 2005B Surety Bond Premium 2005B Bond Insurance Premium Costs of Issuance and Underwriter's Discount Total Uses: Preliminary; subject to change. [$26,235,000] R $65,000,000 U 4852-0231-0656.2 W ESTIMATED DEBT SERVICE REQUIREMENTS As of the date of closing, the Series 2005 Bonds will constitute the only debt obligations secured by receipts of the Sales and Use Tax. The following table sets forth estimates of the amounts required to pay scheduled principal of and interest on the Series 2005 Bonds during each year: Series 2005A Series 2005A Series 2005B Series 2005B Total Debt Year Principal Interest(') Principal Interest(') Service 2006 $ $ $ $ $ 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 r , III ,. 111 111 Preliminary; subject to change. Assuming for purposes of this Preliminary Official State, an average coupon rate on the Series 2005A Bonds of_%per annum and an average coupon rate on the Series 2005B Bonds of%. ESTIMATED DEBT SERVICE COVERAGE The following table shows estimated maximum annual debt service coverage with respect to the Series 2005 Bonds utilizing the most recent twelve months of Sales and Use Tax receipts. Historical Sales and Use Tax Receipts0 Maximum Annual Debt Service Requirement on Series 2005 Bondsl2l Maximum Annual Debt Service Coverage 21 r" Sales and Use Tax receipts for the twelve-month period from _ I, 2004 to 2005. (2) Preliminary; subject to change. 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 SERIES 2005 BONDS WILL APPROXIMATE SUCH HISTORICAL RESULTS. PROJECTED MANDATORY REDEMPTIONS The table under the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" does not reflect possible mandatory redemptions of the Series 2005 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, (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(1) of the Code, and (iv) to pay Trustee and Paying Agent fees and expenses. So long as any of the Series 2005B Bonds are Outstanding, all Surplus Tax Receipts are required to be used to redeem Series 2005B Bonds prior to maturity. Upon final maturity or redemption in whole of the Series 2005B Bonds and for so long as any of the Series 2005A Bonds are Outstanding, Surplus Tax Receipts are required to be used to redeem Series 2005A Bonds prior to maturity. IT IS NOT EXPECTED THAT ANY OF THE SERIES 2005A BONDS WILL BE REDEEMED PRIOR TO 4852-0231-0656.2 10 MATURITY FROM SURPLUS TAX RECEIPTS. 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. Series 2005A and Series 2005A Bonds Series 2005B Bonds Total Series 2005A and Year Ending Series 2005B Redeemed Prior to Redeemed Prior to Series 2005B December It'1 Principal Due Maturi a> Maturi t21 Principal Retired 2006 $ $ -0- $ $ 2007 -0- 2008 -0- 2009 -0- 2010 -0- 2011 -0- 2012 -0- 2013 -0- 2014 -0- (1) Series 2005 Bonds art subject to mandatory redemption from Surplus Tax Receipts on each June I and December 1. See the caption "THE SERIES 2005 BONDS — Redemption" herein. (2) Assuming Sales and Use Tax receipts of $ for the twelve months ending December 1, 2006, and 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 comer 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. The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Coody Mayor 12/31/08 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/08 Kyle Cook Alderman 12/31/06 Lioneld Jordan Alderman 12/31/08 Don Marr Alderman 12/31/08 Robert Reynolds Alderman 12/31/06 Shirley Lucas Alderman 12/31/06 Brenda Thiel Alderman 12/31/08 Robert Rhoads Alderman 12/31/06 Bobby Ferrell Alderman 12/31/08 4852-0231-0656.2 11 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 30,729 127,846 1,923,322 1980 36,608 178,609 2,286,435 1990 42,099 210,908 2,350,624 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 19,590 17,750 1995 20,193 18,546 1996 20,870 19,442 1997 21,586 20,228 1998 22,893 21,256 1999 24,213 22,223 2000 23,316 21,995 2001 24,585 22,750 2002 24,788 23,556 2003 25,359 24,384 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 $1,880,105,000 $16,997,721,000 11.06% 1994 2,217,229,000 19,090,516,000 11.61 1995 2,486,425,000 20,998,923,000 11.84 1996 2,692,554,000 22,053,022,000 12.21 1997 2,845,968,000 22,872,236,000 12.44 1998 3,018,896,000 23,944,647,000 12.61 1999* n/a n/a n/a 2000 3,526,791,000 28,488,033,000 12.38 2001 3,806,422,000 29,652,693,000 12.84 2002 3,841,326,000 29,269,775,000 13.12 2003 3,968,812,000 29,920,716,000 13.26 2004 4,610,051,000 31,463,983,000 14.65 * Methodology changed to calendar year basis. No reliable information is available for 1999. Source: Sales and Marketing Management Survey of Buying Power. 4852-0231-0656.2 12 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 340,593,452 101,274,620 441,868,072 1996 359,369,202 113,157,365 472,526,567 1997 382,798,143 120,064,627 502,862,770 1998 401,001,338 127,575,096 528,576,434 1999 413,648,415 137,404,499 551,052,914 2000 432,951,171 145,147,891 578,099,062 2001 486,853,822 155,794,579 642,648,401 2002 541,004,690 158,688,783 699.693,473 2003 565,846,525 167,638,657 733,485,182 2004 649,361,820 183,102,702 832,464,522 Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the Cityt') are shown below for the years indicated: 2001 2002 2003(2) 2004 Residential Building 339 328 735 755 Permits Commercial Building 38 35 31 29 Permits Value of All Building Permits $85,262,302 $100,809,486 $179,007,987 $164,695,359 (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. 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 3.6 5.7 2005* 2.9 4.8 * August, 2005 only, preliminary. 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 2005 of approximately 17,821. For the 2005-06 fiscal year ending June 30, 2006, the University has an operating budget in excess of $_ million, which does not include the agricultural experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately faculty, administrative, secretarial, clerical and maintenance personnel in both full- time and part-time positions, making the University the largest employer in the City. 4852-0231-0656.2 13 • Other major employers in the City, their products or services and approximate number of employees are set forth below: Employer Pinnacle Foods, International Frozen Dinners Superior Industries Cast Aluminum Wheels Washington Regional Medical Medical Center Product or Service Tyson Foods, Inc. Fayetteville School District City of Fayetteville Arkansas Western Gas Co. Ayrshire Electronics Dillard's Department Store McClinton Anchor Co. Veterans Admin. Med. Ctr. Wal-Mart Supercenter Washington County Source: Fayetteville Chamber of Commerce. Food Products Education Government Utilities Manufacturing Retail Limestone & Hot Mix Medical Retail Government THE SALES AND USE TAX Employee Range 1,000-2,499 1,000-2,499 1,000-2,499 800-1,599 500-999 500-999 300-499 300-499 300-499 300-499 300-499 300-499 300-499 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 2005 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; provided, however, sales taxes are not levied on services purchased by radio or television providers for use in providing their 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; 4852-0231-0656.2 14 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; service of providing indoor tanning at a tanning salon; wrecker and towing services; service of collecting and disposing of solid waste; parking lot and gutter cleaning services; dry cleaning and laundry services; industrial laundry services; mini warehouse and self storage rental services; body piercing, tattooing and electrolysis services; pest control services; security and alarm monitoring services; boat storage and docking fees; furnishing campground spaces or trailer spaces at public or privately owned campgrounds, except for federal campgrounds, on less than a month -to -month basis; locksmith services; pet grooming and kennel services; and the new installation and replacement labor for hardwood, vinyl, ceramic tile or other types of flooring; and (vi) Initial installation services relating to motor vehicles, aircraft, farm machinery and implements, motors of all kinds, tires and batteries, boats, electrical appliances and devices, furniture, rugs, flooring, upholstery, household appliances, television and radio, 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; provided, however, if the item being installed is specifically exempted from the imposition of the sales tax, the service of installation will also be exempt; (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; (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; (h) Orders by telegraph, telephone or other ,means of communication transmitted by florists; (i) Sales of beer, wine, liquor or any intoxicating beverages; (j) Proceeds derived from the operation or use of coin -operated pinball machines, coin -operated music machines, coin -operated mechanical games, and similar devices; (k) Contracts, including service contracts, maintenance agreements and extended warranties, which in whole or in part provide for the future performance of or payment for services which are subject to the sales tax; (I) Receipts derived from the retail sale of any device used in playing bingo and any charge for admittance to facilities or for the right to play bingo or other games of chance regardless of whether such activity might otherwise be permitted by law; and (m) The first $50,000 of the purchase price from the sale of machinery or equipment and related attachments that are sold to or used by a person engaged primarily in the harvesting of timber. 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: 4852-0231-0656.2 15 (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 certain set dollar amounts; (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; (f) 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 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, to the Arkansas Future Farmers of America Foundation and the Arkansas Future Farmers of America Association, to qualified museums and to the Arkansas Symphony Orchestra, Inc.; (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; (j) 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; (I) 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; 4852-0231-0656.2 16 S 0 (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; (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; (jj) Feedstuffs used in the commercial production of livestock or poultry; (kk) New and used mobile homes and custom manufactured homes; (II) 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 and wall and floor tile manufacturers; (oo) Electricity used for the production of chlorine and other chemicals using a chlor-alkali manufacturing process; (pp) Tangible personal property lawfully purchased with food stamps, food coupons, food instruments or vouchers in connection with certain Federal programs; (qq) Publications sold through regular subscriptions; 4852-0231-0656.2 17 (rr) 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; (ss) Prescriptive durable medical equipment, mobility enhancing equipment and prescriptive disposable medical equipment; (tt) Insulin and test strips for testing blood sugar levels in humans; (uu) Telephone instruments sent into the State for refurbishing or repair and then shipped back to the state of origin; (vv) Industrial metal rollers sent into the State for repair or remanufacture and then shipped back to the state of origin; (ww) 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; (xx) 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; (yy) Parts or other tangible personal property incorporated into or which become a part of commercial jet aircraft component or subcomponent; (zz) Transfer of fill material by a business engaged in transporting or delivering fill material; (aaa) Long-term leases, thirty days or more, of commercial trucks used for interstate transportation of goods under certain conditions; (bbb) Foodstuffs to nonprofit agencies; (ccc) 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; (ddd) Natural gas used as a fuel in the process of manufacturing glass; (eee) Sales to Fort Smith Clearinghouse; (fft) Substitute fuel used in producing, manufacturing, fabrication, assembling, processing, finishing or packaging of articles at manufacturing facilities or processing plants in the State; (ggg) Railroad rolling stock used in transporting persons or property in interstate commerce; (hhh) 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; (iii) 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; (jj) Gas produced from biomass and sold for the purpose of generating energy to be sold to the gas producer; (kkk) Parts or other tangible personal property incorporated into or which become part of commercial jet aircraft components or subcomponents; (111) Catalysts, chemicals, reagents and solutions which are consumed or used in producing, manufacturing, processing or finishing articles of commerce at manufacturing or processing plants in the State; (mmm) Fuel packaging materials sold to persons engaged in the business of processing hazardous and non -hazardous waste materials into fuel products; (nnn) Instructional materials used in public schools; and (000) Livestock reproduction equipment and substances used in livestock reproduction. 4852-0231-0656.2 l8 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 fuel) 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; (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; (0 Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing 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) Modular homes constructed with materials on which the sales or use tax has once been paid; 4852-0231-0656.2 19 (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 $2,500; 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 Revenues of the State (the "Commissioner") 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 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 terms 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 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" means Bonds in addition to the Series 2005 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, 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 from sources other than Sales and Use Tax receipts. "Authorized Representative" means either the Mayor or the 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. 4852-0231-0656.2 20 "Authorizing Ordinance" means Ordinance No. adopted by the City on October —, 2005, which authorized the issuance of the Series 2005 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 2005 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 is limited to the extent described under the caption "THE SERIES 2005 BONDS —Additional Bonds" herein. "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. "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, 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, 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 4852-0231-0656.2 21 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 October 1, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any 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 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; and (f) other forms of investments approved in writing by [BOND INSURER], including the 2005A Surety Bond and the 2005B Surety Bond. "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 VII 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. 4852-0231-0656.2 22 "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. "2005A Policy" means "2005B Policy" means "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; (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. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 4852-0231-0656.2 23 r (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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of the Indenture, the Reserve Requirement may be satisfied by the deposit of cash or by the deposit of Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. "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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued in the original aggregate principal amount of [$26,235,000]*. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 20058, issued in the original aggregate principal amount of $65,000,000*. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture. "2005A Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "2005B Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "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 Administrative Services Director of the City, for a full statement thereof. * Preliminary; subject to change. 4852.0231-0656.2 24 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 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein Debt Service Reserve Fund, and a Series 2005A Account and a Series 20058 Account therein Redemption Fund Project Fund Cost of Issuance Fund Rebate Fund Application ofSales 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, 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, commencing no later than December 31, 2005, there shall be transferred from the Revenue Fund (i) into the Series 2005A Interest Account and the Series 2005B Interest Account of the Bond Fund, an amount equal to 1/6 of the interest on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next interest payment date, and (ii) into the Series 2005A Principal Account and the Series 2005B Principal Account of the Bond Fund, an amount equal to 1/12 of the principal on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next principal payment date. Moneys in the Bond Fund shall be used solely for the purpose of paying Annual Debt Service on the Bonds 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 then Outstanding in accordance with the Indenture, together with the required fees and expenses to be paid or 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) 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. 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. (e) 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 4852-0231-0656.2 25 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 appropriate Principal Account(s) of the Bond Fund at such times as may be necessary to effectuate redemptions of the Bonds on the first available redemption date. All Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS" herein. (f) Project Fund. A portion of the proceeds of the Series 2005 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 the corresponding series of Bonds by redemption or purchase. See the caption "THE SERIES 2005 Bonds — Redemption" herein. (g) Cost of Issuance Fund. A portion of the proceeds of the Series 2005 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 Accounts of the Bond 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. 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. 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. 4852-0231-0656.2 26 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. In the case of any defeasance of Bonds, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. 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; (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 4852-0231-0656.2 27 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: (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 4852-0231-0656.2 28 (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 (I) 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. 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 2005 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, 2006, 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 4852-0231-0656.2 29 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 2005 Bonds; (vii) Modifications to rights of Bondowners; (viii) Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2005 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 2005 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2005 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 person" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2005 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 2005 Bonds, including Persons holding Series 2005 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. 4852-0231-0656.2 30 0 "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 2005 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 2005 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2005 Bonds. UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), (i) the Series 2005A Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005A Bonds [plus][less] a net reoffering [premium][discount] of $ and less an underwriting discount of $) ) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005A Bonds, and (ii) the Series 2005B Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005B Bonds [plus][less] a net reoffering [premium][discount] of $ and less an underwriting discount of $) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005B Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2005 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2005 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 2005 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 2005 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 2005 Bonds to the public, and may offer the Series 2005 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 2005 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 and to exclude from the scope of the agreement any financial advisory services relating to the Series 2005 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 third preceding paragraph] 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 2005 Bonds is excluded from the 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 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 4852-0231-0656.2 31 0 Notwithstanding Bond Counsel's opinion that interest on the Series 2005 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 their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Series 2005 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2005 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 2005 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 2005 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 2005 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 2005 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 2005 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. Original Issue Discount. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Discount Bonds") are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above. The amount of original issue discount which is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of any particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Original Issue Premium. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Premium Bonds") are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser's yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser's basis in such Premium Bond is reduced 4852-0231-0656.2 32 by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. State Taxes. Bond Counsel is of the opinion that, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2005 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 2005 Bonds the rating of "AAA" based on the delivery of the by and has assigned an underlying rating of""to to the Series 2005 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 2005 Bonds. Neither the City nor the Underwriter has undertaken any responsibility subsequent to the issuance of the Series 2005 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 2005 Bonds. LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2005 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 2005 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 2005 Bonds or questioning or affecting the legality of the Series 2005 Bonds or the proceedings and authority under which the Series 2005 Bonds are to be issued, or questioning the right of the City to issue the Series 2005 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 Sales and Use Tax or the City's ability to pay debt service with respect to the Series 2005 Bonds. 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 2005 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. 4852-0231-0656.2 33 The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, Arkansas. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor 4852-0231-0656.2 34 APPENDIX A Proposed Form of Bond Counsel 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 1 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§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_, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November I, 2005 (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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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. 4852-0231-0656.2 A -I 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: I. 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(I4), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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 ofjudicial discretion in appropriate cases. Very truly yours, 4852-0231-0656.2 A-2 KUTAK ROCK LLP DRAFT 09/27/05 CITY OF FAYETTEVILLE, ARKANSAS to SIMMONS FIRST TRUST COMPANY, N.A. as Trustee TRUST INDENTURE Dated as of November 1, 2005 Providing for: [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,0000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 4838-2657-8944.2 TABLE OF CONTENTS (This Table of Contents is not a part of the Trust Indenture and is only for convenience of reference.) Page No. Parties.............................................................................................................................................. 1 Recitals............................................................................................................................................1 GrantingClauses............................................................................................................................. 2 ARTICLE I DEFINITIONS Section101. Definitions........................................................................................................ 4 Section 102. Use of Words................................................................................................. 11 ARTICLE II THE BONDS Section 201. Security for the Bonds................................................................................... 11 Section 202. Authorized Amount....................................................................................... 12 Section 203. Details of the Bonds....................................................................................... 12 Section204. Forms............................................................................................................. 13 Section205. Payment.......................................................................................................... 13 Section206. Execution....................................................................................................... 14 Section 207. Authentication................................................................................................ 14 Section 208. Delivery of the Bonds.................................................................................... 14 Section 209. Mutilated, Destroyed or Lost Bonds.............................................................. 16 Section 210. Registration and Transfer of Bonds............................................................... 17 Section 211. Cancellation................................................................................................... 18 Section 212. Additional Bonds........................................................................................... 18 Section 213. Superior Obligations Prohibited.................................................................... 18 Section 214. [RESERVED]................................................................................................ 19 Section 215. Temporary Bonds........................................................................................... 19 Section 216. Book -Entry Bonds; Securities Depository..................................................... 19 ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section Section302. 301. Redemption of the Bonds............................................................................... Notice............................................................................................................. 20 21 Section Section Section Section 303. 304. 305. 306. Selection of Bonds to be Redeemed.............................................................. Surrender of Bonds Upon Redemption.......................................................... Redemption in Part........................................................................................ Redemption of Additional Bonds.................................................................. 21 22 22 22 ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest ..................................... 22 Section 402. Performance of Covenants............................................................................. 23 4838-2657-8944.2 i Section Section Section Section Section Section 403. 404. 405. 406. 407. 408. Instruments of Further Assurance.................................................................. Recordation and Filing................................................................................... Inspection of Books....................................................................................... Tax Covenants............................................................................................... Trustee's and Paying Agent's Fees and Expenses ......................................... Construction of Project; Certification of Completion Date ........................... 23 23 23 23 24 24 Section Section 409. 410. Encumbrances................................................................................................ Continuing Disclosure......................................................................... 24 24 ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts.................................................................... 25 Section502. Project Fund...................................................................................................25 Section 503. Revenue Fund................................................................................................ 26 Section504. Bond Fund...................................................................................................... 27 Section 505. Cost of Issuance Fund.................................................................................... 28 Section 506. Redemption Fund........................................................................................... 28 Section 507. Rebate Fund................................................................................................... 29 Section 508. Debt Service Reserve Fund............................................................................ 30 Section 509. Cessation of Fund Deposits........................................................................... 30 Section 510. Separate Accounts Authorized....................................................................... 30 ARTICLE VI INVESTMENTS Section Section Section Section 601. 602. 603. 604. Investment of Moneys.................................................................................... Investment Earnings....................................................................................... Valuation of Funds......................................................................................... Responsibility of Trustee............................................................................... 31 31 31 31 ARTICLE VII DISCHARGE OF LIEN Section Section 701. 702. Discharge of Lien........................................................................................... Bonds Deemed Paid....................................................................................... 31 32 Section 703. Non -Presentment of Bonds...... .. ... . ................................. ....................... ........ 32 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section Section802. Section Section 801. 803. 804. Events of Default........................................................................................... Acceleration................................................................................................... Other Remedies; Rights of Bondholders....................................................... Right of Bondholders to Direct Proceedings ................................................. 33 33 34 34 Section Section806. Section Section 805. 807. 808. Appointment of Receiver............................................................................... Waiver............................................................................................................ Application of Moneys.................................................................................. Remedies Vested in Trustee.............. 34 35 35 36 4838-2657-89442 ii Section 809. Rights and Remedies of Bondholders............................................................ 36 Section 810. Termination of Proceedings........................................................................... 37 Section 811. Waivers of Events of Default......................................................................... 37 ARTICLE IX TRUSTEE AND PAYING AGENTS Section Section 901. 902. Acceptance of Trusts...................................................................................... Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's 37 Section Section Section Section Section Section Section Section Section Section Section 903. 904. 905. 906. 907. 908. 909. 910. 911. 912. 913. PriorLien....................................................................................................... Additional Duties of Trustee.......................................................................... Notice to Bondholders of Default.................................................................. Intervention by Trustee.................................................................................. Merger or Consolidation of Trustee............................................................... Resignation by Trustee.................................................................................. Removal of Trustee........................................................................................ Appointment of Successor Trustee................................................................ Concerning Any Successor Trustee............................................................... Reliance Upon Instrurnents............................................................................ Appointment of Co-Trustee........................................................................... Designation and Succession of Paying Agents.......................43 39 40 41 41 41 41 41 41 42 42 42 ARTICLE X SUPPLEMENTAL INDENTURES Section Section Section 1001. 1002. 1003. Supplemental Indentures Not Requiring Consent of Bondholders ................ Supplemental Indentures Requiring Consent of Bondholders ....................... Effect of Supplemental Indentures................................................................. 43 44 45 ARTICLE XI MISCELLANEOUS Section 1101. Consents, etc. of Bondholders....................................................................... 45 Section1102. Notices........................................................................................................... 45 Section 1103. Limitation of Rights....................................................................................... 46 Section 1104. Severability.................................................................................................... 46 Section 1105. Applicable Provisions of Law........................................................................ 46 Section 1106. Counterparts...................................................................................................46 Section 1107. Successors and Assigns.................................................................................. 47 Section1108. Captions......................................................................................................... 47 Section 1109. Photocopies and Reproductions..................................................................... 47 Section 1110. Bonds Owned by the City.............................................................................. 47 Exhibit A Form of Series 2005A Bond......................................................................... A-1 Exhibit B Form of Series 2005B Bond......................................................................... B-1 Exhibit C Form of Coverage Certificate....................................................4.4................ C-1 ExhibitD Requisition Form.......................................................................................... D-1 4838-2657-8944.2 iii TRUST INDENTURE THIS TRUST INDENTURE, dated as of November 1, 2005, 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 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, the City Council of the City has determined that there is a great need for a source of revenue to finance all or 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 people of the State of Arkansas (the "State") by the adoption of Amendment No. 62 to the Constitution of the State, approved November 6, 1984 ("Amendment 62"), have authorized cities and counties in the State to issue bonds, upon voter approval, to finance and refinance certain capital improvements of a public nature, and to secure said bonds by a pledge of the proceeds of certain taxes; and WHEREAS, the provisions of Amendment 62 have been implemented by the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq. (as from time to time amended, the "Act"); and WHEREAS, pursuant to the provisions of Ordinance No. 4327, duly adopted by the City Council of the City 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 principal amount of capital improvement bonds pursuant to Amendment 62 and the Act to finance the Project, 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 at the rate of three-quarters of one percent (0.75%) levied pursuant to the 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 aforementioned question approved the issuance of the capital improvement bonds and the corresponding levy of the Sales and Use Tax and pledge of Sales and Use Tax receipts to the payment of the capital improvement bonds; and WHEREAS, pursuant to ordinances of the City and in accordance with Amendment 62 and the Act, the City has previously issued (i) its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (ii) its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"); and 4838-2657.8944.2 • • WHEREAS, the Series 2002 Bonds have been redeemed in full from receipts of the Sales and Use Tax and the Series 2004 Bonds presently remain outstanding in the aggregate principal amount of [$26,235,000]; and WHEREAS, pursuant to the provisions of Ordinance No. of the City, adopted by the City Council on October _, 2005 (the "Authorizing Ordinance"), and in accordance with the provisions of Amendment 62 and the Act, the City proposes to issue (i) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), in the aggregate principal amount of [$26,235,000], and (ii) its Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), in the aggregate principal amount of $65,000,000, in order to accomplish an advance refunding of the outstanding Series 2004 Bonds and to provide for the financing of a portion of the Project; and WHEREAS, the City has determined to enter into this Indenture to authorize the issuance of and to secure the Series 2005 Bonds by granting to the Trustee a pledge and assignment of the interests and other rights herein contained, and certain funds and accounts created hereby; and WHEREAS, the Series 2005 Bonds are to be dated, bear interest, mature and be subject to redemption as hereinafter in this Indenture set forth in detail; and WHEREAS, provision is made in this Indenture for the issuance of Additional Bonds (hereinafter defined) upon compliance with certain conditions set forth herein; and WHEREAS, the execution and delivery of this Indenture and the issuance of the Series 2005 Bonds have been in all respects duly and validly confirmed, authorized and approved under the provisions of the Authorizing Ordinance; and WHEREAS, all things necessary to make the Series 2005 Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the City according to the import thereof, and to constitute this Indenture a valid pledge of the Sales and Use Tax receipts to the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds, as specified in and in accordance with the provisions hereof, have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution, issuance and delivery of the Series 2005 Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS INDENTURE WITNESSETH: That the City, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Series 2005 Bonds by the Holders and owners thereof, and the sum of Ten Dollars ($10.00), lawful money of the United States of America, to it duly paid by the Trustee, at or before the execution and delivery of these 4838-2657-8944.2 2 0 I presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds and all Additional Bonds (hereinafter defined), if any, according to their tenor and effect, and to secure the performance and observance by the City of all the covenants expressed or implied herein and in the Series 2005 Bonds and Additional Bonds (collectively, the "Bonds"), does hereby grant, bargain, sell, convey, mortgage, assign, transfer and pledge unto the Trustee, and unto its successor or successors in trust, and to them and their assigns forever, for the securing of the performance of the obligations of the City hereinafter set forth the following: I. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, (i) the proceeds of the sale of the Bonds, (ii) all receipts from the Sales and Use Tax, which are hereby irrevocably assigned and pledged to secure all obligations under this Indenture, and (iii) the Revenue Fund, Bond Fund, Debt Service Reserve Fund (subject to the limitations set forth in Section 508 hereof), Project Fund and Redemption Fund established by this Indenture, including the investment earnings thereon, if any. 2. Any and all other properties, rights and interests of every kind and nature from time to time which have been, are hereby, or hereafter are, by delivery or by writing or transfer of any kind, conveyed, mortgaged, pledged, assigned or transferred, as and for additional security hereunder, by the City or by any other Person, firm or corporation, or with the written consent of the City, to the Trustee, which is hereby authorized to receive any and all such properties, rights and interests at any time and at all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all the same (the "Trust Estate") with all privileges and appurtenances hereby conveyed and assigned, or agreed or intended so to be, to the Trustee and its successors in said trusts and to them and their assigns forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all owners of the said Bonds issued under and secured by this Indenture without privilege, priority or distinction as to lien or otherwise of any of the Bonds over any of the other Bonds; provided, however, that if the City, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, premium, if any, and interest due on the Bonds, at the times and in the manner provided in the Bonds, according to the true intent and meaning thereof, and shall make the payments as required under this Indenture or shall provide, as permitted hereby, for the payment thereof by depositing or causing to be deposited with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of this Indenture to be kept, and shall pay to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon such final payments or deposits this 4838-2657-8944.2 3 • i Indenture and the lien and rights hereby granted shall cease, determine and be void; otherwise, this Indenture is to be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH that, and it is expressly declared that, all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all revenues and income hereby pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the City has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective owners from time to time of the Bonds or any part thereof, as follows, that is to say: ARTICLE I DEFINITIONS Section 101. Definitions. In addition to the words and terms elsewhere defined in this Indenture, the following words and terms as used in this Indenture shall have the following meanings: "Account" means an Account established by Article V of this Indenture. "Act" means the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" mean Bonds in addition to the Series 2005 Bonds which are issued under the provisions of Section 212 of this 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, 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 from sources other than Sales and Use Tax receipts. "Authorized Representative" means either the Mayor or the 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 _, 2005, which authorized the issuance of the Series 2005 Bonds pursuant to this 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 4838.2657.8944.2 4 0 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 Section 501 of this Indenture. "Bonds" mean the Series 2005 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 is limited to the extent described in Section 212 hereof. "Book -Entry System" means the book -entry system maintained by the Securities Depository described in Section 216 of this 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. "City Clerk" means the person holding the office and performing the duties of the City Clerk of the City. "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. "Completion Date" means the date upon which the Project (or portion thereof) is first ready for normal continuous operation, as determined by a Qualified Engineer. "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 4838-2657-8944.2 5 • « 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 Section 501 of this Indenture. "Debt Service" means, with respect to all or any particular amount of Bonds, 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, 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 Section 501 of this 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 hereof. "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 Article V of this 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 this Trust Indenture dated as of November 1, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any amendments and supplements hereto. 4838-2657-8944.2 6 • 0 "Investment Securities" means, if and to the extent the same are at the time legal for investment of Funds and Accounts held under this 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 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; (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; and (f) other forms of investments approved in writing by [BOND INSURER], including the 2005A Surety Bond and the 2005B Surety Bond. "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 this 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; 4838-2657-8944.2 7 (b) Bonds deemed to be paid in accordance with Article VII of this Indenture; (c) Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to this 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. "2005A Policy" means "2005B Policy" means "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 this 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; (d) all other costs incurred in connection with, and properly allocable to, the acquisition, construction and equipping of the Project; and 4838-2657-8944.2 8 (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 Section 501 of this Indenture. "Qualified Engineer" means an independent consulting engineer or firm of independent consulting engineers not in the regular employ of the City. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 Section 501 of this 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 Section 501 of this 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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of this Indenture, the Reserve Requirement may be satisfied by cash or by Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. 4838-2657-8944.2 9 0 • "Revenue Fund" means the fund by that name created and established in Section 501 of this 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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued under and secured by this Indenture in the original aggregate principal amount of [$26,235,000]. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued under and secured by this Indenture in the original aggregate principal amount of $65,000,000. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of this Indenture, adopted by the City in accordance with Article X hereof. ["2005A Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein.] ["2005B Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein.] "Surplus Tax Receipts" shall have the meaning ascribed to such term in Section 503 hereof. "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 4838-2657-8944.2 10 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 this Indenture. Section 102. Use of Words. Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond", "owner", "holder" and "person" shall include the plural, as well as the singular, number. ARTICLE II THE BONDS Section 201. Security for the Bonds. (a) The Bonds are special and limited obligations of the City payable as to principal, premium, if any, and interest solely out of the Trust Estate. The Trust Estate is hereby pledged, appropriated and assigned to the payment of the principal of, premium, if any, and interest on the Bonds, all in accordance with their terms and the provisions of this Indenture. The Bonds do not constitute an indebtedness for which the faith and credit of the State of Arkansas or the City is pledged within the meaning of any Constitutional or statutory limitation. The Bonds shall never constitute an obligation of or a charge against the general credit or general taxing powers of the City. (b) The pledge, charge, lien, trusts and assignments made herein with respect to the Trust Estate shall be valid and binding, and shall be deemed continuously perfected from the time of issuance of the Series 2005 Bonds, and the Trust Estate shall thereupon be immediately subject to the pledge, charge, lien, trust and assignment created hereby upon receipt thereof by or for the City or by the Trustee or the Paying Agent hereunder, without any physical delivery, segregation thereof or further act, and such pledge, charge, lien, trust and assignment shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice thereof. (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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to the application of such Surplus Tax Receipts to the redemption of Bonds of other series prior to maturity. (d) So long as any Bonds are Outstanding under the provisions of this Indenture, all receipts derived from the Sales and Use Tax shall be deemed to be necessary to accomplish the purposes of the City and shall be subject to the covenants and agreements set forth in this 4838-2657-8944.2 11 • • Indenture, and no such revenues or receipts shall ever be used or deposited otherwise except as herein expressly permitted. (e) The City covenants, as permitted by the Act, that while any of the Bonds are Outstanding it will use due diligence in causing the collection of the Sales and Use Tax. Nothing herein shall prohibit the City from increasing any sales and use tax from time to time, to the extent permitted by law, and no part of the revenues or receipts derived by the City from any such increase shall become part of the receipts derived from the Sales and Use Tax unless authorized and pledged by a Supplemental Indenture. Section 202. Authorized Amount. There is hereby authorized the issuance of bonds of the City to be designated (1) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" in the principal amount of [Twenty -Six Million Two Hundred Thirty -Five Thousand Dollars ($26,235,000)] (the "Series 2005A Bonds") and (2) "Sales and Use Tax Capital Improvement Bonds, Series 2005B" in the principal amount of Sixty -Five Million Dollars ($65,000,000) (the "Series 2005B Bonds"). No Bonds may be issued under the provisions of this Indenture except in accordance with this Article II. The total principal amount of Bonds that may be issued hereunder is hereby limited to the extent described in Section 212 hereof, except as provided in Section 209 and except for refunding bonds issued under the provisions of Section 212 hereof. Section 203. Details of the Bonds. (a) The Series 2005A Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A," (ii) shall be in the aggregate principal amount of [$26,235,000], (iii) shall be dated as of November 1, 2005, (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, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05A-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 1 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 2005A Bonds: Year (December 1) Principal Amount Interest Rate 2006 $ % 2007 % 2008 % 2009 % 2010 % (b) The Series 2005B Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B," (ii) shall be in the aggregate principal amount of $65,000,000, (iii) shall be dated as of November 1, 2005, (iv) shall bear interest from such date at the rates hereinafter provided until paid, payable semiannually on 4838-2657-8944.2 12 • 0 June 1 and December I of each year, commencing June 1, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05B-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 1 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 2005B Bonds: Year (December 1) Principal Amount Interest Rate 2010 $ % 2011 % 2012 % 2013 % 2014 % 2015 2016 2017 2018 Section 204. Forms. (a) The Series 2005A 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 2005A Bonds, except upon the occurrence of the events described in Section 216 hereof. 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 2005A Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit A hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. (a) The Series 2005B Bonds shall be initially issued as fully registered Bonds, without coupons, in the form of nine 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 2005B Bonds, except upon the occurrence of the events described in Section 216 hereof. 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 2005B Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit B hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. Section 205. Payment. The Bonds shall be payable, with respect to principal, premium, if any, and interest in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. The principal of and premium, if any, on the Bonds shall be payable upon surrender thereof at the principal 4838-2657-8944.2 13 corporate trust office of the Trustee. Payment of interest on each Bond shall be made by check or draft mailed to the registered owner of such Bond as of the applicable Record Date at his address as it appears on the registration books maintained by the Trustee. For purposes of this Indenture, interest on the Bonds shall be deemed to accrue on the basis of a 360 -day year of twelve 30 -day months. So long as the Securities Depository or its nominee is the sole registered owner of the Bonds, payment of interest thereon shall be made by wire transfer of immediately available funds by the Paying Agent to the Securities Depository or its nominee. Section 206. Execution. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor and City Clerk and shall have impressed or imprinted thereon the seal of the City. A facsimile signature shall have the same force and effect as if manually signed. In case any officer whose manual signature or a facsimile of whose signature shall appear on the Bonds shall cease to be such officer before the delivery of such Bonds, such signature or such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such official had remained in office until delivery. Section 207. Authentication. Only such Bonds as shall have endorsed thereon a certificate of authentication substantially in the form set forth in Exhibit A or Exhibit B attached hereto duly executed by the Trustee shall be entitled to any right or benefit under this Indenture. No Bond shall be valid and obligatory for any purpose unless and until such certificate of authentication shall have been duly executed by the Trustee, and such certificate of the Trustee upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed if signed by an authorized officer of the Trustee, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds issued hereunder. Section 208. Delivery of the Bonds. The City shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds of any series and deliver said Bonds to the Securities Depository as may be directed in this Section 208, in Section 212 hereof or in any Supplemental Indenture. (a) Prior to the delivery or original issuance by the Trustee of any authenticated Bonds of any series, there shall be delivered to the Trustee: (1) An original executed counterpart of this Indenture or, in the case of Additional Bonds, a Supplemental Indenture by and between the City and the Trustee setting forth the details concerning such Additional Bonds; (2) Original executed counterparts of the Continuing Disclosure Agreement and the Tax Regulatory Agreement applicable to such series of Bonds; (3) A Certificate directing the Trustee to authenticate the Bonds and containing instructions as to the delivery of the Bonds upon payment to the Trustee, for the account of the City, of a sum specified in such Certificate; 4838-2657-8944.2 14 0 0 (4) A copy, duly certified by the City Clerk, of the proceedings of the City authorizing the levy of the Sales and Use Tax and the issuance of the Bonds; (5) A written opinion of Bond Counsel approving the legality of the Bonds; (6) In the case of any series of Additional Bonds, a Certificate signed by the Mayor of the City certifying that (i) the City is not then in default in the performance of any of the covenants, conditions, agreements or provisions contained in this Indenture, and (ii) the City is current as to all required deposits at that time in all the Funds and Accounts described in Article V of this Indenture or hereafter created by Supplemental Indentures, or if the City is in default or is not so current, certifying in the case of (i) or (ii) as to that fact and that, upon the application of the proceeds of the sale of such Additional Bonds as provided in the Supplemental Indenture authorizing the issuance thereof, the City will not be in default or will be current thereafter; (7) In the case of any series of Additional Bonds, a written opinion of Bond Counsel to the effect that the exemption from federal income tax of the interest on the Series 2005 Bonds and any Additional Bonds theretofore issued will not be adversely affected by the issuance of the Additional Bonds being issued; and (8) Such further documents and certificates as may be required by the Original Purchaser of such series of Bonds. (b) Simultaneously with the delivery of the Series 2005A Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005A Bonds shall be deposited in the Series 2005A Account of the Bond Fund; (2) $ shall be transferred to [BOND INSURER] in order to purchase the 2005A Surety Bond, which shall be deposited in the Series 2005A Account of the Debt Service Reserve Fund; (3) $ shall be transferred to [BOND INSURER] in payment of the premium on the 2005A Policy; (4) An amount equal to $ shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) An amount sufficient, together with moneys held by Simmons First Trust Company, N.A., as trustee for the Series 2004 Bonds, in funds and accounts created by the trust indenture securing the Series 2004 Bonds, to refund the Series 2004 Bonds shall be deposited in Trust with Simmons First Trust Company, N.A., as escrow trustee (the 2004 Escrow Trustee"), in accordance with the provisions of an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005A Bonds (the "2004 Escrow Agreement"), by and between the City and the 2004 Escrow Trustee. The 2004 Escrow Agreement shall provide for the investment of the funds, to the extent feasible, in 4838-2657-8944.2 15 Government Securities which will mature and bear interest at such times and in such amounts as will, together with any uninvested moneys held by the 2004 Escrow Trustee, provide sufficient moneys to pay as due at maturity and upon redemption prior to maturity as provided in the 2004 Escrow Agreement, all principal of and premium, if any, and interest on the Series 2004 Bonds. The 2004 Escrow Agreement will provide for the giving of notice of redemption prior to maturity of the Series 2004 Bonds, for the payment of required trustee and paying agent fees on the Series 2004 Bonds, and for the release of all claims of the Series 2004 Bonds on the Trust Estate; and (6) The balance of said proceeds, in the amount of $ , shall be deposited in the Series 2005A Account of the Project Fund. (c) Simultaneously with the delivery of the Series 2005B Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005B Bonds shall be deposited in the Series 2005B Account of the Bond Fund; (2) $ shall be transferred to [BOND INSURER] in order to purchase the 2005B Surety Bond, which shall be deposited in the Series 2005B Account of the Debt Service Reserve Fund; (3) $ shall be transferred to [BOND INSURER] in payment of the premium on the 2005B Policy; (4) An amount equal to $ shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) The balance of said proceeds, in the amount of $ , shall be deposited in the Series 2005B Account of the Project Fund. Section 209. Mutilated, Destroyed or Lost Bonds. In case any Bond issued hereunder shall become mutilated or be destroyed or lost, the City shall, if not then prohibited by law, cause to be executed and the Trustee may authenticate and deliver a new Bond of like series, date, number, maturity and tenor in exchange and substitution for and upon cancellation of such mutilated Bond, or in lieu of and in substitution for such Bond destroyed or lost, upon the Holder's paying the reasonable expenses and charges of the City and the Trustee in connection therewith, and, in the case of a Bond destroyed or lost, filing by the Holder with the Trustee evidence satisfactory to the Trustee that such Bonds were destroyed or lost, and of the Holder's ownership thereof, and furnishing the City and Trustee with indemnity satisfactory to them. The Trustee is hereby authorized to authenticate any such new Bond. In the event any such Bonds shall have matured, instead of issuing a new Bond, the City may pay the same without the surrender thereof. Upon the issuance of a new Bond under this Section 209, the City may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. 4838-2657-8944.2 16 Section 210. Registration and Transfer of Bonds. The City hereby constitutes and appoints the Trustee as Bond registrar of the City, and as Bond registrar the Trustee shall keep books for the registration and for the transfer of the Bonds as provided in this Indenture at the principal corporate trust office of the Trustee. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and payment of or on account of the principal of and interest on any such Bond shall be made only to or upon the order of the registered owner thereof, or the owner's legal representative, and neither the City, the Trustee nor the Bond registrar shall be affected by any notice to the contrary, but such registration may be changed as herein provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. 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. Bonds may be exchanged at the principal corporate trust office of the Trustee for an equal aggregate principal amount of Bonds of any other authorized denomination or denominations of the same series with corresponding maturities. The City shall execute and the Trustee shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive, bearing numbers not contemporaneously then outstanding. The execution by the City of any Bond of any denomination shall constitute full and due authorization of such denomination and the Trustee shall thereby be authorized to authenticate and deliver such Bond. Such 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. If the Securities Depository or its nominee is the sole registered owner of the Bonds, transfers of ownership and exchanges shall be effected on the records of the Securities Depository and its Participants pursuant to rules and procedures established by the Securities Depository and its Participants. In such case, the Trustee shall deal with the Securities Depository as representative of the Beneficial Owners of the Bonds for purposes of exercising the rights of Bondholders hereunder, and the rights of the Beneficial Owners of such Bonds held by the Securities Depository or its nominee shall be limited to those established by law and agreements between such Beneficial Owners and the Securities Depository and its Participants. 4838-2657.8944.2 17 Requests, consents and directions from, and votes of, the Securities Depository or its nominee as representative shall not be deemed inconsistent if they are made with respect to different Participants or Beneficial Owners. Section 211. Cancellation. All Bonds surrendered for payment, redemption, transfer or exchange, if surrendered to the Trustee, shall be promptly cancelled by it, and, if surrendered to any person other than the Trustee, shall be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The City may at any time deliver to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder, which the City may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Trustee. All cancelled Bonds held by the Trustee shall be disposed of as directed by the City. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee may, upon the written request of the City, in lieu of such cancellation and delivery, destroy such Bonds in the presence of any officer of the City (but only if the City shall so require), and deliver a certificate of such destruction to the City. Section 212. Additional Bonds. 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 acquisition, construction, reconstruction, extension, improving or equipping of the Project, (ii) refunding the Series 2005 Bonds or any series of Additional Bonds, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the Series 2005 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 this 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 a particular series of Bonds. Before any Additional Bonds are authenticated, there shall be delivered to the Trustee the items required for the issuance of Bonds by Section 208 hereof, plus a Certificate of the Finance and Internal Services Director of the City (in the form attached as Exhibit C hereto) certifying that, based upon necessary investigation, the Sales and Use Tax receipts transferred to the Trustee for deposit to the Revenue Fund during the most recent twelve (12) months were not less than (i) 125% of the maximum Annual Debt Service on all then Outstanding Bonds, 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. Notwithstanding anything herein to the contrary, no Additional Bonds shall be issued unless there is no default at the time of issuance under this Indenture. Section 213. Superior Obligations Prohibited. Except to the extent permitted in Section 212 hereof for the issuance of Additional Bonds, from and after the issuance of any of the Bonds and for so long as any of the Bonds are Outstanding, the City shall not create or permit the creation of any indebtedness, or issue any bonds, notes, warrants, certificates or other obligations or evidences of indebtedness payable in any manner from the Sales and Use Tax receipts or otherwise from the Trust Estate which (i) will in any way be superior to or rank on a parity with the Bonds, or (ii) will in any way be secured by a lien and charge on the Sales and Use Tax receipts or on the moneys deposited in or to be deposited in the Revenue Fund, prior to or equal with the lien, pledge and charge created herein for the security of the Bonds, or (iii) will be payable prior to or equal with the payments to be made from the Sales and Use Tax receipts 4838.2657-8944.2 18 and the Revenue Fund into the Bond Fund, Debt Service Reserve Fund and Redemption Fund or from said Bond Fund, Debt Service Reserve Fund and Redemption Fund for the payment of the Bonds. Section 214. [RESERVED]. Section 215. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the City may execute, and upon the request of the City, the Trustee shall authenticate and deliver,' subject to the provisions, limitations and conditions set forth herein, one or more Bonds in temporary form, whether printed, typewritten, lithographed or otherwise produced, substantially in the form of the definitive Bonds, with appropriate omissions, variations and insertions, and in authorized denominations. Until exchanged for Bonds in definitive form, such Bond in temporary form shall be entitled to the lien and benefit of this Indenture. Upon the presentation and surrender of any Bond or Bonds in temporary form, the City shall, without unreasonable delay, prepare, execute and deliver to the Trustee and the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds in definitive form. Such exchange shall be made by the Trustee without making any charge therefor to the Holder of such Bond in temporary form. Section 216. Book -Entry Bonds; Securities Depository. The Bonds shall initially be registered to Cede & Co., the nominee for The Depository Trust Company, New York, New York (the "Securities Depository"), and no Beneficial Owner will receive certificates representing their respective interests in the Bonds, except in the event the Trustee issues replacement bonds as provided in this Section 216. It is anticipated that during the term of the Bonds, the Securities Depository will make book -entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Trustee authenticates and delivers replacement bonds to the Beneficial Owners as described in the following paragraph. If the City or the Trustee determines (A) that the Securities Depository is unable to properly discharge its responsibilities, or (B) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, or (C) that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, or (2) if the Trustee receives written notice from Participants representing interests in not less than 50% of the Bonds Outstanding, as shown on the records of the Securities Depository (and certified to such effect by the Securities Depository), that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, then the Trustee shall notify the Bondholders of such determination or such notice and of the availability of certificates to Bondholders requesting the same, and the Trustee shall register in the name of and authenticate and deliver replacement bonds to the Beneficial Owners or their nominees in principal amounts representing the interest of each; provided, that in the case of a determination under (A) or (B) of this paragraph, the City or the Trustee may select a successor securities depository in accordance with the following paragraph to effect book -entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has 4838-2657-8944.2 19 possession of at least one Bond. Upon the issuance of replacement bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such replacement bonds. If the Securities Depository resigns and the City, the Trustee or Bondholders are unable to locate a qualified successor of the Securities Depository in accordance with the following paragraph, then the Trustee shall authenticate and cause delivery of replacement bonds to Bondholders, as provided herein. The Trustee may rely conclusively on information from the Securities Depository and its Participants as to the names and addresses of the Beneficial Owners of the Bonds. The cost of printing, registration, authentication, and delivery of replacement bonds shall be paid for by the City. In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, the City may appoint a successor Securities Depository provided the Trustee receives written evidence satisfactory to the Trustee with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities and Exchange Act of 1934, as amended, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Trustee upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of Bonds to the successor Securities Depository in appropriate denominations and form as provided herein. ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section 301. Redemption of the Bonds. (a) The Series 2005A Bonds shall be subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005A 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B 4838-2657-8944.2 20 Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. The Series 2005B Bonds shall be subject to redemption prior to maturity as (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005B 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. Section 302. Notice. Notice of the call for any redemption, identifying the 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 the Securities Depository or its nominee is the sole registered owner of the Bonds, by any other means acceptable to the Securities Depository, including facsimile) to the registered owner of each such 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 Bond with respect to which no such failure or defect has occurred. Any notice mailed as provided in this Section 302 shall be conclusively presumed to have been duly given, whether or not the registered owner receives the notice. Section 303. Selection of Bonds to be Redeemed. If less than all of the Bonds of like series, maturity, interest rate and otherwise identical payment terms shall be called for redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected by lot by the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate; provided, however, that the portion of any Bond of a denomination of larger than the minimum denomination may be redeemed in the principal amount of such minimum denomination or a multiple thereof, and that for purposes of selection and redemption, any such Bond of a denomination larger than the minimum denomination shall be considered to be that number of separate Bonds of such minimum denomination which is obtained by dividing the principal amount of such Bond by such minimum denomination. So long as the Securities Depository or 0 0 its nominee is the sole registered owner of a series of Bonds, the procedures established by the Securities Depository shall control with respect to the selection of the particular Bonds of such series to be redeemed. Section 304. Surrender of Bonds Upon Redemption. Notice having been given in the manner and under the conditions hereinabove provided, and moneys for payment of the redemption price being held by the Trustee as provided in this Indenture (i) the Bonds or portions of Bonds so called for redemption shall, on the date fixed for redemption designated in such notice, become due and payable at the redemption price provided for redemption of such Bonds, and interest on such Bonds or portions of Bonds so called for redemption shall cease to accrue, (ii) upon surrender of the Bonds or portions of Bonds so called for redemption in accordance with such notice, such Bonds or portions of Bonds shall be paid at the applicable redemption price, (iii) such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and (iv) the owners of said Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Section 305. Redemption in Part. Any Bond which is to be redeemed only in part shall be surrendered to the Trustee (with, if the City or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the City and the Trustee duly executed by, the owner thereof or his attorney duly authorized in writing), and the appropriate officials of the City shall execute and the Trustee shall authenticate and deliver to the owner of such Bond, without service charge, a new Bond or Bonds of the same series, of any authorized denomination or denominations, having the same maturity and interest rate as requested by such owner, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. Section 306. Redemption of Additional Bonds. Additional Bonds may be made subject to optional, extraordinary and mandatory sinking fund redemption, in whole or in part, in such manner, at such times and at such prices as may be provided in the Supplemental Indenture providing for their issuance. ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest. The City covenants that it will promptly pay or cause to be paid the principal of and premium, if any, and interest on every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof. The principal, premium, if any, and interest (except interest paid from the proceeds from the sale of the Bonds and accrued interest) are payable solely from the Trust Estate which is hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Bonds or this Indenture should be considered as assigning or pledging any funds or assets of the City other than the Trust Estate. Anything in this Indenture to the contrary notwithstanding, it is understood that whenever the City makes any covenants involving financial commitments it pledges no funds or assets other than the Trust Estate in the manner and 4838-2657-8944.2 22 to the extent herein specified, but nothing herein shall be construed as prohibiting the City from using any other finds or assets. The City covenants to use due diligence in causing the collection of the Sales and Use Tax and the application of Sales and Use Tax receipts in the manner provided in this Indenture. Section 402. Performance of Covenants. The City covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all ordinances pertaining hereto. The City covenants that it is duly authorized under the Constitution and laws of the State of Arkansas, including particularly and without limitation Amendment 62 and the Act, to issue the Bonds authorized hereby and to execute this Indenture and to make the pledge of the Sales and Use Tax receipts and to make the covenants in the manner and to the extent herein set forth, that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken, and that the Bonds in the hands of the Holders and owners thereof are and will be valid and enforceable obligations of the City according to the import thereof. Section 403. 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 hereby pledged or assigned, or intended so to be, or which the City may become bound to pledge or assign. Section 404. Recordation and Filing. To the extent necessary, the City covenants that it will cause this Indenture, such security agreements, financing statements, and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve and protect the security of the owners of the Bonds and the rights of Trustee hereunder, and to perfect the security interest created by this Indenture. Section 405. Inspection of Books. The City shall keep proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the Project and the Funds and Accounts established by this Indenture. Section 406. 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. 4838-2657-8944.2 23 Section 407. Trustee's and Paying Agent's Fees and Expenses. Subject to the provisions of Section 902 hereof, the City hereby agrees and covenants to make payments for the fees, expenses and charges of the Trustee and Paying Agent, if any, as authorized and provided by this Indenture. The City is to make payments on statements rendered by the Trustee and Paying Agent either (i) directly to the Trustee and Paying Agent or (ii) pursuant to Section 503(b) hereof. Section 408. Construction of Project; Certification of Completion Date. The City hereby covenants to use its best efforts to acquire, construct and equip each portion of the Project being partially financed with proceeds of the Bonds with all reasonable dispatch and to use its best efforts to cause the acquisition, construction and equipping of such portion of the Project to be completed as soon as may be practicable, but in any case within a period not to exceed three years after the issuance of the applicable series of Bonds, delays caused by force majeure only excepted, but if for any reason such acquisition, construction and equipping is not completed within said period, there shall be no diminution or postponement of payments required hereunder to be made by the City. Promptly after each such Completion Date, the City shall submit to the Trustee the certificate of a Qualified Engineer which shall specify the Completion Date and shall state that acquisition, construction and equipping of the portion of the Project being financed with a particular series of Bond proceeds has been completed and the Project Costs have been paid, except for any Project Costs which have been incurred but are not then due and payable, or the liability for the payment of which is being contested or disputed by the City, and for the payment of which the Trustee is directed to retain specified amounts of moneys in the Project Fund. Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any rights against third parties which exist at the date thereof or which may subsequently come into being. Section 409. Encumbrances. The City covenants that it will not create or suffer to be created any lien or charge upon the Trust Estate, except in accordance with the provisions of this Indenture. Section 410. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of each Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture to the contrary, failure of the City or the Trustee to comply with the provisions of a Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee may (and at the request of the Original Purchaser of a series of Bonds, the owners of at least 25% in aggregate Outstanding principal amount of such series of Bonds, shall) or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Trustee, as the case may be, to comply with its obligations under this Section 410. For purposes of this Section 410 only, "Beneficial Owner" shall mean any Person which (a) 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, depositories or other intermediaries) or (b) is treated as the owner of Bonds for federal income tax purposes. 4838-2657-8944.2 24 ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts. (a) There are hereby created and established the following Funds and Accounts: (i) Project Fund, and a Series 2005A Account and a Series 2005B Account therein; (ii) Revenue Fund; (iii) Bond Fund, and a Series 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein; (iv) Redemption Fund; (v) Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein; (vi) Cost of Issuance Fund; and (vii) Rebate Fund. (b) All Funds and Accounts shall be held by the Trustee, which shall hold and maintain said Funds and Accounts in trust, for the use and benefit of the Bondholders and the City, but subject to the permitted applications expressed herein. Section 502. Project Fund. (a) The Trustee shall deposit a portion of the proceeds of the Series 2005 Bonds to the credit of the Project Fund in accordance with the written directions of the City given as provided in Section 208 of this Indenture. (b) Moneys credited to the Project Fund shall be expended only as set forth in this Section 502. (c) Amounts in the Project Fund shall be expended and applied for the payment of Project Costs. Disbursements shall be made from the Project Fund on the basis of consecutively numbered Requisitions in the form attached hereto as Exhibit D signed by an Authorized Representative. Requisitions may be submitted to the Trustee by certified mail, first class mail or facsimile transmission. If the Trustee deems that a Requisition submitted by the City is sufficient pursuant to this Section 502, the amount requested thereunder shall be disbursed in payment of the Project Costs set forth therein, or in reimbursement of such Project Costs, within two (2) business days of the date of receipt of such Requisition by the Trustee. Moneys in the Series 2005A Account of the Project Fund shall be fully disbursed prior to any disbursements from the Series 2005B Account of the Project Fund. Each Requisition shall specify: 4838-2657-8944.2 25 (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. (d) The Trustee shall keep full and complete records concerning and reflecting all disbursements from the Project Fund and shall file an accounting of said disbursements if and when requested by the City. The Trustee shall only make payments from the Project Fund pursuant to and in accordance with Requisitions. In making payments from the Project Fund, the Trustee may rely on any Requisitions delivered to it pursuant to this Section 502, and the Trustee shall be relieved of all liability relating to payments made in accordance with such Requisitions and any supporting certificate or certificates requested by the Trustee without physical inspection of the Project. 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 Account of 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 the corresponding series of Bonds by redemption or purchase, as provided by Section 301(a)(i) and (b)(i) and Section 506 hereof. (e) Upon the occurrence and continuance of an Event of Default or the occurrence and continuance of an event which with notice or lapse of time or both would constitute an Event of Default, amounts on deposit in the Project Fund shall not be disbursed but shall instead be applied to the payment of Debt Service or the redemption price of the Bonds. Section 503. Revenue Fund. (a) There shall be deposited to the credit of the Revenue Fund, as and when received, all receipts derived from the Sales and Use Tax. For the purposes of financial reporting by the City with respect to the Sales and Use Tax, "receipts" and "revenues" shall have the same meaning. (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 December 31, 2005, there shall be transferred from the Revenue Fund, in the following order, the amounts set forth below: 4838-2657-8944.2 26 FIRST: For deposit to the Interest Accounts 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; SECOND: For deposit to the Principal Accounts 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); 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; and SIXTH: All remaining moneys ("Surplus Tax Receipts") will be transferred to the Redemption Fund and shall be applied to call Bonds for redemption prior to maturity as provided in Section 301(a)(ii) and (b)(ii) and Section 506 hereof. (c) Required deposits into Accounts of the Bond Fund and the Debt Service Reserve Fund shall be reduced by investment earnings, if any, in said Funds and Accounts and, with respect to required deposits to the Interest Accounts of the Bond Fund only, by any accrued interest deposited to the Interest Accounts of the Bond Fund upon the initial sale of a series of Bonds. In the event there shall be insufficient moneys in the Revenue Fund in a particular month to make the required transfers described above, then any deficiencies shall be added to the required deposits during the next month. Section 504. Bond Fund. (a) There shall be deposited to the credit of the appropriate Account of the Bond Fund all moneys required to be transferred thereto pursuant to Sections 208, 503, 505, 506 and 508 of this Indenture and all other moneys received for said Fund. (b) Moneys credited to the Bond Fund shall be expended only as set forth in this Section 504. (c) (i) On each interest payment date for any of the Bonds Outstanding, the Trustee shall pay out of moneys credited to the appropriate Interest Account of the Bond Fund the amounts required for the payment of interest on the corresponding series of Bonds due on such date, and on each redemption date, the amounts required for the payment of accrued interest on Bonds then to be redeemed or purchased unless the payment of such accrued interest shall be otherwise provided for, and such amounts shall be applied to such payments. 4838-2657-8944.2 27 (ii) On each principal payment or redemption date for any of the Bonds Outstanding, the Trustee shall pay out of moneys credited to the appropriate Principal Account of the Bond Fund the amounts required for the payment of principal and premium, if any, due on the corresponding series of Bonds on such date and such amounts shall be applied to such payments. (iii) If there shall be insufficient moneys in the Bond Fund to pay in full interest, principal or premium, if any, due on the Bonds on any interest or principal payment or redemption date, the Trustee shall, one day prior to such date, transfer an amount equal to the deficiency into the appropriate Account of the Bond Fund from the Funds indicated in the following order: FIRST: the Revenue Fund; SECOND: the Redemption Fund; and THIRD: the Debt Service Reserve Fund (for payment of principal and interest on any interest or principal payment date only). (d) All payments made pursuant to this Section 504 shall be made in immediately available funds. Section 505. Cost of Issuance Fund. There shall be deposited to the credit of the Cost of Issuance Fund all moneys received for said Fund pursuant to Section 208 hereof. 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 (and in any event not later than February 1, 2006 with respect to the Series 2005 Bonds), any remaining moneys in the Cost of Issuance Fund shall be transferred to the Series 2005A Interest Account and Series 2005B Interest Account of the Bond Fund on a pro rata basis based on the initial principal amounts of the Series 2005A Bonds and the Series 2005B Bonds. Section 506. Redemption Fund. (a) There shall be deposited to the credit of the Redemption Fund all moneys required to be transferred thereto pursuant to Section 502 and Section 503 of this Indenture. (b) Moneys credited to the Redemption Fund shall be expended only as set forth in this Section 506. (c) Moneys in the Redemption Fund shall be transferred to the Principal Accounts of the Bond Fund at such times as may be necessary to effectuate, on the first available date, redemptions of Bonds required by Section 301(a) and (b) of this Indenture. Notwithstanding any other provision of this Indenture to the contrary, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. 4838-2657-8944.2 28 (d) The amounts accumulated in the Redemption Fund, if so directed by the City by means of a Certificate delivered to the Trustee, shall be applied by the Trustee to the purchase of Bonds of the maturities which would otherwise be redeemed pursuant to Section 301(a) and (b) and this Section 506 but for the provisions of this subsection (d), at prices directed by the City not exceeding the applicable redemption prices of the Bonds which would be redeemed but for the operation of this sentence. Interest accrued on the Bonds so purchased shall be paid from moneys credited to the appropriate Interest Account of the Bond Fund. Section 507. Rebate Fund. (a) The Trustee shall establish and maintain, separate and apart from any other Funds and Accounts established and maintained hereunder, a Fund to be designated as the Rebate Fund, which Fund is not pledged to the payment of any Bonds. Subject to the transfer provisions provided in subsection (c) below, all moneys at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (as defined in each Tax Regulatory Agreement), for payment to the United States of America, and neither the City nor the Owner of any Bond shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by this Section 507, by Section 406, and by each Tax Regulatory Agreement (which are incorporated herein by reference). (b) As provided in Section 503(b) hereof, there shall be deposited in the Rebate Fund the amount of all income or gain on moneys deposited in any of the Funds and Accounts established by this Indenture which is required to be rebated to the United States and is designated for deposit therein, as calculated by the City to be owing to the United States pursuant to the Tax Regulatory Agreement, which shall be delivered by the City concurrently with the issuance of a series of Bonds. (c) The Trustee, upon receipt of written instructions from the Mayor or Finance and Internal Services Director of the City, shall pay to the United States out of amounts in the Rebate Fund such amounts as are required pursuant to each Tax Regulatory Agreement. (d) Any moneys remaining in the Rebate Fund after payment to the United States, within sixty (60) days after the date on which the last Bond is redeemed, of one hundred percent (100%) of the rebate amount as described in Section 148(f)(2) of the Code, shall be transferred to the Revenue Fund. (e) The Trustee, as instructed by Certificate of the City, shall invest all amounts held in the Rebate Fund in Investment Securities, subject to the restrictions set forth in the applicable Tax Regulatory Agreement. Money shall not be transferred from the Rebate Fund except as provided in subsection (c). (f) Notwithstanding any other provision of this Indenture, the obligation to remit the Rebate Amount to the United States and to comply with all other requirements of this Section 507, Section 406 and each Tax Regulatory Agreement shall survive the defeasance or payment in full of the Bonds. 4838-2657-8944.2 29 Section 508. Debt Service Reserve Fund. As provided in Section 208(b)(2) and (c)(2) hereof, upon the issuance of each series of Bonds, there shall be deposited into the appropriate Account of the Debt Service Reserve Fund, from proceeds of the Bonds, an amount sufficient to cause the amounts on deposit therein to be equal to the Reserve Requirement. The Debt Service Reserve Fund shall be maintained in an amount equal to the Reserve Requirement. The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds for which there are no available funds in the Bond Fund to make such payments, as the same become due at maturity (including mandatory sinking fund redemption). If an Account of the Debt Service Reserve Fund, by virtue of any such payment, is reduced below the related Reserve Requirement, it shall be reimbursed in the amount of any such deficiency as provided in Section 503. Notwithstanding the above provisions of this Section 508, the amount on deposit in an Account of 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 related Outstanding Bonds. If an excess shall exist in an Account in the Debt Service Reserve Fund over and above the related Reserve Requirement, such excess shall be transferred to the corresponding Interest Account of the Bond Fund. Section 509. Cessation of Fund Deposits. When the moneys 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 and interest on all Bonds then Outstanding in accordance with Article VII of this Indenture, together with the required fees and expenses to be paid or reimbursed to the Trustee and any Paying Agent, the City shall have no further obligation to make further payments into said Funds. Pursuant to Arkansas Code Annotated Section 14-164- 329(c)(2), the Sales and Use Tax shall be abolished on the first day of the calendar month subsequent to the expiration of thirty (30) days from the date there is filed with the Director of the Arkansas Department of Finance and Administration a written statement signed by the Mayor and the Trustee wherein either (a) the Trustee certifies that it has or will have sufficient funds on hand to pay the principal of and interest on the Bonds at maturity or upon redemption prior to maturity, and the Mayor certifies that the Sales and Use Tax is not pledged to any other indebtedness of the City, or (b) the Mayor certifies that there are no longer any Bonds outstanding payable from Sales and Use Tax receipts. Section 510. Separate Accounts Authorized. A Supplemental Indenture authorizing the issuance of Additional Bonds may provide for the creation of separate Accounts within the Bond Fund, Debt Service Reserve Fund, Project Fund, Costs of Issuance Fund and Rebate Fund for such series of Bonds and such other Accounts as the City may direct; provided, that the creation of such separate Accounts shall be solely for the ease of administration and shall in no event affect the equal and ratable security of the Bonds of each series. If any Supplemental Indenture authorizing the issuance of Additional Bonds provides for the establishment of separate Accounts for a series of Bonds, then such Supplemental Indenture shall require that the Sales and Use Tax receipts received by the City shall be deposited pursuant to written direction of the City into each of the Accounts within the Bond Fund and Debt Service Reserve Fund for each series of Bonds on the basis of the installments of principal, premium, if any, and interest on each series of Bonds and the amounts required to be deposited in the 4838-2657-8944.2 30 I Accounts within the Debt Service Reserve Fund during the applicable period, to the end that the Bonds of each series shall be equally and ratable secured by the Sales and Use Tax receipts. Any Supplemental Indenture authorizing the issuance of Additional Bonds may provide that any proceeds of such series of Bonds and investment earnings thereon remaining after some specified date, or after the construction of all facilities to be financed with the proceeds of such series of Bonds, shall be applied to the redemption of such series of Bonds. ARTICLE VI INVESTMENTS Section 601. Investment of Moneys. 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. Moneys in separate Funds or Accounts may be commingled for the purpose of investment. Section 602. Investment Earnings. Subject to the provisions of the Tax Regulatory Agreement and Article V hereof, Investment Securities purchased with moneys held in or attributable to any Fund or Account held by the Trustee under the provisions of this Indenture shall be deemed at all times to be a part of such Fund or Account and the income or interest earned, profits realized or losses suffered by a Fund or Account due to the investment thereof shall be retained in, credited or charged, as the case may be, to such Fund or Account unless otherwise provided pursuant to this Indenture. Section 603. Valuation of Funds. In determining the value of any Fund or Account held by the Trustee under this 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 hereunder 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 hereunder, and the Trustee shall not be liable for any loss resulting from any such sale. Section 604. 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. ARTICLE VII DISCHARGE OF LIEN Section 701. Discharge of Lien. If the City shall pay or cause to be paid to the owners of the Bonds the principal, premium, if any, and interest to become due thereon at the times and 4838-2657-8944.2 31 i 0 in the manner stipulated therein, and if the City shall keep, perform and observe all and singular the covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it on its part, then these presents and the estate and rights hereby granted shall cease, determine and be void, and thereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the City such instruments in writing as shall be requisite to satisfy the lien hereof, and reconvey to the City the estate hereby conveyed, and assign and deliver to the City any property at the time subject to the lien of this Indenture which may then be in its possession, except moneys or Government Securities held by it for the payment of the principal of and premium, if any, and interest on the Bonds. Section 702. Bonds Deemed Paid. Any Bond shall be deemed to be paid within the meaning of this Article VII when payment of the principal of and premium, if any, and interest on such Bond (whether at maturity or upon redemption as provided in this 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 amount 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. In the case of any defeasance of Bonds pursuant to subsection (ii) above, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable mandatory redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. Section 703. Non -Presentment of Bonds. In the event any Bonds shall not be presented for payment when the principal thereof becomes due, either at maturity or otherwise, or at the date fixed for redemption thereof, if there shall have been deposited with the Trustee for that purpose, or left in trust if previously so deposited, funds sufficient to pay the principal thereof, and premium, if any, together with all interest unpaid and due thereon, to the due date thereof, for the benefit of the Holder thereof, all liability of the City to the Holder thereof for the payment of the principal thereof, premium if any, and interest thereon, shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such fund or funds, without liability for interest thereon, for the benefit of the Holder of such Bonds, who shall thereafter be restricted exclusively to such fund or funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, the Bonds. 4838-2657-8944.2 32 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 801. Events of Default. Each of the following events shall constitute and is referred to in this 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 this Indenture or the performance or observance of any other of the covenants, agreements or conditions contained in this Indenture, or in the Bonds issued hereunder, 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 Bondholders of not less than 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; (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 this 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 this Indenture or in the Bonds Outstanding hereunder, exclusive of any period of grace required to constitute a default an "Event of Default" as hereinabove provided. Section 802. 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 hereunder shall, by notice in writing delivered to the City, declare the principal of all Bonds then Outstanding, together with the interest accrued thereon, 4838-2657-8944.2 33 immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Section 803. 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 hereunder. If an Event of Default shall have occurred, and if it shall have been requested so to do by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder and if it shall have been indemnified as provided in Section 901(1) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred upon it by this Section 803 as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. No remedy by the terns of this 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 hereunder 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 hereunder, 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. Section 804. Right of Bondholders to Direct Proceedings. Anything in this Indenture to the contrary notwithstanding, the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceeding hereunder; provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. Section 805. Appointment of Receiver. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled to the appointment of a receiver or receivers of the Trust Estate and of the tolls, rents, revenues, issues, earnings, income, products and profits thereof, including, without limitation, the Sales and Use Tax receipts, pending such proceedings with such powers as the court making such appointment shall confer. 4838-2657-8944.2 34 Section 806. Waiver. In case of an Event of Default on its part, as aforesaid, to the extent that such rights may then lawfully be waived, neither the City nor anyone claiming through the City or under the City shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or thereafter in force, in order to prevent or hinder the enforcement of this Indenture, but the City, for itself and all who may claim through or under it, hereby waives, to the extent that it lawfully may do so, the benefit of all such laws and all right of appraisement and redemption to which it may be entitled under the laws of the State. Section 807. Application of Moneys. Available moneys remaining after discharge of costs, charges and liens prior to this Indenture shall be applied by the Trustee as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: First: To the payment to the Persons entitled thereto of all installments of interest then due, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or privilege; Second: To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or privilege of any Bond over any other Bond and without preference or priority of principal over interest or of interest over principal; and Third: To the payment of the interest on and the principal of the Bonds, and to the redemption of Bonds, all in accordance with the provisions of Article V of this Indenture. (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied first to the payment of the interest then due and unpaid upon the Bonds, and then to the payment of the principal then due and unpaid upon the Bonds, in each case without preference or priority of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the 4838-2657-8944.2 35 provisions of this Article VIII then, subject to the provisions of paragraph (b) of this Section 807, in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section 807. Whenever moneys are to be applied by the Trustee pursuant to the provisions of this Section 807, such moneys shall be applied by it at such times, and from time to time, as it shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date and shall not be required to make payment to the Holder of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Section 808. Remedies Vested in Trustee. All rights of action (including the right to file proof of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee, without the necessity of joining as plaintiffs or defendants any Bondholders hereby secured, and any recovery of judgment shall be for the equal benefit of the Holders of all Outstanding Bonds. Section 809. Rights and Remedies of Bondholders. No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other remedy hereunder, unless a default has occurred of which the Trustee has been notified as provided in subsection (g) of Section 901, or of which by said subsection 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 hereunder shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore 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 subsection (1) of Section 901, nor unless the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture or for the appointment of a receiver or for any other remedy hereunder; 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 this Indenture by action of the Holder or Holders or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, held and maintained in the manner herein provided for the equal benefit of the Holders of all Bonds Outstanding hereunder. Nothing in this Indenture contained 4838-2657-8944.2 36 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 hereunder to the respective Holders thereof at the time and place in said Bonds expressed. Section 810. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the City and the Trustee shall be restored to their former positions and rights hereunder with respect to the property herein conveyed, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken, except to the extent the Trustee is legally bound by such adverse determination. Section 811. Waivers of Events of Default. The Trustee may, and upon the written request of the Holders of not less than 51% in principal amount of all Bonds Outstanding hereunder shall, waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal; provided, however, there shall not be waived any Event of Default described in clause (a) or (b) of the first paragraph of Section 801 hereof, unless prior to such waiver or rescission all arrears of principal (due otherwise than by declaration) and interest, and all expenses of the Trustee and Paying Agent, shall have been paid or provided for. In case of any such waiver or rescission the City, Trustee and the Bondholders shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right subsequent thereon. ARTICLE IX TRUSTEE AND PAYING AGENTS Section 901. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture and agrees to perform said trusts, but only upon and subject to the following expressed terms and conditions: (a) The Trustee may execute any of the trusts or powers hereof and perform any duties required of it by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trusts hereof and its duties hereunder, and may in all cases pay reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. Reimbursement of such compensation paid by the Trustee is subject to the provisions of Section 902 hereof. The Trustee may act upon the opinion or advice of any attorney, surveyor, engineer or accountant selected by it in the exercise of reasonable care, or, if selected or retained by the City prior to the occurrence of a default of which the Trustee has been notified as provided in subsection (g) of this Section 901, or of which by said subsection the Trustee is deemed to have notice, approved by the Trustee 4838-2657-8944.2 37 0 r in the exercise of such care. The Trustee shall not be responsible for any loss or damage resulting from an action or nonaction in accordance with any such opinion or advice. (b) The Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the certificate of authentication of the Trustee endorsed on such Bonds), or for the validity of the execution by the City of this Indenture or of any Supplemental Indentures or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for the value of the title of the property herein conveyed or otherwise as to the maintenance of the security hereof; except that in the event the Trustee enters into possession of a part or all of the property herein conveyed pursuant to any provision of this Indenture, it shall use due diligence in preserving such property; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions and agreements aforesaid as to the condition of the property herein conveyed. (c) The Trustee may become the owner of Bonds secured hereby with the same rights which it would have if not Trustee. (d) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it, in the exercise of reasonable care, to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of the owner of any Bond secured hereby, shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (e) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a Certificate of the City signed by its Mayor and attested by the City Clerk as sufficient evidence of the facts therein contained and, prior to the occurrence of a default of which it has been notified as provided in subsection (g) of this Section 901, or of which by that subsection it is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction, or action is necessary or expedient, but may at its discretion, at the reasonable expense of the City, in every case secure such further evidence as it may think necessary or advisable but shall in no case be bound to secure the same. The Trustee may accept a certificate of the City Clerk of the City under its seal to the effect that a resolution in the form therein set forth has been adopted by the City as conclusive evidence that such resolution has been duly adopted, and is in full force and effect. (f) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty of the Trustee, and the Trustee shall be answerable only for its own gross negligence or willful misconduct. (g) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder (except for defaults under clause (a) or (b) of the first 4838-2657-8944.2 38 I paragraph of Section 801 hereof as to which the Trustee shall be deemed to have notice) unless the Trustee shall be specifically notified in writing of such default by the City or by the Holders of at least 10% in aggregate principal amount of Bonds Outstanding hereunder, and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered to the principal corporate trust office of the Trustee, and in the absence of such notice so delivered, the Trustee may conclusively assume there is no such default except as aforesaid. (h) [Reserved]. (i) At any and all reasonable times the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right fully to inspect any and all of the property herein conveyed, including all books, papers and records of the City pertaining to the Sales and Use Tax receipts and the Bonds, and to take such memoranda from and in regard thereto as may be desired. (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (k) Notwithstanding anything elsewhere in this Indenture contained, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action by the Trustee, deemed desirable for the purpose of establishing the right of the City to the authentication of any Bonds, the withdrawal of any cash, the release of any property, or the taking of any other action by the Trustee. (1) Before taking such action hereunder, the Trustee may require that it be furnished an indemnity bond satisfactory to it for the reimbursement to it of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee, by reason of any action so taken by the Trustee. Section 902. Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's Prior Lien. (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 2005 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. If the City shall fail 4838.2657-8944.2 39 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. (b) The City shall pay to the Trustee compensation for its services as described in Section 902(a), provided that such compensation, together with all expenses, charges and other disbursements of the Trustee and its attorneys, agents and employees and all reimbursements to the Trustee for all costs and other disbursements as described in Section 901(a) hereof shall not exceed $7,500 annually (not including the initial authentication fee) without the prior written approval of the City, which approval shall not be unreasonably withheld. If the Trustee wishes to consult with or retain counsel for any purpose hereunder whose anticipated fees, together with all other compensation, disbursements and reimbursements of the Trustee and its attorneys, agents and employees to be paid by the City hereunder, shall exceed $10,000 annually, then such counsel shall have to be acceptable to the City and such fees shall have to be approved by the City as described above. Section 903. Additional Duties of Trustee. (a) In addition to the other duties of the Trustee described in this Indenture, it shall be the duty of the Trustee, on or before the tenth day of each month after the month in which the Series 2005 Bonds are delivered, to file with the City a statement setting forth in respect of the preceding calendar month: (i) the amount withdrawn or transferred by it and the amount deposited with it on account of each Fund and Account held by it under the provisions of this Indenture; (ii) the amount on deposit with it at the end of such month to the credit of each such Fund and Account; (iii) a brief description of all obligations held by it as an investment of moneys in each such Fund and Account; (iv) the amount applied to the purchase or redemption of Bonds under the provisions of this Indenture and a description of the Bonds or portions of Bonds so purchased or redeemed; and (v) any other information that the City may reasonably request, including, but not limited to, submittal of monthly statements of activity relating to the Bonds. Such information shall also be provided at the direction of the City to one additional designated entity. All records and files pertaining to each such Fund and Account in the custody of the Trustee hereunder shall be open at all reasonable times to the inspection of the City and its agents and representatives, and the City may make copies thereof. (b) The Trustee additionally shall be responsible for the preparation and timely distribution of any and all forms and reports required by law to all Bondholders, the State and the 4838-2657-8944.2 40 0 • Internal Revenue Service in connection with the payment to the Bondholders of interest on the Bonds. Section 904. Notice to Bondholders of Default. If a default occurs of which the Trustee is pursuant to the provisions of Section 901(g) deemed to have or is given notice, the Trustee shall promptly make demand upon the City and give notice to each owner of Bonds then Outstanding. Section 905. Intervention by Trustee. In any judicial proceeding to which the City is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Holders of Bonds issued hereunder, the Trustee may intervene on behalf of Bondholders and shall do so if requested in writing by the Holders of at least 51% of the aggregate principal amount of Bonds Outstanding hereunder. The rights and obligations of the Trustee under this Section 905 are subject to the approval of the court having jurisdiction in the premises. Section 906. Merger or Consolidation of Trustee. Any bank or trust company to which the Trustee may be merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any bank or trust company resulting from any such sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor trustee hereunder and vested with all of the title to the whole property or Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed, or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that such successor trustee shall have capital and surplus of at least $40 million. Section 907. Resignation by Trustee. The Trustee and any successor trustee may at any time resign from the trusts hereby created by giving written notice to the City and the Bondholders, and such resignation shall take effect upon the appointment of a successor trustee by the Bondholders or by the City. Such notice may be served personally or sent by registered mail (to the City) or first class mail (to the Bondholders). Section 908. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the City, and signed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder. Section 909. Appointment of Successor Trustee. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by the court, a successor may be appointed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder, by an instrument or concurrent instruments in writing signed by such Holders, or by their attorneys in fact, duly authorized; provided, nevertheless, that in case of such vacancy the City by an instrument executed and signed by its Mayor and attested by its City 4838-2657-8944.2 41 40 • Clerk under its seal, shall appoint a temporary trustee to fill such vacancy until a successor trustee shall be appointed by the Bondholders in the manner above provided. Any such temporary trustee appointed by the City shall immediately and without further act be superseded by the trustee appointed by such Bondholders. Every such temporary trustee and every such successor trustee shall be a trust company or bank in good standing, having capital and surplus of not less than $40 million. Section 910. Concerning Any Successor Trustee. Every successor or temporary trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the City an instrument in writing accepting such appointment hereunder, and thereupon such successor or temporary trustee, without any further act or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the City or of its successor trustee, execute and deliver an instrument transferring to such successor all the estate, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor trustee shall deliver all securities, moneys and any other property held by it as trustee hereunder to its successor. Should any instrument in writing from the City be required by any successor trustee for more fully and certainly vesting in such successor the estates, rights, powers and duties hereby vested or intended to be vested in the predecessor trustee, any and all such instruments in writing shall, on request, be executed, acknowledged, and delivered by the City. Section 911. Reliance Upon Instruments. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted and relied upon by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for its actions taken hereunder. Section 912. Appointment of Co -Trustee. The City and the Trustee shall have power to appoint, and upon the request of the Trustee the City shall for such purpose join with the Trustee in the execution of all instruments necessary or proper to appoint, another corporation or one or more Persons approved by the Trustee, either to act as co -trustee or co -trustees jointly with the Trustee of all or any of the property subject to the lien hereof, with such powers as may be provided in the instrument of appointment and to vest in such corporation or Person or Persons as such co -trustee any property, title, right or power deemed necessary or desirable. In the event that the City shall not have joined in such appointment within fifteen (15) days after the receipt by it of a request so to do, the Trustee alone shall have the power to make such appointment. Should any deed, conveyance or instrument in writing from the City be required by the co -trustee so appointed for more fully and certainly vesting in and confirming to such co - trustee such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the City. Every such co -trustee shall, to the extent permitted by law, be appointed subject to the following provisions and conditions, namely: (1) The Bonds shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Trustee in respect of the custody of all money and securities pledged or deposited hereunder, shall be exercised solely by the Trustee; and 4838-2657-8944.2 42 0 (2) The Trustee, at any time by an instrument in writing, may remove any such separate Trustee or co -trustee. Every instrument, other than this Indenture, appointing any such co -trustee shall refer to this Indenture and the conditions of this Article IX expressed, and upon the acceptance in writing by such co -trustee, the co -trustee shall be vested with the estate or property specified in such instrument, jointly with the Trustee (except insofar as local law makes it necessary for any separate trustee to act alone), subject to all the trusts, conditions and provisions of this Indenture. Any such co -trustee may at any time, by an instrument in writing, constitute the Trustee as the co -trustee's agent or attorney -in -fact with full power and authority, to the extent authorized by law, to do all acts and things and exercise all discretion authorized or permitted by the co -trustee, for and on behalf of the co -trustee and in the co -trustee's name. In case any co -trustee shall die, become incapable of acting, resign or be removed, all the estate, properties, rights, powers, trusts, duties and obligations of said co -trustee shall vest in and be exercised by the Trustee until the appointment of a new trustee or a successor to such co -trustee. Section 913. Designation and Succession of Paying Agents. The Trustee and any other banks or trust companies designated as Paying Agent or Paying Agents in any Supplemental Indenture or in an instrument appointing a successor Trustee shall be the Paying Agent or Paying Agents for the Bonds. Any bank or trust company with which or into which any Paying Agent may be merged or consolidated, or to which the assets and business of such Paying Agent may be sold, shall be deemed the successor of such Paying Agent for the purposes of this Indenture. If the position of Paying Agent shall become vacant for any reason, the City shall, within thirty (30) days thereafter, appoint such bank or trust company as shall be specified by the City as such Paying Agent to fill such vacancy; provided, however, that, if the City shall fail to appoint such Paying Agent within said period, the Trustee shall make such appointment. The Paying Agents shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Section 901 hereof with respect to the Trustee insofar as such provisions may be applicable. ARTICLE X SUPPLEMENTAL INDENTURES Section 1001. 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 this 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 4838-2657-8944.2 43 to or inconsistent with this 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 this Indenture other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with this 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, this 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 this 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) of Section 1002 hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Section 1002. Supplemental Indentures Requiring Consent of Bondholders. Subject to the terms and provisions contained in this Section 1002, 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 this Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such indenture or indentures supplemental hereto 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 this Indenture or in any Supplemental Indenture; provided, however, that nothing herein contained 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 hereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Bond issued hereunder, or (c) the creation of any lien on the Trust Estate or any part thereof, except as hereinbefore expressly permitted, 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 hereby created on the Trust Estate. Nothing herein contained, however, shall be construed as making necessary the approval of Bondholders of the execution of any Supplemental Indenture as provided in Section 1001 of this Article X. 4838-2657-8944.2 44 a 0 If, at any time the City shall request the Trustee to enter into any Supplemental Indenture for any of the purposes of this Section, 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 in this Section 1002. 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 as herein provided, 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. Section 1003. Effect of Supplemental Indentures. Upon the execution of any Supplemental Indenture entered into pursuant to Section 1001 or 1002 hereof, this Indenture shall be deemed to be modified and amended in accordance therewith. ARTICLE XI MISCELLANEOUS Section 1101. Consents, etc. of Bondholders. Any request, direction, objection or other instrument required by this Indenture to be signed and executed by the Bondholders may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondholders in person or by agent appointed in writing. Proof of the execution of any such request, direction, objection or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument, namely: (a) The fact and date of the execution by any Person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the Person signing such writing acknowledged before such officer the execution thereof, or by an affidavit of any witness to such execution. (b) The fact of ownership of Bonds and the amount or amounts, numbers, and other identification of such Bonds, and the date of holding the same shall be proved by the registration books of the City maintained by the Trustee, as Bond registrar. Section 1102. Notices. Except as otherwise provided in this Indenture, all notices, certificates or other communications shall be sufficiently given and shall be deemed given when 4838-2657-8944.2 45 mailed by registered or certified mail, postage prepaid, to the City or the Trustee. Notices, certificates or other communications shall be sent to the following addresses: City: City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 Attention: Mayor Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: Glenda L. Dean, Corporate Trust Either of the foregoing may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1103. Limitation of Rights. With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture, or the Bonds issued hereunder, is intended or shall be construed to give to any person or company other than the parties hereto, and the Holders of the Bonds secured by this Indenture any legal or equitable rights, remedy, or claim under or in respect to this Indenture or any covenants, conditions, and provisions hereof being intended to be and being for the sole exclusive benefit of the parties hereto and the Holders of the Bonds hereby secured as herein provided. Section 1104. Severability. If any provisions of this 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. The invalidity of any one or more phrases, sentences, clauses or paragraphs in this Indenture contained shall not affect the remaining portions of this Indenture or any part thereof. Section 1105. Applicable Provisions of Law. This 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 1106. Counterparts. This 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. 4838-2657-8944.2 46 0 Section 1107. Successors and Assigns. All the covenants, stipulations, provisions, agreements, rights, remedies and claims of the parties hereto in this Indenture contained shall bind and inure to the benefit of their successors and assigns. Section 1108. Captions. The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Indenture. Section 1109. Photocopies and Reproductions. A photocopy or other reproduction of this Indenture may be filed as a financing statement pursuant to the Uniform Commercial Code, although the signatures of the City and the Trustee in such reproduction are not original manual signatures. Section 1110. Bonds Owned by the City. In determining whether Bondholders of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the City shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Bonds and that the pledgee is not the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4838-2657-8944.2 47 0 • 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: City Clerk (SEAL) SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Title: ATTEST: By: Title: (SEAL) 4838-2657-8944.2 48 I 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, 2005. Notary Public My Commission expires: (SEAL) [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-8944.2 49 0 0 ACKNOWLEDGMENT STATE OF ARKANSAS ) ) ss. COUNTY OF JEFFERSON ) Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named 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, 2005. Notary Public My Commission expires: (SEAL) [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-8944.2 50 EXHIBIT A TO TRUST INDENTURE Form of Series 2005A 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. R05A- REGISTERED S UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: _% Date of Bond: November 1, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20 CUSIP: DOLLARS 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 1 and December I of each year, commencing June 1, 2006, 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 4838-2657-8944.2 A -I a "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 "Sales and Use Tax Refunding and Capital Improvement Bond, Series 2005A", is one of a series of bonds aggregating [Twenty -Six Million Two Hundred Thirty -Five Thousand Dollars ($26,235,000)] (the "Series 2005A Bonds"). The Series 2005A Bonds are being issued for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, (ii) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (iii) funding a debt service reserve, (iv) purchasing a policy of municipal bond insurance, and (v) paying the costs of issuance of the Series 2005A Bonds. The Series 2005A Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 1, 2005 (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 2005A Bonds, and the terms upon which the Series 2005A Bonds are issued and secured. The Series 2005A 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October _, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005A Bonds is made on a parity basis with the pledge of such receipts securing the City's $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the `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 or incurred, such Additional Bonds will rank on a parity of security with the Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. The 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 in the 4838-2657-8944.2 A-2 Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. The holder of this Series 2005A 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 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 2005A 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. The Series 2005A 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 Bonds and any Additional Bonds, (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 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds or any series of Additional Bonds. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005A Bonds, the particular Series 2005A 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 2005A Bonds for redemption prior to maturity, in the case any outstanding Series 2005A Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005A Bond shall be treated as a separate Series 2005A Bond of the denomination of $5,000. In the event any of the Series 2005A 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 2005A 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 4838-2657-8944.2 A-3 proceedings for the redemption of any Series 2005A Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005A 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 2005A 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, 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 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 2005A 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 2005A Bonds may be exchanged for a like aggregate principal amount of Series 2005A 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 2005A Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005A 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 2005A Bonds. This 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 2005A 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 2005A 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 2005A Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. 4838-2657-8944.2 A-4 IN WITNESS WHEREOF; the City of Fayetteville, Arkansas has caused this 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) (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005A 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 Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Authorized Signature 4838-2657-8944.2 A-5 (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. 4838-2657-8944.2 A-6 EXHIBIT B TO TRUST INDENTURE Form of Series 2005B 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. R05B- REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: _% Date of Bond: November 1, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20 CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657-8944.2 B -I 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 "Sales and Use Tax Capital Improvement Bond, Series 2005B", is one of a series of bonds aggregating Sixty -Five Million Dollars ($65,000,000) (the "Series 2005B Bonds"). The Series 2005B Bonds are being issued for the purpose of (i) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (ii) funding a debt service reserve, (iii) purchasing a policy of municipal bond insurance, and (iv) paying the costs of issuance of the Series 2005B Bonds. The Series 2005B Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 1, 2005 (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 2005B Bonds, and the terms upon which the Series 2005B Bonds are issued and secured. The Series 2005B 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October _, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005B Bonds is made on a parity basis with the pledge of such receipts securing the City's [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds," and together with the Series 2005B Bonds, the `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 or incurred, such Additional Bonds will rank on a parity of security with the Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. The 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 in the Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. 4838-2657-8944.2 B-2 The holder of this Series 2005B 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 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 2005B 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. The Series 2005B 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 Bonds and any Additional Bonds, (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 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds or any series of Additional Bonds. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005B Bonds, the particular Series 2005B 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 2005B Bonds for redemption prior to maturity, in the case any outstanding Series 2005B Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005B Bond shall be treated as a separate Series 2005B Bond of the denomination of $5,000. In the event any of the Series 2005B 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 2005B 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 2005B Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005B 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 2005B Bond or Bonds so called for redemption will cease to bear 4838-2657-8944.2 B-3 interest provided funds sufficient for their redemption have been deposited with the Trustee, and, 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 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 2005B 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 2005B Bonds may be exchanged for a like aggregate principal amount of Series 2005B 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 2005B Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005B 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 2005B Bonds. This 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 ' 2005B 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 2005B 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 2005B Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. 4838-2657-8944.2 B-4 9 IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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 affixe& or imprinted hereon, all as of the date hereof shown above. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor ATTEST: By: City Clerk (SEAL) (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005B 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 Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Authorized Signature 4838-2657-8944.2 B-5 (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. 4838-2657-8944.2 B-6 0 EXHIBIT C TO TRUST INDENTURE COVERAGE CERTIFICATE City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: TO: Simmons First Trust Company, N.A., as Trustee This certificate is provided pursuant to the provisions of Section 212 of the Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, in connection with the proposed issuance of Additional Bonds. In connection with such issuance or drawdown, the undersigned certifies as follows: (a) Receipts of Sales and Use Tax by Trustee for preceding twelve (12) months: $ (b) Maximum Annual Debt Service on all Outstanding Bonds, plus the proposed Additional Bonds: $ (c) (a) divided by (b) = % (which is greater than 125%) The undersigned hereby certifies that he is authorized to deliver this Certificate on behalf of the Issuer. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture. CITY OF FAYETTEVILLE, ARKANSAS By: Finance and Internal Services Director 4838-2657-8944.2 C-1 0 EXHIBIT D TO TRUST INDENTURE REQUISITION City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: Requisition No.: TO: Simmons First Trust Company, N.A., as Trustee Pursuant to the provisions of Section 502 of the Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, you are authorized to make the following described payment directly to the Payee named below from the Project Fund: Name and Address of Payee: Amount of Payment: General Classification of the Expenditures: The undersigned hereby certifies that he is authorized to deliver this Requisition on behalf of the Issuer. The amount requested hereunder has not been the basis for any previous Requisition by the Issuer and is justly due and owing to the person(s) named herein as a proper payment or reimbursement of a Project Cost. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. CITY OF FAYETTEVILLE, ARKANSAS By: Authorized Representative 4838-2657-8944.2 D-1 BOND PURCHASE AGREEMENT November _, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 KUTAK ROCK LLP DRAFT 09/27/05 [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. I. 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 (i) [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $ (equal to the par amount of the Series 2005A Bonds [plus][less] a net reoffering [premium][discount] of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2005, to the Closing Date (hereinafter defined), and (ii) $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase Price," and together with the 2005A Purchase Price, the "Purchase Price") of $ (equal to the par amount of the Series 2005B Bonds [plus][less] net reoffering SCANNED 4843-9700-4288.2 • [premium][discount] of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2005, to the Closing Date. The Series 2005 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 Rep!. & Supp. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by [BOND INSURER] contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. of the City which was adopted by the City Council on October _, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), [(iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds,] and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, [(ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds,] and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the "Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Series 2004 Bonds at the times and in the amounts provided in the Escrow Agreement. The City will undertake, pursuant to a Continuing 4843-97004288.2 Disclosure Agreement to be dated as of the date of delivery of the Series 2005 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 2005 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 2005 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 November . 2005, relating to the Series 2005 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 "Rule"). 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 November _, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. 4843-9700-4288.2 3 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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) 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 2005 Bonds, and (viii) 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 2005 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. (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 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 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 Series 2005 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 4843-9700x1288.2 4 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843.97004288.2 5 0 • 6) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (1) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 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 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. 4843.9700-4288.2 6 0 • (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 _, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 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 Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 2005 Bonds; or 4843.9700-0288.2 7 (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-9700-4288.2 8 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 2005 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 Series 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall have occurred, nor shall any development involving a prospective and material adverse 4843-9700-4288.2 9 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) [The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by , together with such supporting certificates of and an opinion of counsel to as shall be satisfactory to Bond Counsel); (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of " ", which ratings shall be in effect as of the Closing Date; (9) [The surety bond for deposit in the Series 2005A Account of the Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for deposit in the Series 2005B Account of the Debt Service Reserve Fund (the "2005B Surety Bond"), each issued by , together with such 4843-9700-4288.2 10 supporting certificates of and an opinion of counsel to as shall be satisfactory to Bond Counsel]; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 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 4843-9700-4288.2 11 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; (x) to the best of his knowledge, no event affecting 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; (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, the Authorizing Ordinance, the Election 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 4843-9700-4288.2 12 0 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 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 Series 2005 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 4843-97004288.2 13 • 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any 4843-970O3288.2 14 • • fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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 2005 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 p.m. on the date first above written: CITY OF FAYETTEVILLE, ARKANSAS By: Title: Mayor 4843-9700-4288.2 15 EXHIBIT A rO /;r_d1J,7 Yl♦!(,YSM9[111M [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $ % % % 2007 % % % 2008 % % % 2009 % % % 2010 % % % $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2010 $ 2011 % % % 2012 % % % 2013 % % % 2014 % % 2015 % % % 2016 % % % 2017 % 2018 % % (with accrued interest on all Bonds from November 1, 2005) 4843-9700-4288.2 A- I 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 _, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§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 _, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 1, 2005 (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 4843-9700-4288.2 B-1 S 0 supplemental thereto for the provisions, among others, with respect to the nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 4843-9700-4288.2 B-2 • • 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4843-9700-4288.2 B-3 EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November _, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4843-9700-4288.2 C- I (a) An executed counterpart of the Bond Purchase Agreement dated November_, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November _, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November _, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November _, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and (e) Portions of the Official Statement dated November _, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 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 MATTERS," 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: 1. 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 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 4843-9700-4288.2 C-2 5. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 6. The issuance of the Series 2005 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 2004 (the "Series 2004 Bonds"), and will not cause the Series 2004 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 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, 4843-9700-4288.2 C-3 • • KUTAK ROCK LLP DRAFT 09/27/05 CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement dated as of November _, 2005 (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 (i) the City's [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) the City's $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, 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 _, 2005 (the "Authorizing Ordinance"), and a Trust Indenture dated as of November 1, 2005 (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 15B(b)(1) of the 1934 Act. 0 "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, 2006, 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: 4848-7096-0896.2 2 0 • (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; 4848-7096-0896.2 • • (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 4848.7096-0896.2 ri 0 • 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 4848-7096-0896.2 5 9 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: 4848-7096-0896.2 1*:4:II03r� NOTICE TO REPOSITORIES REGARDING FINANCIAL INFORMATION NAME OF ISSUER: City of Fayetteville, Arkansas NAME OF BOND ISSUES: [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B DATE OF ISSUANCE: November , 2005 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 _, 2005, 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. . . 11,. l:8. I A -I 0 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.eov/info/municipal/nrmsir.htm. Bloomberg Municipal Repository 100 Business Park Drive Skillman, NJ 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 http://www.bloomberg.com/markets/rates/municontacts.html E-mail: Munis@Bloomberg.com DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 http://www.dpcdata.com E-mail: nrmsir@dpcdata.com FT Interactive Data Attn: NRMSIR 100 William Street, 15th Floor New York, NY 10038 Phone: (212) 771-6999; 800-689-8466 Fax: (212) 771-7390 http://www.ftid.com Email: NRMSIRna,interactivedata.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 www.jjkenny.com/jjkenny/pserdescripdatarep.html Email: nrmsir_repository@sandp.com 4848-7096-0896.2 B-1 KUTAK ROCK LLP DRAFT 09/27/05 ESCROW DEPOSIT AGREEMENT THIS ESCROW DEPOSIT AGREEMENT (this "Agreement") dated November__ 2005, by and between the City of Fayetteville, Arkansas, a political subdivision of the State of Arkansas (the "City"), and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, a national banking association organized and existing by virtue of the laws of the United States of America, as escrow trustee for the hereinafter defined Prior Bonds (the "Escrow Trustee"). WITNESSETH: WHEREAS, the City has heretofore issued its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of November 1, 2004, of which [$26,235,000] aggregate principal amount remain outstanding and are stated to mature on December 1, 2005 to December 1, 20_, inclusive (the "Prior Bonds"); and WHEREAS, the terms of and the security for the Prior Bonds are prescribed by that certain Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., as trustee (the "Prior Trustee"); and WHEREAS, Article VII of the Prior Indenture provides under certain circumstances that the Prior Bonds shall be deemed paid within the meaning of the Prior Indenture if there shall be on deposit with the Prior Trustee moneys or certain types of investment obligations described therein maturing on or prior to the maturity or redemption dates of the Prior Bonds and sufficient to pay when due the principal of, premium, if any, and interest on the Prior Bonds to the maturity date or redemption date, as the case may be; and WHEREAS, the City, pursuant to an ordinance adopted by its City Council on October _, 2005, and the Constitution and laws of the State of Arkansas, has authorized the issuance of [$26,235,000] aggregate principal amount of its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Refunding Bonds"), a portion of the proceeds of which are to be used, together with other available funds, to refund all of the Prior Bonds; and WHEREAS, the City has made arrangements for deposit with the Escrow Trustee of moneys and investment obligations derived from and purchased with (a) a portion of the proceeds derived from the sale of the Refunding Bonds, (b) amounts released from the Bond Fund for the Prior Bonds, and (c) amounts released from the Debt Service Reserve Fund for the Prior Bonds, which in the aggregate will provide sufficient immediately available funds to enable the Escrow Trustee to pay the principal of and interest on the Prior Bonds upon maturity and upon redemption prior to maturity, all as set forth on Schedule 1 hereto; and WHEREAS, the City has entered into this Agreement with the Escrow Trustee in order to ensure that the procedures required for discharging the Prior Bonds will be followed; SCANNED 4848-2069.4784.2 NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth, and in order to provide for the redemption of the Prior Bonds and to set forth the obligations of the parties hereto, the parties hereto agree as follows: Section 1. Establishment of Escrow Fund. There is hereby created and established with the Escrow Trustee a special, segregated and irrevocable escrow account designated "City of Fayetteville, Arkansas - 2004 Refunding Escrow Fund" (the "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 Prior Bonds, separate and apart from other funds of the City and the Escrow Trustee. Section 2. Deposit to Escrow Fund: Application of Moneys. Simultaneously with the execution of this Agreement, the City has sold and delivered the Refunding Bonds. From the proceeds of the sale of the Refunding Bonds, the City has delivered to the Escrow Trustee for deposit in the Escrow Fund immediately available moneys in the amount of $ . The Escrow Trustee, in its role as Prior Trustee, is hereby directed to liquidate all investments in the Bond Fund and Debt Service Reserve Fund established under the Prior Indenture and applicable to the Prior Bonds, and to transfer such moneys (viz., the sum of $ ) to the Escrow Fund. The Escrow Trustee has purchased, from and as an investment of moneys in the Escrow Fund, at the prices indicated, the direct noncallable obligations of the United States of America identified in Schedule 2 attached hereto (the "Government Obligations"). Accordingly, the Escrow Trustee now holds (or has the right to receive principal and interest on) the Governmental Obligations and $ in uninvested cash. Section 3. Deposit to Escrow Fund Irrevocable. The deposit of the moneys and Governmental Obligations in the Escrow Fund shall constitute an irrevocable deposit of said moneys and Governmental Obligations exclusively for the benefit of the owners of the Prior Bonds, and such moneys and Governmental Obligations shall be held in escrow and shall be applied solely to the payment of the principal of and interest on the Prior Bonds through and including the redemption and maturity dates shown on Schedule 1. Subject to the requirements set forth herein for the use of the Escrow Fund and the moneys therein, the City covenants and agrees that the Escrow Trustee shall have full and complete control and authority over and with respect to the Escrow Fund and the moneys and Governmental Obligations deposited therein. Section 4. Use of Moneys. The Escrow Trustee shall apply the moneys and Governmental Obligations deposited in the Escrow Fund, together with any interest or income earned thereon, in accordance with the provisions hereof. The Escrow Trustee shall withdraw from the Escrow Fund immediately available funds for application to the payment of the principal of and interest on the Prior Bonds in the amounts and at the times necessary in accordance with Schedule 1 attached hereto. Schedule 3 attached hereto shows the availability and application of moneys in the Escrow Fund necessary to meet the requirements set forth in Section 1. The Escrow Trustee shall not sell, transfer, otherwise dispose of or cause to be redeemed prior to maturity, any Government Obligations, except as authorized by Section 5 hereof. The Escrow Trustee shall make no further investment or reinvestment except as expressly authorized by Section 5. The liability of the Escrow Trustee for the payment of the amounts to be paid hereunder shall be limited to the moneys available for such purposes in the Escrow Fund. 4848-2069-4784.2 2 Subject to the provisions of Section 5 hereof, any amounts held as cash in the Escrow Fund shall be held in cash without any investment thereof, not as a deposit with any bank or other depository. The Escrow Trustee shall not have any duty with respect to calculating or verifying the mathematical sufficiency of the moneys in the Escrow Fund to be utilized to pay the principal of and interest on the Prior Bonds as the same shall become due and payable. Section 5. Investment of Escrow Fund Moneys. (a) The Escrow Trustee may from time to time sell, cause the redemption of, or otherwise dispose of any Government Obligations in the Escrow Fund upon the substitution of other direct or fully guaranteed and noncallable obligations of the United States of America, provided: (1) The Escrow Trustee shall have previously obtained an opinion of an independent certified public accountant that the substitution will not adversely affect the availability of moneys in the Escrow Fund at times and in amounts sufficient to meet the required payments on the Prior Bonds provided in Schedule 1 attached hereto; and (2) The Escrow Trustee shall receive an unqualified opinion of recognized attorneys in the field of tax-exempt municipal bonds to the effect that, if such substitution had been reasonably expected on the date of issuance of the Prior Bonds, such substitution would not have caused any of the Prior Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations of the U.S. Treasury thereunder proposed or in effect at the time of such substitution and applicable to obligations issued on the date of issuance of the Prior Bonds, so as to adversely affect the exemption from Federal income taxation of the interest on the Prior Bonds or the Refunding Bonds; and (3) The City shall have given the Escrow Trustee its written consent to the substitution. All substituted obligations shall become a part of the Escrow Fund and shall be "Government Obligations" for all purposes of this Agreement. (b) Notwithstanding any other provision of this Agreement, the City and the Escrow Trustee hereby covenant that no part of the proceeds of the moneys in the Escrow Fund shall be used, at any time, directly or indirectly, in such a manner which, if such use had been reasonably anticipated on the date of issuance of the Refunding Bonds, would have caused any of the Refunding Bonds to be an "arbitrage bond" under Section 148 of the Code and the regulations of the U.S. Treasury thereunder proposed or in effect at the time of such use and applicable to obligations issued on the date of issuance of the Refunding Bonds. Section 6. Redemption and Defeasance. (a) The City hereby calls the Prior Bonds for redemption prior to maturity on 1, 20_, 1, 20_, and 1, 20_, as follows: [INSERT CHART SHOWING REDEMPTION DATES] 4848-2069-4784.2 0 • The instructions to the Escrow Trustee to redeem portions of the Prior Bonds on 1, 20_, 1, 20 and 1, 20 are hereby declared to be irrevocable. Except as set forth above, the Prior Bonds will be redeemed at their respective maturity dates. (b) The Escrow Trustee is hereby irrevocably instructed to give notice of the call for redemption to the registered owners of those Prior Bonds to be redeemed prior to maturity. Such notice shall be given by first class mail, postage prepaid, in the form attached hereto as Exhibit A, at least thirty (30) days prior to the applicable redemption date. (c) As soon as practicable after receipt of these instructions, the Escrow Trustee shall mail by first class mail, postage prepaid, to all of the registered owners of the Prior Bonds, a notice of defeasance in the form attached hereto as Exhibit B. Section 7. Remaining Moneys in Escrow Fund. Upon the retirement of the Prior Bonds, any amounts remaining in the Escrow Fund shall be deposited in the bond fund for the Refunding Bonds, free and clear of the trust created by the Prior Indenture and this Agreement. Section 8. Rights of Owners of Prior Bonds. The escrow created hereby shall be irrevocable and the owners of the Prior Bonds shall have a beneficial interest and a first, prior and paramount lien and claim on all moneys in the Escrow Fund until paid out, used and applied in accordance with this Agreement. Section 9. Fees of Escrow Trustee. In consideration of all services to be rendered by the Escrow Trustee under this Agreement, the City has made arrangements satisfactory to the Escrow Trustee for payment of its reasonable fees and expenses, and the Escrow Trustee hereby acknowledges that it shall have no lien whatsoever upon any moneys in the Escrow Fund for payment of such fees and expenses. The Escrow Trustee agrees to remain in office until all of the Prior Bonds have been redeemed. Except to the extent arising from their gross negligence or willful misconduct, the Escrow Trustee and its respective successors, assigns, agents and servants shall not be held to any liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys and Governmental Obligations deposited therein, or by reason of any act, omission or error of the Escrow Trustee made in good faith in the conduct of its duties. The Escrow Trustee makes no representations or warranties as to whether the Escrow Fund is adequate or sufficient to defease or redeem the Prior Bonds and shall not be responsible or liable for any inadequacy or insufficiency. The Escrow Trustee shall be entitled to the immunities, powers, privileges and protections set forth in the Prior Indenture for the benefit of the Trustee as if set forth herein in their entirety. Section 10. Enforcement. The City and the owners of the Prior Bonds shall have the right to take all actions available under law or equity to enforce this Agreement or the terms hereof. 4848-2069-0784.2 4 0 Section 11. Successors Bound. All covenants, promises and agreements in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the City, the Escrow Trustee and the owners of the Prior Bonds, whether so expressed or not. Section 12. Arkansas Law Governing. This Agreement shall be governed by the applicable laws of the State of Arkansas. Section 13. Termination. This Agreement shall terminate when all of the Prior Bonds have been paid as aforesaid and any remaining moneys have been transferred as provided in Section 7 hereof. Section 14. Severability. 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 covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Section 15. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be one and the same instrument. Section 16. No Recourse Against City Officers and Employees. No recourse shall be had for the payment of the principal of or interest on any of the Prior Bonds or for any claim based thereon or upon any obligation, covenant or agreement in this Agreement contained against any past, present or future officer, member, alderman or employee of the City or of 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 officers, members, aldermen or employees, as such, is hereby expressly waived and released as a condition of and consideration for the execution of this Agreement. Section 17. Notices. Unless otherwise provided, any notice, demand, direction, request or other instrument authorized or required by this Agreement to be given to or filed with the City or the Escrow Trustee shall be in writing and shall be addressed as follows: To the City: City of Fayetteville, Arkansas 113 West Mountain Fayetteville, Arkansas 72701 Attention: Finance & Internal Services Director To the Escrow Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: 4848-2069-4784.2 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers as of the date first above written. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor SIMMONS FIRST TRUST COMPANY, N.A. By: Title: [SIGNATURE PAGE TO ESCROW AGREEMENT] 4848-2069-4784.2 r 0 SCHEDULE1 REQUIREMENTS TO PAY AND REDEEM THE PRIOR BONDS Principal Payment Date Principal Due Redeemed 12-1-05 6-1-06 12-1-06 6-1-07 12-1-07 6-1-08 12-1-08 S-1 Redemption Premium Interest Due Total Due 4848-2069-4784.2 SCHEDULE2 DESCRIPTION OF GOVERNMENT OBLIGATIONS Type Maturity Date Principal Amount Coupon Rate U.S. Treasury Securities - SLGS $ % S-2 4848.2069-0784.2 0 0 SCHEDULE3 SCHEDULE OF AVAILABILITY AND APPLICATION OF ESCROW FUND Cash Balance at Receipts from Debt Service Requirement Cash Balance at Period Ending Beginning of Period Government Obligations to Retire Prior Bonds End of Period ll-_-05 $ - 12-1-05 6-1-06 12-1-06 6-1-07 12-1-07 6-1-08 12-1-08 S-3 4848-2069-4784.2 0 EXHIBIT A NOTICE OF REDEMPTION City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN by Simmons First Trust Company, N.A., Pine Bluff, Arkansas, the trustee (the "Trustee") for the Sales and Use Tax Capital Improvement Bonds, Series 2004, of the City of Fayetteville, Arkansas (the "City"), dated November 1, 2004 (the `Bonds"), that $ principal amount of the outstanding Bonds maturing on December 1, 20 [and December 1, 201 are hereby called for redemption and prepayment on 1, 20_ The outstanding Bonds called for redemption mature, bear interest and have been assigned CUSIP numbers as follows: Maturity Date (December 1) Principal Amount Interest Rate CUSIP $ No representation is made as to the accuracy of the CUSIP numbers set forth above, and the redemption of the Bonds shall not be affected by any defect in or omission of such numbers. Each of the Bonds so called for redemption and prepayment shall be redeemed and prepaid at a redemption price of 100.0% of the principal amount thereof plus accrued interest to the date of redemption. The Bonds shall cease to bear interest as of 1, 20 The Bonds so called for redemption shall be payable at the corporate trust office of the Trustee and shall be presented as follows: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: 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 , 200 SIMMONS FIRST TRUST COMPANY, N.A. as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails no later than 1, 20 A-1 4848-20694784.2 EXHIBIT B NOTICE OF DEFEASANCE City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN THAT, pursuant to the provisions 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 (the "Indenture"), under which the bonds referenced above (the "Bonds") were issued and secured, there has been deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as Trustee for the Bonds, moneys and direct noncallable obligations of the United States of America, sufficient in amount to pay at maturity and upon redemption, all of the outstanding Bonds. [INSERT CHART SHOWING REDEMPTION DATES] The Bonds called for redemption shall be redeemed at a price of 100% of the principal amount thereof, together with accrued interest to the date of redemption. On and after the applicable redemption dates, interest on the Bonds so called for redemption shall cease to accrue. As a result of the deposit with the Trustee of the moneys and direct noncallable obligations of the United States of America described above, the Bonds are deemed to have been paid in accordance with Article VII of the Indenture. For further inquiries, contact Simmons First Trust Company, N.A., 501 Main Street, Pine Bluff, Arkansas 71601, Attn: Glenda Dean, phone (870) 541-1424. Date of mailing: December _, 2005 SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails as soon as possible after December 1, 2005. B-1 4848-2069-0784.2 From: Sondra Smith To: Davis, Steve Subject: Ordinance 4768 and 4777 Hello Steve! Attached are copies of the ordinances that were passed at the City Council meeting on October 3, 2005. • M89Insuranee Corporation 113 King Street, Armonk, NY 10504 tiBI 1 Tel 914-273-4545 www.mbia.com Capital Strength. Triple -A Performance. VIA COURIER RECEIVED November 8, 2005 NOV 092005 CITY OF FAYETTEVILLE Steve Davis MAYOR'S OFFICE City of Fayetteville 113 W. Mountain Fayetteville, Arkansas 72701 RE: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville. Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B Dear Mr. Davis: Enclosed please find the following documents for the referenced issues: Two revised Commitments for the Financial Guaranty Insurance Policy (the "Policy") and two revised Commitments for the Debt Service Reserve Fund Surety Bond (the "Surety Bond"). Please execute each document and return one of the original Commitments for the Policy and the Surety Bond to our offices in the enclosed self-addressed stamped envelope. The second set of original Commitments should be retained for your files: 2. Disclosure language and a form of the Financial Guaranty Insurance Policy (the "Policy") for inclusion in the Official Statement; 3. A form of our Statement of insurance for printing on the Obligations; and 4. A form of our "Payments Under the Policy/Other Required Provisions" for inclusion in your authorizing document. In the event the authorizing document is completed prior to choosing MBIA as the insurer, please have the Issuer and Paying Agent sign the attached "Schedule A". Please note that all of the conditions to the Commitment must be met prior to the Policy being released by MBIA. All materials and questions regarding the conditions should be directed to the attention of Karen Wagner, whose direct dial telephone number is (914) 765-3213. /LABIA • • November 8, 2005 Steve Davis City of Fayetteville Page Two In addition, under no circumstances should any changes be made to Items 2, 3 and 4, nor should any other versions of these materials be used on any financing unless you have direct confirmation from MBIA as to the acceptability of such changes. Confirmation regarding items 2 and 3 may come only from our Documentation and Closing Department or our Legal Department and may be written or verbal. Confirmation regarding item 4 should come from Karen Wagner. Since the responsibility for this information remains with us, please send us drafts prior to the printing of any of these documents for our approval. The following payments will be due at the closing of the issue. The premium payments in the amount of .224% of total debt service and 1.6% of total surety bond amount, for the Policy and Surety Bond, respectively, should be wired to MBIA's account number 910-2-721728 at JP Morgan Chase Bank, New York, New York on the day of closing. Chase's ABA number is 021000021. MBIA's claims paying ability is rated triple A by Fitch IBCA, Inc., Moody's Investors Service and the Standard and Poor's Rating Group. Inquiries related to ratings on transactions, fees and billing matters should be addressed to the appropriate rating agency. We would like to thank you for sending a copy of the final debt service schedule for this issue. We would also appreciate receiving three copies of the final Official Statement and three executed unbound copies of the closing transcripts within 60 days of the closing. Thank you for your cooperation concerning these matters. If you have any questions, please contact our offices. Sincerely, Sandra R. Lisanti Associate Documentation and Closing Dept. Phone: (914) 765-3651 Fax: (914)765-3161/3162 Sandra.Lisanti@mbia.com REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-004 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $36,000 [1.6% (premium rate) of $2,250,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. MBIA • • 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. MBIA ran�cee Co o ation By (ul Assistant Secretary CITY OF FA ETTEVILLE 1 By: Title: MBIA • • (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category by A.M. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, MBIA 0 0 available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-003 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of(i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $22,000 [1.6% (premium rate) of $1,350,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 44A This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. MBIA s ance Coro anon s i n staniSecret ry CITY 4 By: Title: A1S1A 0 I (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category y A.M. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, tiBi available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-002 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $130,000 [.224% (premium rate) of $58,156,168.17 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. /LABIA • 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; and b. List of Permissble Investments for Indentured Funds. Dated this 8th day of November, 2005. MBIA ance Co poi ation }3y Assistant Secretary CITY By: Title: WV -lW4 AA jr GENERAL DOCUMENT PROVISIONS E. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. F. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. G. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than (I) ) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. H. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: 5. the issuer/obligor fails to pay principal when due; 6. the issuer/obligor fails to pay interest when due; 7. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 8. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: 7. Cash 8. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 9. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 10. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. I I . Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. /LABIA 0 • 12. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. g. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership h. Farmers Home Administration (FmHA) Certificates of beneficial ownership i. Federal Financing Bank j. General Services Administration Participation certificates k. U.S. Maritime Administration Guaranteed Title XI financing I. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. MBIA 0 0 LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations wv VAA —jr 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A -I" or better by S&P. 1. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. L. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Reoos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. MBIA • • 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo maybe to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (I) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. S REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-001 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $67,000 [.224% (premium rate) of $29,697,586.94 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. MBIA + • 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; b. List of Permissible Investments for Indentured Funds; and c. Standard Conditions for Refunding. Dated this 8th day of November, 2005. MBIA 1 ranee C p ration By Assistant Secretary CITY OF FAYETTEVILLE By: _ Title: /LABIA • GENERAL DOCUMENT PROVISIONS A. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. B. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments, For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. C. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than (I) ) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. D. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: I. the issuer/obligor fails to pay principal when due; 2. the issuer/obligor fails to pay interest when due; 3. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 4. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: I. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. MEIA 0 0 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: 1. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. /LABIA + • LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations AIBIA 0 • 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA-rn and if rated by Moody's rated Aaa, Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A -I" or better by S&P. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. K. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. MBIA • 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (I) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Leval opinion which must be delivered to the municipal entity a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. MBIA • • STANDARD CONDITIONS FOR REFUNDINGS A. Receipt by the Insurer of the final debt service schedule on the issue within three business days from the sale date. B. Receipt, satisfactory review and subsequent oral approval by the Insurer at least ten days in advance of closing of draft copies of: 1. a verification by an independent CPA firm of the sufficiency of the escrow to timely retire the refunded bonds; 2. the escrow securities purchase contracts of SLG subscription forms or open market confirmations; and, 3. the escrow agreement Final and signed copies of all the above documents to be sent via overnight mail from closing. An independent CPA firm is defined as a licensed CPA firm acting at arms length of the transaction on behalf of the bondholders. It may not be the underwriter, bond counsel or financial adviser for the refunding issue. The firm must carry errors and omissions insurance. The Insurer reserves the right to review the provider of the verification on a deal by deal basis. C. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel (or Special Tax Counsel) to the effect that the refunding bonds are being issued in compliance with state law and that the interest on the refunding bonds is tax-exempt. D. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel stating that the refunded bonds have been legally defeased. (This condition is only applicable in those situations where the refunding issue is legally defeasing the refunded issue.) Final executed copies of items C and D to be sent via overnight mail. E. If the escrow agreement allows for the substitution of securities in the escrow account, then it should be provided in the escrow agreement that no such substitution may occur unless there has first been delivered to the escrow agent/trustee, (1) a CPA verification that the escrow investments, as substituted, are sufficient to pay debt service, as it becomes due, on the refunded bonds and (2) an opinion of nationally recognized bond counsel to the effect that the substitution is permitted under the documents and the substitution has no adverse effect on the tax-exempt nature of the refunding bonds. See 2 above for the definition of an independent CPA. F. Escrow investments must be limited to: I. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- "SLGS"). 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities. 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. MBIA r 0 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title Xl financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds G. If a forward supply contract is being executed in conjunction with the refunding (or subsequent to the closing of the refunding transaction), the following conditions must also be met: I. The Insurer must review and approve the forward supply contract at least five business days prior to closing (or after closing, at least five business days prior to execution if not contemplated at the time of closing). 2. The forward supply contract must provide by its terms that the securities delivered under the forward supply are sufficient (when taken with other funds remaining in the escrow) as to amount and timeliness to retire the refunded bonds. 3. The Insurer requires an opinion from a nationally recognized bankruptcy counsel that the securities in escrow and payments to owners of refunded bonds will not constitute assets of the forward supply contract supplier and will not be subject to automatic stay in the event of bankruptcy and/or insolvency of the supplier. 4. The supplier of the securities delivered under the forward supply contract must affirm in the contract that it has no rights to or interest in the monies or securities held in the escrow. 5. The escrow agent must be acceptable to the Insurer. The Insurer reserves the right to replace the escrow agent for cause. 6. See 6 above for investments permitted under the forward supply contract. Investments must be non -callable. 7. The supplier should have no right to substitute the original escrow securities. The supplier may substitute securities previously delivered by the supplier under the forward supply contract only if: MBIA a. The substituted securities mature on a date that is later than the previously delivered securities would have matured; and b. The substituted securities mature prior to the date needed to pay principal and/or interest on the bonds. 8. Two days before each delivery date for the forward supply securities, the escrow agent must notify the Insurer in writing of the securities to be delivered, the maturity amount of the securities and the maturity date. 9. The forward supply contract cannot be amended or modified without the Insurer's written consent. $ NAME OF ISSUER SERIES DESCRIPTION CERTIFICATE RE: MBIA INSURANCE POLICY SCHEDULE `A' This Certificate of MBIA Insurance Policy (the "Certificate") is furnished by the City of as issuer (the "Issuer") of its S General Obligation Bonds, dated (the "Bonds"), and , as paying agent under the Bonds (the "Paying Agent"). This Certificate is furnished for use by MBIA Insurance Corporation ("MBIA") in connection with its issuance of a municipal bond insurance policy No. (the "Policy"), which Policy shall guarantee the payment of the principal and interest on the Bonds when due. The Issuer and the Paying Agent hereby certifies as follows: 1. The parties acknowledge receipt and review of MBIA's "Payments Under the Policy" provisions with respect to the Policy, all as more particularly set forth in Schedule A attached hereto and made a part hereof. 2. The parties hereby agree, during the term of the Policy and to the best of their abilities, to abide by the terms, obligations, and provisions required by MBIA as set forth in Schedule A hereto. IN WITNESS WHEREOF, we have executed this Certificate as of the _ day of , as Issuer as Paying Agent By: By: Director of Finance Authorized Officer LI t S w S a S a S a 55 W Y a 3 m n n Si oc o J c n < J tm W 0m O m 0 n f Y m Ov nnm _w N 0 J b m Lb m J Ca. 1 n m J m viz' � m0 m v 'n A n O no d c n Cl O J FINANCIAL GUARANTY AGREEMENT FINANCIAL GUARANTY AGREEMENT made as of [CLOSING DATE], by and between [ISSUER] (the "Issuer") and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state of New York. WITNESSETH: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terms of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the temps and limitations of the Surety Bond; and WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more fully set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows: ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and term thereof shall be subject to and limited by the terms and conditions of the Surety Bond. Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason. Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of the Insurers special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE II REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses; Indemnification. (a) The Issuer will reimburse the Insurer, within the Reimbursement Period, without demand or notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. (b) The Issuer also agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the Insurer of the Issuer's obligations under this Agreement, the Document, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the Insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply with the covenants or conditions of this Agreement or (ii) reliance by the insurer upon representations made by the Issuer or (iii) a default by the Issuer under the terms of the Document or any other documents executed in connection with the issuance of the Obligations. (d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available finds at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the insurer from or on behalf of the Issuer as a reimbursement to the insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not to exceed the Surety Bond Limit); and third, upon full reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments; instruments of Further Assurance. To the extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instrument, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the issuer hereby grants to the Insurer a security interest in or lien on, as the case may be, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other fruther instruments as may be required by law or as shall reasonably be requested by the insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of: (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder, or (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated. Section 2.05. Insurer's Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Quarterly Reports. The Issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fwrd balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the Insurer; (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year (c) Access to Facilities, Books and Records. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and upon reasonable notice all books and records relative to the project financed by the Obligations; and (d) Compliance Certificate. On an annual basis the Issuer will provide to the Insurer a certificate confirming compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the Obligations. ARTICLE III AMENDMENTS TO DOCUMENT So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Document or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder. (a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by the issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or (d) Except as otherwise provided in this Section 4.01, the Issuer shall fail to perform any of its other obligations under the Document, or any other document executed in connection with the issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or (e) The issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (t) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the issuer or for a substantial part of its property; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days. Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the issuer to the Insurer under the Document or any related instrument, and any obligation, agreement or covenant of the Issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. In addition, if an Event of Default shall occur due to the failure to pay to the Insurer the amounts due under Section 1.03 hereof, the Insurer shall have the right to cancel the Surety Bond in accordance with its terms. All rights and remedies of the Insurer under this Section 4.02 arc cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. ARTICLE V SETTLEMENT The Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the Insurer's decision thereon, if made in good faith, shall be final and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or temrinated only with the prior written consent of the Issuer and the Insurer. The issuer hereby agrees that upon the written request of the Paying Agent, the insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The Insurer agrees to deliver to the issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond. Section 6.04. Successors and Assigns; Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond. The Issuer's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Issuer's request and in reliance on the issuer's promise to execute this Agreement. Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: If to the issuer: [ISSUER] [STREET ADDRESS] [CITY, STATE ZIP] Attention: [PERSON AT ISSUER] If to the Paying Agent: [PAYING AGENT] Attention: Corporate Trust Officer If to the Insurer. MBIA insurance Corporation 113 King Street Armonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 6.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. Section 6.11. Countemarts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instr unent. Complete counterparts of this Agreement shall be lodged with the Issuer and the Insurer. 0 Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 6.13. Survival of Obligations. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. Attest: [ISSUER] By. Title: MBIA Insurance Corporation President Assistant Secretary C1 ANNEX A DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. [POLICY NO.] MBIA Insurance Corporation (the "Insurer'), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of [NAME OF ISSUER] (the "Issuer") under the [TITLE OF THE DOCUMENT] (the "Document") to [NAME OF PAYING AGENT], (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of [TITLE OF THE OBLIGATIONS] (the "Obligations"), provided, that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed [a: FIXED COVERAGE [Dollar Amount of Coverage] or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] or [b: VARIABLE COVERAGE the annual amount set forth for the applicable bond year on Exhibit A attached hereto (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] 1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article 11 of the Financial Guaranty Agreement dated the date hereof between the Insurer and the [ISSUER OR OBLIGOR] (the "Financial Guaranty Agreement"); provided, [ANNUAL PREMIUM OPTION: that no premium is due and unpaid on this Surety Bond and] that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. 6. The term of this Surety Bond shall expire [ANNUAL PREMIUM OPTION: ,unless cancelled pursuant to paragraph 9 hereof,] on the earlier of (i) [MATURITY DATE] (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. S. [OPTIONAL FIRST SENTENCE: This Surety Bond shall be governed by and interpreted under the laws of the State of (STATE)]. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within [I or 3 years] after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. [NOS. 9 and II are OPTIONAL] 9. Subject to the terms of the Document, the Issuer shall have the right, upon 30 days prior written notice to the Insurer and the Paying Agent, to terminate this Surety Bond. In the event of a failure by the Issuer to pay the premium due on this Surety Bond pursuant to the terms of the Financial Guaranty Agreement, the Insurer shall have the right upon [No. of days] days prior written notice to the Issuer and the Paying Agent to cancel this Surety Bond. No Demand for Payment shall be made subsequent to such notice of cancellation unless payments are due but shall not have been so paid in connection with the Obligations. 10. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. II. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this [DATE] day of [MONTH,YEAR]. MBIA INSURANCE CORPORATION President Assistant Secretary SB-DSRF-9-[STATE CODE] 4/95 EXHIBIT A Surety Bond No. [POLICY NO.] Bond Year Maximum Annual Debt Service 20 to 20 $ 20 to 20 $ 20 to 20 $ • DEMAND FOR PAYMENT MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Attachment I Surety Bond No. [POLICY NO.] 20 Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The [Debt Service Reserve Fund Requirement] for the Obligations is $ (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its Attachment 2 Surety Bond No. [POLICY NO.] NOTICE OF REINSTATEMENT 20 [Paying Agent] [Address] Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article I1 of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ MBIA Insurance Corporation President Attest: Assistant Secretary ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forms of such terms. "Agreement" means this Financial Guaranty Agreement. "Closing Date" means [CLOSING DATE], 20 "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment 1. "Document" means [DOCUMENT]. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement. "Insurer" has the same meaning as set forth in the first paragraph of this Agreement. "Issuer" means [ISSUER]. "Obligations" means [LEGAL TITLE OF ISSUE]. "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose. "Paying Agent" means [PAYING AGENT]. "Premium" means [PREMIUM) payable to the Insurer on or prior to the Closing Date. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of x following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, N.A., New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. "State" means [STATE]. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document. "Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit "Surety Bond Limit" means [SURETY BOND LIMIT]. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by the Issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalfof the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment. • • ANNEX C COMMITMENT [To be provided.] S STANDARD FORM FOR MBIA DISCLOSURE FOR OFFICIAL STATEMENTS [June 30, 2005[ [The section entitled "The MBIA Insurance Corporation Insurance Policy" is for use in public finance transactions] The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix _ for a specimen of MBIA's policy [(the "Policy")]. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading [" "]. Additionally, MBIA makes no representation regarding the [Bonds/Securities] or the advisability of investing in the [Bonds/Securities]. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the [Issuer] to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the [Bonds/Securities] as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the [Bonds/Securities] pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any [Bonds/Securities]. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of [Bonds/Securities] upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the [Bonds/Securities] resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the [Bonds/Securities]. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a [Bond/Security] the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such [Bonds/Securities] or presentment of such other proof of ownership of the [Bonds/Securities], together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the [Bonds/Securities] as are paid by MB1A, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the [Bonds/Securities] in any legal proceeding related to payment of insured amounts on the [Bonds/Securities], such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such [Bonds/Securities], less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchangelisted company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBLA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of M 131A "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings arc not recommendations to buy, sell or hold the [Bonds/Securities], and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the [Bonds/Securities]. MBIA does not guaranty the market price of the [Bonds/Securities] nor does it guaranty that the ratings on the [Bonds/Securities] will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005 MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form I0 -Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that arc included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the [Bonds/Securities] offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's wcb site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices. STD DEBT SERVICE RESERVE FUND SURETY BOND Application has been made to the MBIA Insurance Corporation (the "Insurer") for a commitment to issue a surety bond (the "Debt Service Reserve Fund Surety Bond"). The Debt Service Reserve Fund Surety Bond will provide that upon notice from the Paying Agent to the Insurer to the effect that insufficient amounts are on deposit in the Debt Service Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the 2000 Obligations, the Insurer will promptly deposit with the Paying Agent an amount sufficient to pay the principal of and interest on the 2000 Obligations or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety Bond, duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the Insurer with the Paying Agent which have not been reimbursed by the City. The City and the Insurer have entered into a Financial Guaranty Agreement dated [ ] (the "Agreement"). Pursuant to the Agreement, the City is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Paying Agent under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Fund and the Debt Service Fund have been made. Under the terms of the Agreement, the Paying Agent is required to reimburse the Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to the General Fund. No optional redemption of Obligations may be made until the Insurer's Debt Service Reserve Fund Surety Bond is reinstated. The Debt Service Reserve Fund Surety Bond will be held by the Paying Agent in the Debt Service Reserve Fund and is provided as an alternative to the City depositing funds equal to the Debt Service Requirement for outstanding Obligations. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to Maximum Annual Debt Service for the Obligations and the premium therefor will be fully paid by the City at the time of delivery of the Obligations. FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy Na [NUMBER] MBIA Insurance Corporation (the "Insure"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/I'RUSTEE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking hind payment) and interest on, the Obligations (as that tens is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects, in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable banknrptcy law. The amounts referral to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: IPARI [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has riot been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of fends, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which am then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trut National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. 'Ibis policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The tens owner shall not include the Issuer or any patty whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Amnon k, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR]. MBIA Insurance Corporation President IA Assistant Secretary - SIUR-7 01.45 STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at [INSERT NAME OF TRUSTEE OR PAYING AGENT, INCLUDING CITY STATE. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [INSERT NAME OF TRUSTEE OR PAYING AGENTI or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [INSERT LEGAL TITLE OF BONDS, CENTERED AS FOLLOWS:] [$ PAR AMOUNT] ISSUER [DESCRIPTION OF BONDS1 Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which -is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with. U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment'of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION STD -R-2 PAYMENTS UNDER TILE POLICY/OTHER REQUIRED PROVISIONS A. in the event that, on the second Business Day, and again on the Business Day, prior to the payment date on the Obligations, the Paying Agent/Trustee has not received sufficient moneys to pay all principal of and interest on the Obligations due on the second following or following, as the case may be, Business Day, the Paying Ageniffntstee shall immediately notify the Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency. B. If the deficiency is made up in whole or in pan prior to or on the payment date, the Paying Agent/Trustee shall so notify die Insurer or its designee. C. In addition, if the Paying Agent/i'rtstee has notice that any Bondholder has been required to disgorge payments of princgml or interest on the Obligations to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable bankruptcy laws, then the Paying Agent/Trustee shall notify the Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. D. The Paying Agent/fnistee is hereby irrevocably designated, appointed, directed and authorized to act as attorney -in -fact for Holders of the Obligations as follows: I. If and to the extent there is a deficiency in amounts required to pay interest on the Obligations, die Paying Agent/frtstee shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under the Policy (the "Insurance Paying Agentlfntstee'), in form satisfactory to the Insurance Paying Agent/frustee, an instrument appointing the Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective Holders (and not as Paying Agent/Trustee) in accordance with the tenor of the Policy payment from the Insurance Paying Agent/Trustee with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and 2. If and to the extent of a deficiency in amounts required to pay principal of the Obligations, the Paying Agent/Frustee shall (a) execute and deliver to the Irswance Paying Agent/Trustee in form satisfactory to the Insurance Paying Agent/Trustee an instrument appointing the Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Obligation surrendered to the Insurance Paying Agent/Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Paying Agent/Trustee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying AgentTrnisstce is received), (b) receive as designee of the respective Holders (and not as Paying Agent/Trustee) in accordance with the tenor of the Policy payment therefor from the Insurance Paying AgenUfnstee, and (c) disburse the same to such I folders. E. Payments with respect to claims for interest on and principal of Obligations disbursed by the Paying Agent/Trustee from proceeds of the Policy shall not be considered to discharge the obligation of the Issuer with respect to such Obligations, and the Insurer shall become the owner of such unpaid Obligation and claims for the interest in accordance with the tenor of the assignment made to it wider the provisions of this subsection or otherwise. F. Irrespective of whether any such assignment is executed and delivered, the Issuer and the Paying Agent/Fmstee hereby agree for the benefit of the Insurer that: I. They recognize that to the extent the Insurer makes payments, directly or indirectly (as by paying through the Paying Agent/Trustee), on account of principal of or interest on the Obligations, the Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Issuer, with interest thereon as provided and solely from the sources stated in this Indenture and the Obligations; and 2. They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Obligation, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Obligations to Holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest G. In connection with the issuance of additional Obligations, the Issuer shall deliver to the Insurer a copy of the disclosure document, if any, circulated with respect to such additional Obligations. H. Copies of any amendments made to the documents executed in connection with the issuance of the Obligations which are consented to by the Insurer shall be sent to Standard & Poor's Corporation The Insurer shall receive notice of the resignation or removal of the Paying Agent/rrustec and the appointment of a successor thereto. I. The Insurer shall receive copies of all notices required to be delivered to Bondholders and, on an annual basis, copies of the Lssuets audited financial statements and Annual Budget Notices: Any notice that is required to be given to a holder of the Obligation or to the Paying Agent!Fnustee pursuant to the Indenture shall also be provided to the Insurer. All notices required to be given to the Insurer under the Indenture shall be in writing and shall be sent by registered or certified mail addressed to MBiA insurance Corporation, 113 King Street, Armonk, New York 10504 Attention: Surveillance. K. The Issuer/Obligor agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the Insurer in connection with (i) the enforcement by the Insurer of the Issuer's /Obligors obligations, or the preservation or defense of any rights of the Insurer, under this Resolution/Indenture and any other document executed in connection with the issuance of the Obligations, and (ii) any consent, amendment, waiver or other action with respect to the Resolution/Indenture or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate perinitted by law, whichever is less. In addition, the Insurer reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved. L The Issuer/Obligor agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or foram without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the teens of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. M. The Issuer /Obligor shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purpose other than the redemption and cancellation or legal defeasance of such Bonds without the prior written consent of MBIA. Revised 4/04 NORTHWEST ARKANSAS OFFICE THE THREE SISTERS BUILDING 214 WEST DICKSON STREET FAYETTEVILLE. ARKANSAS 72701-5221 •70-970-4200 City of Fayetteville, Arkansas Fayetteville, Arkansas KUTAK ROCK LLP SUITE 1100 425 WEST CAPITOL AVENUE LITTLE ROCK, ARKANSAS 72201-3409 501-975-3000 FACSIMILE 501-975-3001 www.kutakrock.com November 29, 2005 Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: '1/2-4/05 ATLANTA uP CHICAGO $ t -G DENVER SoO5i46 DES MOINES iu �! I FAYETTEVILLE IRVINE CA%5V KANSAS CITY LOS ANGELES OKLAHOMA CITY OMAHA PASADENA RICHMOND SCOTT0 DALE WASHINGTON WICHITA 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4838-7042-5344.1 KUTAK ROCK LLP Approving Opinion November 29, 2005 Page 2 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 Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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 any Additional Bonds and any RLF Loans (as such terms are defined in the Indenture) issued hereafter. IINci:�L_➢fin II KUTAK ROCK LLP Approving Opinion November 29, 2005 Page 3 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4838-7042-5344.1 KUTAK ROCK LLP ATLANTA CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE THE THREE SISTERS BUILDING 501-975-3000 KANSAS CITY 214 WEST DICKSON STREET LOS ANGELES FACSIMILE 501-975-3001 OKLAHOMA CITY FAYETTEVILLE. ARKANSAS 72701-6221 479 -STS -4000 www.kutakrock.com OMAHA PASADENA RICHMOND SCOTTSDALE November 29, 2005 WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4850-9516-2112.1 KUTAK ROCK LLP Supplemental Opinion November 29, 2005 Page 2 (a) An executed counterpart of the Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; (e) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005A Bonds (the "2005A Guaranty Agreement), by and between the City and MBIA Insurance Corporation ("MBIA"); (f) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement), by and between the City and MBIA; and (g) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "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 MATTERS," 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. 4850-9516-2112.1 KUTAK ROCK LLP Supplemental Opinion November 29, 2005 Page 3 2. 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 5. The 2005A Guaranty Agreement and the 2005B Guaranty Agreement have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by MBIA, the 2005A Guaranty Agreement and the 2005B Guaranty Agreement constitute valid and binding agreements of the City enforceable in accordance with their terms. 6. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 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 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 kLlyo 4850-9516-2112.1 S KIT WILLIAMS • FAYETTEVILLE CITY ATTORNEY DAVID J. WHITAKER Assistant City Attorney Judy Housley Office Manager THE CITY OF FAYETTEVILLE. ARKANSAS Phone (479) 575-8313 113 W. Mountain, Suite 302 FAX (479) 575-8315 Fayetteville, AR 72701-6083 November 29, 2005 Simmons First Trust Company, N.A., as trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York Kutak Rock LLP Little Rock, Arkansas Re: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A; and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B Ladies and Gentlemen: I am counsel to the City of Fayetteville, Arkansas (the "City") and have acted in that capacity in connection with the issuance and sale by the City of its (i) $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), which Bonds are being sold pursuant to the terms of a Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between Stephens Inc. and the City. The terms defined in the Bond Purchase Agreement are used in this opinion with the meanings assigned to them in the Bond Purchase Agreement. In this connection, I have reviewed certain documents with respect to the Bonds, and have examined such records, certificates and other documents as I have considered necessary or appropriate for the purposes of this opinion, including Ordinance No. 4327 adopted by the City Council on August 7, 2001 (the "Election Ordinance"), Ordinance No. 4768 adopted by the City Council on October 4, 2005 (the "Bond Ordinance"), the Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee, the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and the Trustee, the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"), the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005A Bonds (the "2005A Guaranty Agreement"), the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement"), the Preliminary Official Statement dated October 27, 2005 (the "Preliminary Official Statement"), and the Official Statement dated November 3, 2005 (the "Official Statement") relating to the offering of the Bonds, and closing certificates of the City. Based on such review and such other considerations of law and fact as I believe to be relevant, I am of the opinion that: 1. 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 Election Ordinance and the Bond Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Bonds, the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the Bond Purchase Agreement. 2. The City has duly approved the Preliminary Official Statement and the Official Statement. 3. The Election Ordinance and the Bond 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. 4. The Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the 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. 5. 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 is expressed) is fair, accurate and complete and does not omit any matter which, in my opinion, for the purposes for which the Official Statement is to be used, should be included or referred to therein. 6. 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 Bonds, the Sales and Use Tax, the Election Ordinance, the Bond Ordinance, the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement or the Bond Purchase Agreement and, to the best of my knowledge, there is no investigation, pending or threatened, 2 and no threatened action, suit or proceeding involving any of the matters hereinabove mentioned in this paragraph 6. 7. The adoption of the Election Ordinance and the Bond Ordinance and the execution and delivery of the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the Bond Purchase Agreement, and compliance with the provisions thereof, under the circumstances contemplated 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. 8. Based upon the examinations which I have made as counsel to the City specified above, nothing has come to my attention which would lead me to believe that the Official Statement (except for financial and statistical data contained or incorporated in the Official Statement, as to which no view is 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. I hereby consent to the references made to me in the Official Statement. Sincerely, Kit Williams Fayetteville City Attorney 3 From: Clarice Pearman To: Williams, Kit Date: 12/5/05 5:00PM Subject: Kutak Rock LLP-Series 2005A & B Kit, Attached is a copy of the bond closing letter. Thanks. Clarice CC: Bell, Peggy; Deaton, Vicki •n ,.:y � I iitEjb'LW "NortkwestArkaswas'Most Wider Read Newsier" AFFIDAVIT OF PUBLICATION I, Erin Emis. do solemnly swear that t am the Legal 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: C%n'/?(w„ -/7/n7 was inserted in the regular editions on 2o4 , /g, 7YY)S PO# ** Publication Charge: $ (U/0 66 Subscribeq and sworn to before me this day of , 2005. ��Z�C1 c0ozay�� -Notary Public Sharlene D. Williams Notary Public My Commission Expires: State of Arkansas My Commission Expires October 18, 2014 " Please do not pay from Affidavit. An invoice will be sent. P.O. BOX 1607 • 212 N. EAST AVENUE • FAYETTEVILLE, ARKANSAS 72701 • 479-571-6470 ANO00.000 OF SATES AND USE TAX RANCEANG 'Faye eve le SALE OF THE CRY'S NOT TO EXCEED (1) A2 CAPITAL L M RO AND USE TON SERIES AND CAPITAL IMPROVEMENT BONDS, SERIES 2005A, AND R) $85,080.000 OF SALES AND USE ARKANSAS TAX CAPITAL IMPROVEMENT BONDS, SERIES 20058, FOR THE PURSE OF REFUNDING THE CITY'S OUTSTANDING SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004, AND FINANCING A PORTION OF THE COST OF IMPROVEMENTS TO THE CITY'S WASTEWATER TREAT- MENT, SEWERAGE AND RELATED FAGURES; AUTHORIZING THE EXECUTION AND DELIVERY OF A TRUST INDENTURE PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE ISSUED AND SECURED: AUTHORIZING THE EXECUTION AND ORNERY OF AN OFFICIAL STATEMENT PUR- SUANT TO WFSCH THE SERIES 2005 BONDS WILL BE OFFERED: AUTHORIZING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT PROVIDING FOR THE SALE OF THE SERIES 2435 BO1IIDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE AGREEMENT. AUTHORIZING THE EXECUTION AND DELIVERY OF AN ESCROW DEPOSIT AGREE- MENT PROMD;NG FOR THE DEFEASANCE AND REDEMPTION OF THE SERIES 2034 BONDS; AND PRESCRIBING OTHER MATTERS RELATING THERETO WHEREAS, Me Gty Council of the City of Fayette40e, Arkansas the •Gy9 has determined that two b o guest need for a source of revenue to finance the Costs of acquisition. egrstucton, reconstruction, t doubt, htpro*g and equpls ig of Wastev ater heatmem plants sewerage and related facltoe (the r •1• . ..... . ,.•. .. .• . ..• Ii .. M1 .• .. . . :. :.. •r•1: . r• I • n f •• II• 1O •• • r•- • rn. at a special election hod November 6. 2001, a majority of the quailed electors of the City pueston approved the Issuance of sad capital Improvement bads (and the carespon- ie Sales end Use Tax and the pledge of Saes and Use Tex receipts to the payment of he amen bads); end WHEREAS, the Series 2W2 Bonds have been pad in MI from Sales and Use Tax Receipts and the Saito 2004 Bonds are presently Msterdeg in he aggregate pricipal atxnnt of $34,250,000; and WHEREAS, as aultodzed ode the pn7Asons of Amendment 62 arid the Local Govorrment Bond Act end as apprwed by the qualified electors of the City, he City has now determined to insure end sell (1) Its Saes and Use Tax Reandng and Capital Improvement Bonds. Series 2W5A, In pdr ipes amount not to exceed $27,000.000 (the -Series 20054 Bonds'), and (2) is Sales and Use Tax Capital Improvement Bonds. Soles 20D58, h principal amount not to exceed $65.008.008 (the -Series 20068 Bonds') In color to debase ae of he Outstrdi g Sales 2004 BOMB and to provide addition ftndsg for pet is of the Protect: and Secton2: In Omerto pay al of totalumoCt an the Series 2005 Sada as they mature Or art cased for redemption prior t. -ti l there s hereby pledged aT of the reec'pb of the Sales end Use Tax ISV ed by are Electc- Or: As pc -•r tied wryer he htlenttn. such pledge Is made on a per- iybasis m to the Sales 20J. ecr zs end the Serz 20058 Bonds. The Icw and w]ectbn of ate Sales and Use Tax shall eontnn L -e. uch era as and Sties 2005 Bats am no Iotger outstartdyq or aim - dent Since son on deposit with the Trustee urdzr the Irdennro to man the Sales 2005 Bats in U. The City covenants and agoras that all receipts from the Sales and Use Tax wR be accounted far sepa- ratey as special funds on the books of the City, and receipts of said Sari and Use Tax wsl be deposit- ed end vAll be used soley as provided in he Indenture. Section 3: To prescribe the terms and conditions upon which the Series 2005 Bonds ere to be exeat- ed, autentl ted, Issued, accepted, hold and secured. the Mayor Is hereby autodzed and directed to execute and acknowledge the Indenture, and the City Clerk Is hereby authorized and elected to exe- cute and ac k owledge the Indenture and to alflx the seal of the City thereto. and the Mayor and he City Clerk are hereby authorized and directed to cause the Irdetture to be accented. exeaied Veto aemruA ig, hdMYg, without Enitation, its provisions thereof parm'vtyg to the pledge of Sales arid d Use Tax mcand th Opls arid terms of the Sees 2005 Bonds. The Mayor is hereby authorized to comer with to Trustee, the Ui dew•iter and Said Owned h order to complete the Irdenaua in Substantially the form submitted to this meeting, with such charges as shall be approved by such persons execuMg the IMentuxe, their execution to co stule postal evidence of such approval. (Advice is given that a copy of the Indenture In substantially the foes authorized to be executed Is on file with the City Clerk and is available for Inspection by any Interested person.) Section mores ereb hereby authorized and approved a PreliNnay Official Statement of the City, tofud- kg the cover page and appendices attached thereto, retailing to the Series 2005 Bonds. The ReInsrary OHkid Statement Is hereby -deemed Mel- by the City w/ifun the mewing of U.S. Securltes end Exchange Commission Rue 150.12. The distltWcn of the PmtNnay Of vial Statonert Is hereby apacved. The Prdmtrary Official Statement, as amended to conform to the toms of the Boo Phltlhase Agreement, bCa%dig E dibit A thereto, and with swb other plAges and arnortmen is as we mutiny agreed to by the City arid the Untlavrtto. Is hereby 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 al Statement Is hereby approved in Substanilay the form of the Preliminary Official Statement submitted to this meeting, and he Mayor Is hereby authorized to confer with the Trustee, the UndervInter ad Bad Cansd In order to complete the Official Statement in substantidy the form of the Preliminary Official Statement submitted to his meeting, *h Such changes as shell be approved by such persons, the Meyorb execution to constitute conclustve evidence of such approval. (Advice Is given that 8 copy of the Preliminary Official Statement is on file with the City Clerk and Is swell+ able for Inspection by any Interested person.) Section 5: In order to prescribe to terns and conditio s upon which the Series 2005 Bonds are to be add to he UMeartiter, the Mayor Is hereby authorized and directed to execute a Bad Rdse Agreement on behalf of the City to be dated as of the date of Its execution (the •Bond Purchases AVeememl, by and between meaty and tiro Undew•dter• and he Bond Purchase Agreement is here- by appxwod k Sbstantiety the tam subNtted to INS meeting. and the Mayor Is happy authorized to anfe with he Underwater and Bad Counsel n order to complete he Bond Purchase Agreement In subskntley the tom submnted to this meeting, with such changes as shall be approved by such per- sons exacvtng the Bond Purchase Agreement, their execution to constants contusive evidence of such approval. (Advice Is Von that a copy of the Bond Purchase Agreement In sudsteursb the tone authorized to be executed Is on file with the City Clerk and Is available for inspection by any Interested person.) Section 8: In order to provide for conMtdng disclosure of certain financial and operathg kfannaton wtth respect to the Sales and Use Tax and the City k compliance with the WONISIomo of AUG 150-12 of he U. S. Seagtes and Exchange ConvnLsson, the Maya Is hereby authoized and dnacted to exeorte a Conatubg Dis[bare Agewia.t to be dated as of to date of is execution (the -Conte ui g Dbdcase Ageemem)• by and between he City and the Trustee, and the Mays Is therapy authorized total erect- ed to cease he ConMemg Disclosure Agreement to be exawled by he Trustee. The Ca burg Dkdcstn Agreement Is hereby approved In substantially he form subntltted to Uhb mesMg, end the Maya Is hereby authorized to confer Mtn the Trustee, he Underwitw and Bond Cainsal k order to complete the Continuing Gsdosuae Agreerrorht in substantially the form Submitted to alts meeting, *4th Such dhenges as shall be approved by such persons executing the Contnuing Dlsdosure Agreement, the execution to constitute condushe evidence of ouch approval. (Advice Is gh,en that a copy of the Continuing DiscbShm Agreement In SudetentiaT/ the tam authorized to be executed Is on file with me City Oak and Is available to Inspection by any kterasted person.) Section 7: In order to provide for he defeastohce ad redemption of the Series 2004 Bonds, the Map k hereby authorized ard directed to execute an Escrow Deposit Agreement to be dated as 01 to date o Its execution (the -Escrow Agroariaifl, by ad between the City and Simmons Rmt Tnld Cantoy, NA, as escrow trustee (tie •Escrow Tnlalee'), amid the Mayor b hereby authorized and directed to derma the Esauw Agreement to be executed by he Escrow Trustee. The Esaww Agreement Is hereby xLr.�rl-n.. • .. _u_�._.u. .. ... -. ter with to Underwriter, he Escrow Trustee and Bert Counsel in order to compete to Escrow Agreement in substantially the form submitted to MIS meeting, with such charges as shall be approved by such persons executing the Esaaw Agreement, their execution to constitute condusve evidence of such approval. (Advice Is given theta copy of the Escrow Agreement in substantially the form authwzed to be a ecut- ed b on file With the Gty Clerk and Is interests fa Inspection by any Interested person.) Section 8: In order to secwe binterest totes on the Series 2005A BOMB and the Series 20058 Bads. Vie Underwriter has proposed that its City parader the duchess dl a policy a paedes of bond ihSAatce with a portion of the prweerk of the Series 2005 Bads. policy or due. would guRr- ron the yrlotadvantageous of the the M d end Interest an the Series 2005 Bonds when Our. If deemed coo- nedto a acute an insurance by to Mayor, upon the advice a the Untlthings the Mayor b hereby author. deal to execute an nsurCOMMame t and to do any and al ant necessary to acarnptidt Me Oehay of a bond Insurance po�cy or polIcies with respectto the Swiss 2005 eats. In Order to that the maximum amount of proceeds of the Series 2005 Bads be available to pay costs of to P,oJwith at, the Undern of the iter has proposed that the City consider the purchase of a surety bond sir lands with a Parton of the proceeds of the Series 2035 Bands, vrhlch surety bond or bonds woes sell Lmy the funding requirements of the debt service reserve. If deeded economically advantageous by the Mayo, upon the advice of the UrraMAIaer, the Maya Is hereby authorized to execute a commitment and nd to d0 any athings notheaccomplish ry to the calvary oh a surety bond a bonds with h respect to the debt SerNCe reserve ffa the Swiss 20D5 Bads. Section 0: The Mayor and City Clark, for oat on boot of meaty, are hereby authorized and directed to do any and all things necessary to elect he Issuance. size, execution and delivery of the Series 2005 Bonds ad to effect he exewaon and dehery of the Indent re. Urn Bond Purchase Agreernent, to Official Statement, the Contrwg Disclosure Agreement, the Escrow Agreement and a Tex Regu latoy Agreement relating to the tax exemPton of hterest on the Series 200.5 Bonds, and to perform as of the obligations of he City under and pursuant thereto. The Mayor and the City Clerk are further authorized and directed, fee and on behalf of the CIty, to execute all papers, documents certificates and other Sts mania rnat nay be required for the paying out of such authority or to evidence he exercise there of. Section 10: Kutak Rock UP, Lice Rock, Arkansas, is hereby appanted to act as Bond Counsel on behalf of the City in connection with the Issuance and sale of the Series 2005 Bonds. Section 11: The provisions of this Ordinance are hereby declared to be severable, end if any sect,, Phrase or provision she for any mason be declared to be legal or rwad, ideal dBCkrBtat She'll not affect the vddty of the ramander of the sap oral, phases a prweldne of this Ordnance. Section 12: Upon ire Issuance and detvey of the Sodas 2005 Bads, Ordinance No. 4718. adopted and approved by the City COnrtdl on Jky 5. 20051 hn•R be deemed to be repealed. Al Other ordinances. resdutbns and parts thereof in conflict haewih are hereby repealed to the extent of such Wnflot. PASSED and APPROVED this 4h day of October, 2005. APPROVED: By: DAN COODY, Mayor I Special Report on the City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds $72,000,000 Series 2005 Honorable Mayor and Members of City Council Simmons First Trust Company, N.A. City of Fayetteville, Arkansas Pine Bluff, Arkansas Fayetteville, AR Stephens, Inc. Fayetteville, AR Kutak Rock, LLP Little Rock, Arkansas The City of Fayetteville, Arkansas (the "Issuer") will issue Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005, dated November 15, 2005, in the aggregate principal amount of $72,000,000 (the "Bonds"). A portion of the proceeds of the Bonds will be used to purchase certain securities (the "Acquired Obligations"). The Acquired Obligations will be placed in an irrevocable trust to be used solely to pay the principal and interest related to the City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2004 (the `Refunded Bonds"). In connection with the Bonds and at your request, we have verified the arithmetical accuracy of the computations contained in the accompanying Schedules A through D. The computations were based solely on assumptions and information provided by Stephens, Inc. Accordingly„ we express no opinion on the data used, the reasonableness of the assumptions made or the achievability of the projected outcome indicated in the accompanying schedules, except as expressed in the two succeeding paragraphs. The accompanying Schedule C indicates that the principal of and interest on the Acquired Obligations, together with beginning cash of $101.12, will be sufficient to pay the principal and interest related to the Refunded Bonds as the same become due. Based on the assumptions and information provided, the computations in the accompanying Schedules A through D are arithmetically correct. We have no, and expressly disclaim any, obligation to update this report or verify any revised computations because of events or circumstances occurring subsequent to the date of this report. This report is solely for the information and use of the parties specified above solely for their information and assistance in connection with the issuance of the Bonds and is not to be quoted or referred to without our prior written consent, except that we consent to references to our firm and to this report in the Escrow Trust Agreement and other documents related to the Bonds and the Refunded Bonds and to the inclusion of this report in the Transcript of Proceedings authorizing the issuance of the Bonds. November 18, 2005 8K60, LGP 400W. Capitol Avenue, Suite 2500 200 E. 11th Avenue 5000 Rogers Avenue, Suite 700 P.O. Box 3667 P.O. Box 8306 Fort Smith, AR 72903-2079 Little Rock. AR 72203-3667 Pine Bluff, AR 71611-8306 479 452-1040 Fax 479 452-5542 501 372-1040 Fax 501 372.1250 870 534-9172 Fax 870 534-2146 bkd.com Beyond Your Numbers A mn*nq uevuwweem,.evd City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds $72,000,000 Series 2005 Schedule A DEBT SERVICE REQUIREMENTS Debt service requirements by interest payment dates assuming that principal on the Series 2004 Bonds is called as follows: Date Principal Interest Total June 1, 2006 $ 0.00 $ 443,943.75 $ 443,943.75 December 1, 2006 10,485,000.00 443,943.75 10,928,943.75 June 1, 2007 0.00 253,931.25 253,931.25 December 1, 2007 10,870,000.00 253,931.25 11,123,931.25 June 1, 2008 0.00 59,750.00 59,750.00 December 1, 2008 4,780,000.00 59,750.00 4,839,750.00 $ 26,135,000.00 $ 1,515,250.00 $ 27,650,250.00 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds $72,000,000 Series 2005 Schedule B ESCROW INVESTMENTS The following investments with an issue date of November 29, 2005, will be placed with the escrow trustee: Interest Description Par Cost Rate Paid Due Date SLGS-NT $ 9,794,143.00 $ 9,794,143.00 1.985% Semi -Annually December 1, 2006 SLGS-NT 9,997,738.00 9,997,738.00 4.410% Semi -Annually December 1, 2007 SLGS-NT 4,384,462.00 4,384,462.00 4.430% Semi -Annually December 1, 2008 We have verified the arithmetical accuracy of the yield on the Acquired Obligations to be 3.849%. RESTRICTED ESCROW INVESTMENTS The following investments with an issue date of November 29, 2005, will be placed with the escrow trustee: Interest Description Par Cost Rate Paid Due Date SLGS-Cl $ SLGS-NT SLGS-NT 13,775.00 700,470.00 1,499.00 $ 13,775.00 700,470.00 1,499.00 0.000% 0.000% 0.000% At Maturity At Maturity At Maturity June 1, December June 1, 2006 1, 2006 2007 SLGS-NT 713,237.00 713,237.00 2.334% Semi -Annually December 1, 2007 SLGS-NT 307,197.00 307,197.00 4.430% Semi -Annually December 1, 2008 We have verified the arithmetical accuracy of the yield on the Restricted Acquired Obligations to be 2.407%. City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds $72,000,000 Series 2005 Schedule C ESROW CASH Cash Deposit on November 29, 2005 Debt Service Requirement on December 1, 2005 SLGS-CI, due June 1, 2006 Interest on Escrow Securities, June 1, 2006 Debt Service Requirement on June 1, 2006 SLGS-NT, due December 1, 2006 Interest on Escrow Securities, December 1, 2006 Debt Service Requirement on December 1, 2006 SLGS-NT, due June 1, 2007 Interest or. Escrow Securities, June 1, 2007 Debt Service Requirement on June 1, 2007 SLGS-NT, due December 1, 2007 Interest on Escrow Securities, December 1, 2007 Debt Service Requirement on December 1, 2007 SLGS-NT, due June 1, 2008 Interest on Escrow Securities, June 1, 2008 Debt Service Requirement on June 1, 2008 SLGS-NT, due December 1, 2008 Interest on Escrow Securities, December 1, 2008 Debt Service Requirement on December 1, 2008 0 101.12 101.12 13,775.00 434,599.05 (443,943.75) 4,531.42 10,494,613.00 429,900.69 (10,928,943.75) 101.36 1,499.00 332,693.83 (253,931.25) 80,362.94 10,710,975.00 332,693.83 (11,123,931.25) 100.52 103,920.24 (59,750.00) 44,270.76 4,691,659.00 103,920.24 (4,839,750.00) 100.00 Balance $ 100.00 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds $72,000,000 Series 2005 Schedule D VERIFICATION OF YIELD Present Value 15 -Nov -05 Interest Total Debt At Yield Of Date Principal Rate Interest Service 3.850041% 6/1/2006 S 12/1/2006 6/1/2007 12/1/2007 6/1/2008 12/1/2008 6/1/2009 12/1/2009 6/1/2010 12/1/2010 6/1/2011 12/1/2011 6/1/2012 12/1/2012 6/1/2013 12/1/2013 7,545,000.00 3.48492% 8,775,000.00 3.93162% 9,120,000.00 3.93586% 9,480,000.00 3.96519% 9,855,000.00 3.96715% 10,250,000.00 3.99112% 10,655,000.00 4.00000% 6,320,000.00 4.00000% $ 72,000,000.00 $ 1,536,335.11 1,410,920.00 1,279,451.25 1,279,451.25 1,106,951.25 1,106,951.25 927,476.25 927,476.25 739,526.25 739,526.25 544,045.00 544,045.00 339,500.00 339,500.00 126,400.00 126,400.00 $ 13,073,955.11 $ 1,536,335.11 8,955,920.00 1,279,451.25 10,054,451.25 1,106,951.25 10,226,951.25 927,476.25 10,407,476.25 739,526.25 10,594,526.25 544,045.00 10,794,045.00 339,500.00 10,994,500.00 126,400.00 6,446,400.00 $ 85,073,955.11 $ 1,506,999.61 8,618,994.09 1,208,062.25 9,314,148.04 1,006,079.85 9,119,464.47 . 811,418.94 8,933,198.10 622,779.52 8,753,494:&2 441,015.59' 8,584,648.81 264,909.35 8,416,900.22 94,938.63 4,750,423.53 $ 72,447,475.52 $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B TRANSCRIPT OF PROCEEDINGS 48 Dated as of November 15, 2005 Prepared By: KUTAK ROCK LLP 425 West Capitol, Suite 1100 Little Rock, Arkansas 72201 4828-5848-3968.1 • $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B CLOSING INDEX _•c Proceedings and Certificates Related to Election Certificate of City of Fayetteville, Arkansas (the "City") as to Election Matters Exhibit A - Ordinance No. 4327 adopted August 7, 2001, • calling a special election and levying a (0.75%) city-wide sales and use tax 2 Exhibit B - Minutes of City Council meeting held August 7, 2001, reciting adoption of Ordinance No. 4327 Exhibit C - Proof of Publication of Ordinance No. 4327 in the Arkansas Democrat -Gazette on August 10, 2001 Exhibit D — Notice of Special Election and Proof of Publication in The Morning News of Northwest Arkansas on November 1, 2001 5 Exhibit E — Copy of Ballot for Special Election 6 Exhibit F — Mayor's Proclamation of Election Results and Proof of Publication in the Northwest Arkansas Times on November 16, 2001 7 Certificate of Washington County Board of Election Commissioners Ascertaining and Declaring Results of Special Election held November 6, 2001 4828-5848-3968.1 • TAB Proceedings and Certificates Related to Bond Issuance Closing Certificate and Request of the City Exhibit A - Ordinance No. 4768 adopted October 4, 2005, authorizing issuance of the Bonds and pledging receipts of a (0.75%) city-wide sales and use tax 10 Exhibit B - Minutes of City Council meeting held October 4, 2005, reciting adoption of Ordinance No. 4768 11 Exhibit C - Proof of Publication of Ordinance No. 4768 in the Arkansas Democrat -Gazette on October 14, 2005 12 Exhibit D — Schedule of Bond Issuance Costs to be Paid at Closing 13 Form 8038-G and Proof of Mailing to Internal Revenue Service 14 Principal Documents Trust Indenture dated as of November 15, 2005, by and between the City • and Simmons First Trust Company, N.A., as trustee (the "Trustee") 15 Tax Regulatory Agreement dated November 29, 2005, by and between the City and the Trustee 16 Continuing Disclosure Agreement dated November 29, 2005, by and between the City and the Trustee 17 Escrow Deposit Agreement dated November 29, 2005, by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee") 18 Copies of Bonds 19 Bond Purchase Agreement dated November 3, 2005, by and between the City and Stephens Inc., as underwriter (the "Underwriter") 20 Preliminary Official Statement 21 Official Statement 22 Opinions Approving Opinion of Bond Counsel 23 • Supplemental Opinion of Bond Counsel 24 4828-5848-3968.1 • TAB Defeasance Opinion of Bond Counsel 25 Opinion of City Attorney 26 Bond Insurance and Surety Bonds Series 2005A Bond Insurance Policy 27 Series 2005B Bond Insurance Policy 28 Series 2005A Surety Bond 29 Series 2005B Surety Bond 30 Certificates of Bond Insurer 31 Opinion of Counsel to Bond Insurer 32 2005A Financial Guaranty Agreement 33 2005B Financial Guaranty Agreement 34 Miscellaneous • Certificates of Arkansas Department of Finance and Administration and State Treasurer as to Sales and Use Taxes 35 Trustee's Certificate 36 Escrow Trustee's Certificate 37 Underwriter's Certificate 38 Underwriter's Receipt 39 Trustee's Receipt and Certificate as to Application of Funds 40 Escrow Trustee's Receipt and Certificate as to Application of Funds 41 DTC Blanket Letter of Representations 42 Accountant's Verification 43 Standard & Poor's Rating Letters 44 Form of Requisition 45 • 4828-5848-3968.1 3 Transcripts delivered to: • City of Fayetteville, Attn: Mr. Steve Davis (1 copy) Simmons First Trust Company, Attn: Ms. Glenda Dean (1 copy) Stephens Inc., Attn: Mr. Dennis Hunt (1 copy) Fayetteville City Attorney, Attn: Kit Williams, Esq. (1 copy) MBIA Insurance Corporation, Attn: Sandra Lisanti (3 copies) Kutak Rock LLP (1 copy) I C 4828-5848-3968.1 4 1 • CERTIFICATE OF CITY AS TO ELECTION MATTERS The undersigned Mayor and City Clerk of the City of Fayetteville, Arkansas, a duly organized municipality and political subdivision of the State of Arkansas (the "City"), do hereby certify and covenant as follows: 1. The undersigned are the duly elected, qualified and acting Mayor and City Clerk of the City, and as such officials have in their possession or have access to the official books and corporate records of the City. This Certificate is executed and delivered in connection with the issuance of the City's (i) $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds" ). 2. Attached hereto as Exhibit A is a true, complete, and correct copy of Ordinance No. 4327 (the "Election Ordinance"), duly adopted by City Council of the City, at a regular meeting, open to the public, held August 7, 2001, pursuant to which there was submitted to the qualified electors of the City (i) the question of the levy of a three-quarter of one percent (0.75%) city-wide sales and use tax (the "Sales and Use Tax") under the authority of Arkansas Code Annotated (1998 Repl. & Supp. 2001) Sections 14-164-301 et seq., and (ii) the question of the issuance of up to $125,000,000 of bonds secured by receipts of the Sales and Use Tax. Attached hereto as Exhibit B is a true, complete and correct copy of the minutes of a duly called regular meeting of the City Council, open to the public, held August 7, 2001, reciting the adoption of the Election Ordinance, as said minutes appear in the official records of the City; at • the meeting a quorum was present and acted throughout; the Election Ordinance is in full force and effect and has not been altered, amended, or repealed as of the date hereof. No petition or petitions to refer the Election Ordinance to the people under Amendment No. 7 to the Constitution of the State of Arkansas has been filed as of the date hereof and the City Council has not referred the Election Ordinance to the people for adoption or rejection. Attached hereto as Exhibit C is a true, complete, and correct copy of a publisher's affidavit showing publication of the Election Ordinance in the Arkansas Democrat -Gazette on August 10, 2001. 3. The meeting of the City Council referred to in paragraph 2 hereof was open to the public in compliance with the provisions of Section 25-19-106 of the Arkansas Code Annotated, as amended and supplemented. 4. The City has not adopted any by-laws or rules of procedure relating to the conduct of its meetings. 5. Regular meetings of the City Council are held on the first and third Tuesdays of each month. 6. In the City the time for filing a referendum petition is fixed at 31 days after the publication of local measures passed by the City Council of the City. 7. Attached hereto as Exhibit D is a true, complete and correct copy of the Notice of Special Election and a true, complete, and correct copy of a publisher's affidavit showing • publication of the Notice of Special Election in The Morning News of Northwest Arkansas on November 1, 2001. 48494311-8592.1 • 8. Attached hereto as Exhibit E is a true, complete and correct copy of the official ballot utilized in the Special Election. 9. Attached hereto as Exhibit F is a true, complete and correct copy of a Mayor's Proclamation of Election Results declaring the results of the Special Election and a true, complete, and correct copy of a publisher's affidavit showing publication of the Proclamation in the Northwest Arkansas Times on November 16, 2001. IN WITNESS WHEREOF, the undersigned have hereunto set their hands this 29th day of November, 2005. CITY OF FAYETTEVILLE, ARKANSAS • r 1TY FAYETTEVILLE; (SEAL) Sondra Smith, City Clerk 4849-4311-8592.1 2 2 • pG, IS FjJ ORDINANCE NO. 4327 CO P 4Yy AN ORDINANCE CALLING AN ELECTION ON THE QUES"I-IONi OF tYi3. fl ISSUANCE OF NOT TO EXCEED ONE HUNDRED TWENTY -Fly ;'r MILLION DOLLARS ($125,000,000) OF CAPITAL IMPROVEMENT BOND BY THE CITY FOR THE PURPOSE OF FINANCING ALL OR A PORTION OF THE COSTS OF THE ACQUISITION, CONSTRUCTION, RECONSTRUCTION, EXTENDING, IMPROVING AND EQUIPPING OF C' WASTEWATER TREATMENT PLANTS, SEWERAGE, AND RELATED FACILITIES; LEVYING A SPECIAL LOCAL SALES AND USE TAX AT �y THE RATE OF THREE-QUARTERS OF ONE PERCENT (0.75%) WITHIN THE CITY TO BE PLEDGED TO THE PAYMENT OF THE BONDS, WHICH LEVY SHALL CEASE UPON RETIREMENT OF THE BONDS; CALLING AND SETTING A DATE FOR A SPECIAL ELECTION ON THE QUESTION OF THE ISSUANCE OF THE BONDS; DEFINING THE TERM "SINGLE TRANSACTION"; AND PRESCRIBING OTHER MATTERS PERTAINING THERETO. WHEREAS, the City Council of the City of Fayetteville, Arkansas recognizes and determines there is a great and pressing need to substantially increase the City's wastewater treatment capacity; and �• WHEREAS, if the citizens of Fayetteville elect to use a special citywide sale tax to finance this capital improvement, many millions of dollars of financing expense would be saved in comparison with financing this improvement by a large increase in sewer rates for the customers of the Fayetteville wastewater system; and WHEREAS, the City Council of the City of Fayetteville, Arkansas has determined that there is a great need for additional sources of revenue to finance capital improvements to meet the needs of the residents of the City; and WHEREAS, Title 14, Chapter 164, Subchapter 3 of the Arkansas Code of 1987 Annotated (the "Local Government Bond Act of 1985") authorizes the issuance of capital improvement bonds by cities, which bonds may be secured by the pledge of the receipts of the special citywide sales and use tax prescribed by the Local Government Bond Act of 1985; and WHEREAS, said special citywide sales and use tax is to be levied and collected only on the first $2,500 of each single transaction; and WHEREAS, an existing citywide sales and use tax is presently being levied pursuant to the Local Government Bond Act at the rate of One Percent (1%), which levy C' • • Ord. No. 4327 (• expires on March 31,2002; and WHEREAS, if approved by the electors of Fayetteville the City Council of Fayetteville, Arkansas has determined to issue its capital improvement bonds in principal amount not to exceed One Hundred Twenty -Five Million Dollars ($125,000,000) for the purpose of financing all or a portion of the costs of the acquisition, construction, reconstruction, extending, improving, and equipping of wastewater treatment plants, sewerage and related facilities, which Bonds are to be secured by the pledge of all of the receipts of a three-quarters of one percent (0.75%) special citywide sales and use tax, as authorized by the Local Government Bond Act; and WHEREAS, the purpose of this Ordinance is to call a special election on the issuance of the Bonds by the City of Fayetteville, and to define the term "single transaction"; NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Fayetteville, Arkansas: Section 1. That under the authority of the Local Government Bond Act and subject to the approval by the electors of the City of Fayetteville as provided in Section 3 C• below, there is hereby authorized the issuance of the City's capital improvement bonds in the aggregate principal amount of not to exceed One Hundred Twenty -Five Million Dollars ($125,000,000) (the "Bonds") for the purpose of financing all or a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities. (the "Project"). If the issuance of the Bonds is approved by the electors of the City, the Bonds may thereafter be issued in one or more series from time to time in an aggregate principal amount not to exceed the principal amount approved by the City's electors. If approved by the electors of the City and issued, the Bonds shall be secured by a pledge of and a lien upon all of the receipts of a three-quarters of one percent (0.75%) special citywide sales and use tax (the "Sales and Use Tax"), as authorized by the Local Government Bond Act. Section 2. That under the authority of the Local Government Bond Act and subject to approval by the electors of the City as provided in Section 3 below, there is hereby levied the Sales and Use Tax at the rate of three-quarters of one percent (0.75%) on the gross receipts from the sale at retail within the City of all items which are subject to the Arkansas Gross Receipts Act of 1941, as amended (Arkansas Code of 1987 Annotated §26-52-101 et seq.), and an excise (or use) tax on the storage, use, distribution or other consumption within the City of tangible personal property purchased, leased (•or rented from any retailer outside the State of Arkansas after the effective date of the Sales and Use Tax for storage, use, distribution or other consumption in the City at the 2 •. Ord. 4327 • �• rate of three-quarters of one percent (0.75%) on the sale price of the property or, in the case of leases or rentals, on the lease or rental price, the rate of the use tax to correspond to the rate of the sale tax. The use tax portion of the Sales and Use Tax shall be collected according to the terms of the Arkansas Compensating Tax Act of 1949, as amended (Arkansas Code of 1987 Annotated §26-53-101 et seq.). The Sales and Use Tax shall be levied and collected only on the first $2,500 of each "single transaction" (as defined in Section 9 hereof). The levy and collection of the Sales and Use Tax shall commence on April 1, 2002 and shall cease upon retirement of the Bonds. Section 3. That there be, and there is hereby called, a special election to be held on Tuesday, November 6, 2001, at which election there shall be submitted to the electors of the City the question of the issuance of the Bonds. Section 4. That the question shall be placed on the ballot for the special election in substantially the following form: There is submitted to the qualified electors of the City of Fayetteville, Arkansas, the question of the issuance of capital improvement bonds in principal amount not to exceed One Hundred Twenty -Five Million Dollars [$125,000,000] (the "Bonds") pursuant to Title 14, Chapter 164, Subchapter 3 of the Arkansas Code of 1987 Annotated (the "Local Government Bond Act of 1985") for the purpose of financing all or a portion of the costs of the acquisition, construction, reconstruction, extending, improving and equipping of the Wastewater System Improvement Project which encompasses building and equipping a second wastewater treatment plant, modifying, extending and improving the sewer collection system, reconstruction and improving the current wastewater treatment plant, making land and equipment purchases, procuring construction and professional services, obtaining regulatory approvals and permits, and doing all other necessary things to increase and improve the City of Fayetteville's wastewater treatment capacity and related facilities. If the issuance of the Bonds is approved, the Bonds shall be secured by a pledge of and lien upon all of the receipts of a special citywide sales and use tax at the rate of three-quarters of one percent (0.75%) levied pursuant to the Local Government Bond Act (the "Sales and Use Tax"). If the issuance of the Bonds is approved, the levy and collection of the Sales and Use Tax shall commence on April 1, 2002 and shall cease upon retirement of the Bonds. C' • • Ord. 4327 Vote on the question by placing an "X" in one of the squares following the question, either for or against: FOR the issuance of Bonds in principal amount not to exceed One Hundred Twenty -Five Million Dollars ($125,000,000) for the purpose of financing all or a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and other related improvements .......... ... ..❑ AGAINST the issuance of Bonds in principal amount not to exceed One Hundred Twenty -Five Million Dollars [$125,000,000] for the purpose of financing all or a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and other related improvements ............... O Section 5. That the election shall be held and conducted and the vote canvassed and the results declared under the law and in the manner now provided for Arkansas municipal elections unless otherwise provided in the Local Government Bond Act, and only qualified voters of the City shall have the right to vote at the election. The City Clerk is hereby directed to give notice of the special election by one advertisement in the Northwest Arkansas Times, the publication to be not less than ten (10) days prior to the date of the election. Section 6. That a copy of this Ordinance shall be given to the Washington . County Board of Election Commissioners so that the necessary election officials and supplies may be provided. A certified copy of this Ordinance and a map clearly showing the boundaries of the City shall also be provided to the Director of the Department of Finance and Administration and to the Treasurer of the State of Arkansas as soon as practical. Section 7. That the results of the special election shall be proclaimed by the Mayor, and his proclamation shall be published one time in the Northwest Arkansas Times. The proclamation shall advise that the results as proclaimed shall be conclusive unless attacked in the Circuit Court of Washington County within thirty (30) days after the date of publication of the proclamation. Section 8. That the Mayor and the City Clerk, for and on behalf of the City, be, and they hereby are authorized and directed to do any and all things necessary to call and hold the special election as herein provided and, if the levy of the issuance of the Bonds is approved by the electors, to cause the Sales and Use Tax to be collected in C0 El 0 • Ord. 4327 accordance with the Local Government Bond Act, and to perform all acts of whatever nature necessary to carry out the authority conferred by this Ordinance. Section 9. That, for purposes of the Sales and Use Tax, the term "single transaction" is defined according to the nature of the goods purchased as follows: A. When two or more devices in which, upon which or by which any person or property is, or may be, transported or drawn, including, but not limited to, on -road vehicles, off -road vehicles or farm vehicles, whether required to be licensed or not, airplanes, water vessels, motor vehicles, non -motorized vehicles and mobile homes, are sold to a person by a seller, each individual unit, whether part of a "fleet" sale or not, shall be treated as a single transaction for the purposes of the Sales and Use Tax; B. Charges for utility services which are subject to the Sales and Use Tax, and which are furnished on a continuous service basis, whether such services are paid for daily, weekly, monthly or annually, shall be computed in daily increments, and each such daily charge increment shall be considered to be a single transaction for the purposes of the Sales and Use Tax; C. For sales of building materials and supplies to contractors, builders or other persons, a single transaction, for the purposes of the Sales and Use Tax, shall be deemed to be any single sale which is reflected on a single invoice, receipt or statement, on which an aggregate sales (or use) tax figure has been reported and remitted to the State of Arkansas; D. When two or more items of major household appliances, commercial appliances, major equipment or machinery are sold, each individual unit shall be treated as a single transaction for the purposes of the Sales and Use Tax; and E. For groceries, drug items, dry goods and other tangible personal property and/or services not expressly covered in this Section 9, a single transaction, for the purposes of the Sales and Use Tax, shall be deemed to be any single sale which is reflected on a single invoice, receipt or statement, on which an aggregate sales tax figure has been reported and remitted to the State of Arkansas. C0 0 • Ord. 4327 Section 10. That Kutak Rock LLP is hereby engaged as Bond Counsel and Stephens Inc. is hereby engaged as Underwriter or Financial Advisor, as appropriate, with respect to the issuance of the Bonds. The fees and expenses of Bond Counsel and the Underwriter or Financial Advisor shall be a cost of issuance of the Bonds to be paid with Bond proceeds, if allowed. Section 11. That all ordinances and parts thereof in conflict herewith are hereby repealed to the extent of such conflict. PASSED AND APPROVED this 7th day of August, 2001. APPROVED: I�r By: He4fher Woodruff, City Clerk (SEAL) CERTIFICATE OF RECORD CERTIFICATE State of Arkansas l ss. City of Fayette. :a ! I, Heather Woodruff, City Clerk/Treasurer for the City of Fayetteville, do hereby certify that the foregoing instrument is a true and correct copy of the original filed in my office on the ____ _, day of _. _-. .; nand and lea WooOr Clerk/rreas e►(/ The undersigned, City Clerk of the City of Fayetteville, Arkansas, hereby certifies that the foregoing is a true and perfect copy of an Ordinance adopted at a regular meeting of the City Council of the City of Fayetteville, Arkansas, held in Room 219 of the City Administration Building at 6:30 p.m. on August 7, 2001. DATED: August 8, 2001 Woodruff, CiityClerk MINUTES OF A MEETING OF THE CITY COUNCIL AUGUST 7, 2001 A meeting of the Fayetteville City Council was held on August 7, 2001 at 6:30 p.m. in Room 219 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. PRESENT: Mayor Coody, Aldermen Santos, Jordan, Reynolds, Thiel, Young, Zurcher, Trumbo, and Davis, Interim City Attorney Kit Williams, Deputy City Clerk Gina Roberts, Staff, Press, Audience. Mayor Coody congratulated city employees; Scott Caldwell, John Goddard, and Clyde Randall for their Special Achievement in GIS Award. Mayor Coody stated they were putting the finishing touches on an agreement with the Boys and Girls Club, which will be presented to the City at the next Council meeting. Mike Hill, Boys and Girls Club, stated they had been working with the City Staff on an agreement and that they should be presenting it at their next meeting. AUDIT COMMITTEE REPORT �• Mr. Marty Bryan, Chairman of the Audit Committee, stated the Audit Committee had been established October 3, 2000, its purpose was to serve as an advisory capacity between the City Council, Independent Auditor, Internal Auditor, and the Management, audit internal controls and compliance. The committee was comprised of four people, one city council member and three private citizens. Their responsibilities were to serve on the review committee to select the external auditor, review the city's annual financial status, including any certification or report rendered by the independent auditor, review the performance of the independent auditors and review financial and accounting personnel adequacy and the effectiveness of the accounting and financial controls of the city and to advise the city council on any issues reported by internal audit staff. The results of the 2000 audit was an unqualified clean opinion. In accounting, that was excellent. There were no disagreements with management on financial reporting matters and no scope limitations related to audit work. There was open and affective communication with management. We received a certificate for excellence in financial reporting and budgeting for the twelfth consecutive year from the GFOA (Government Finance Officers Association). CONSENT AGENDA APPROVAL OF THE MINUTES Approval of the minutes from the July 17, 2001 meeting. City Council Minutes �• August 7, 2001 Page 2 RAVEN TRAIL AND GULLEY PARK TRAIL: A resolution awarding the construction contract for Raven Trail and Gulley Park Trail to Jeny D. Sweetser in the amount of $190,605.50 and approving funding for the project contingency and material testing for the projects. REMOVED FROM THE CONSENT AGENDA. OLD MISSOURI: A resolution approving amendment number one, in an amount not to exceed $24,947 to the engineering services contract with Garver Engineers for additional conceptual designs and cost estimates for improvements to Old Missouri Road from the intersection of Rolling Hills north to Mud Creek Bridge. RESOLUTION 109-01 AS RECORDED IN THE OFFICE OF THE CITY CLERK. GREGG STREET: A resolution agreeing to pay for right-of-way and the movement of utilities, if the Highway Department widens Gregg Street from Township to the Bypass. RESOLUTION I10-01 AS RECORDED IN THE OFFICE OF THE CITY CLERK. • TRACKING SYSTEMS: A resolution certifying local government endorsement of Tracking Systems to participate in the Advantage Arkansas Program also known as the Arkansas Enterprise Zone Program. RESOLUTION 111-01 AS RECORDED IN THE OFFICE OF THE CITY CLERK CARGO VAN: A resolution approving the purchase of a 2001 Ford E-1 50 Cargo Van for the sum of $21,164.00 from Ron Blackwell Ford. This unit will be used by the Police Department. RESOLUTION 112-01 AS RECORDED IN THE OFFICE OF THE CITY CLERK. Alderman Davis moved to approve the Consent Agenda. Alderman Santos seconded the motion. Upon roll call the motion carried unanimously. RAVEN TRAIL AND GULLEY PARK TRAIL: A resolution awarding the construction contract for Raven Trail and Gulley Park Trail to Jerry D. Sweetser in the amount of $190,605.50 and approving funding for the project contingency and material testing for the projects. Mr. Greg Boettcher, Public Works Director, stated the Arkansas Highway and Transportation Department awarded to the city a sum of $750,000 for multi -use trails in Fayetteville. This grant is eighty -percent of the eligible project costs, with the city providing a sum of$187,500 to go with that. The Raven and Gulley Trails which they were considering tonight constitute some $223,196, which (• was about twenty-three percent of their $937,500 total project funding. Joyce Boulevard, East Mud City Council Minutes �• August 7, 2001 Page 3 Creek and West Mud Creek(CMN Property) are other trails which have been designed. They have been submitted to the Arkansas Highway and Transportation Department. They were expecting approval to bid those in September. They were moving ahead on these projects. The current funding that they have of $937,500 is not expected to be adequate to do all five trails. What they were planning to do was the West Mud Creek Trail which will be segmented into bid units, so they could tailor the last piece of the project to use all of the enhancement funds. There will be additional funding cycles which they hoped to apply for and move forward. At this point, Paul Libertini in the Engineering Division had been a key individual in moving this ahead and designing for the five trails. As it moved forward, the Trails Coordinator would pick up and work with Engineering on those. There was a map showing where the trails are. Alderman Thiel stated it was wonderful that they had been able to obtain funding. As alderman for Ward One, she knew they were working on a Walker Park Trail. Mr. Boettcher stated there would be future funding cycles. In the case of these funds that have been awarded they were project specific and must be used for the five trails the Highway Department identified. Alderman Davis stated they had purchased land for the Prairie Creek Trail which went from Sixth Street to the Walton Art Center area. The intent at the start of this project was to find land that the city owned, which happened to be in Ward Three. Mayor Coody stated they had received notice today that the Transportation Enhancement Funds were becoming available. They were going to start applying for more grant money. Alderman Davis thanked Chuck Rutherford for all his work on putting this together. Alderman Davis moved to approve the item. Alderman Thiel seconded the motion. Upon roll call the motion carried unanimously. RESOLUTION 113-01 AS RECORDED IN THE OFFICE OF THE CITY CLERK. OLD BUSINESS SPECIAL SALES TAX ELECTION: An ordinance calling a special election to decide whether or not to approve a three -fourths cent (%/) sales and use tax to fund the issuance of not to exceed one hundred twenty-five million dollars of Capital Improvement Bonds to finance all or a portion of the acquisition, construction, reconstruction, extending, improving and equipping of wastewater treatment plants, sewerage and related facilities. The ordinance was left on the second reading. (• Alderman Trumbo stated that they had a number of public hearings. Bringing this forward would City Council Minutes August 7, 2001 Page 4 allow the public the right to vote on whether or not to go forward with the proposed new wastewater treatment plant, retrofitting their existing plant, and improving their collection system. This was not just about adding capacity, it was also about clean water. This was a lot of money. They had a number of public hearings and had talked at length about the three percent revolving loan, which was available to the city. It was unprecedented in terms of the low interest cost. They had talked about the fact that if this was defeated that they still have to do fifty million dollars of improvements to their existing plant which would mean doubling sewer rates for existing rate payers. They had looked at all the different financing mechanisms, the interest costs and the amortization, the schematics, the plans. He just thought it was time to move forward and to let the general public vote on this proposal on floating a bond and to do what was right for Fayetteville. There were those who wanted to defeat this to shut down growth in Fayetteville. That was not what this was about. It was adding capacity, but it was also increasing the technology of their existing facility and adding more capacity. It was an ongoing process of fixing up their collection system and it would allow them to not take slug all the way across Fayetteville. Mayor Coody stated they had been given an administrative order back in 1989 from the EPA that put them on notice that they had to improve their sewer system. They were under this executive order until 1995 when they started going through the process of starting the engineering of a new system and rebuilding their antiquated infrastructure and building a new plant on the west side of town. �• Once they saw us making serious headway, they lifted the order. They did not have a choice about building a sewer plant. The plant was just one quarter of the project. The entire sewer system was what they were having to rebuild. They did not have an option. The election was basically going to be asking the question of how they would pay for it. They were giving the voters a chance to approve the three-quarter cent sales and use tax. He personally felt that when they looked at the money they would be saving by doing this, they would save twenty-six million dollars in interest. They would also pay for it in half of the time, ten years verses twenty. If the voters turned down a three-quarter cent sales tax, they would be locked into having to find another funding mechanism to rebuild the system with. The only other option that could be used as collateral for this debt would be an increase in sewer rates. Sewer rates and sales tax were the two most predictable incomes the city has. If they did not have the sales tax, they will have to have a substantial increase in sewer rates. That would narrow their pool on the number of people who would be paying for it. They had to let people know it was not a question of if they were going to get a new system, the question was what mechanism of funding will they chose to pay for it. Alderman Trumbo stated they were over taxing Fayetteville. They were paying eight and one -eight percent city tax. One penny of that was for the HMR, One for Parks, one general fund and one for capitol improvements. He stated the library tax would sunset and this tax would pickup. The people voted and said that they wanted the Town Center, the Library, and the two mills for the Senior Center added to the property taxes. They were over taxed, but there were city services and needs they were having to make democratic decisions on. �• City Council Minutes August 7, 2001 Page 5 Alderman Young moved to suspend the rules and go to the third and fmal reading. Alderman Davis seconded the motion. Upon roll call the motion carried unanimously. Mr. Williams read the ordinance for the third and final time. Alderman Young stated hotels and motels were collecting 12.125%. Restaurants were collecting 10.125%, every one else was collecting 8.125%. In response to questions from Alderman Zurcher, Mr. Steve Davis stated there were approximately 29,000 sewer system customers, which included Fayetteville, Greenland, Farmington and Johnson. Alderman Reynolds stated there were 2,199 customers outside the City of Fayetteville. Mr. Davis stated there was a single connection to Elkins. They had one customer, which was the city of Elkins. They did not have any control over how many connections that they had. They did not do anything past that one connection with Elkins. It was based on volume. Alderman Trumbo stated he had heard some people say why didn't they just shut off the communities that were not in Fayetteville and let them build their own plant. He asked if they had long standing contracts with those municipalities for service. Mr. Davis stated that was correct. The closest contract that they had would expire in 2008. Alderman Zurcher stated it would be unfair to charge just the rate payers in Fayetteville to pay for this thing. At the same time to completely rely on a sales tax wasn't fair either. He asked if the communities that did not have their own sewer plants could they pitch in a little more. Can the industries pitch in a little more. Could they not raise them. He would like to look more at a package than just one thing that they were going to vote on. Mayor Coody stated about five years from now, they would have to have a relative small rate increase on their sewer fees. They were going to do everything that they could to come in under budget on this project. They will have to increase sewer rates five years from now once the plant goes on line. They will have to have the money to operate. They will see an increase in there sewer rates in the year 2005 or 2006. That would be the first rate increase in about nine years. To do a package deal to use different mechanisms to fund this might complicate their bond issue. Mr. Hunt stated that they needed to keep in mind that the revolving loan fund only allowed the one sales tax that they were talking about that they could pay off early. If they decided to combine with anything other than the one sales tax they would not be able to pay off as early with the other revenues. That was one of the reasons that they felt that from the perspective of participating in the Revolving Loan Fund and maximizing their ability to reduce their interest expends that it made sense �• for them to use the sales tax alone in this case. Only this specific sales tax, there were other sales tax City Council Minutes �• August 7, 2001 Page 6 that the revolving loan fund would not allow them to do. The statute specifically state that it was the only thing they could use this sales tax for was to pay off the debt. The State was not going to say they could not use the sales tax to do that, so they allowed them to do early redemption or paying it off early. That was one of the key advantages of reducing their interest because they had the money coming in. From the current numbers, it looks like they would be able to pay it off in 2015. With a Revenue Bond issue they would be talking about going out to 2025. That was where the twenty-six million dollars in additional interest expenses would come in. It would be a slightly higher rate, plus they could not pay off early. If they did not use the Revolving Loan method and went out into 'the open market then they would be talking about nearly fifty million dollars in additional interest. In response to questions, he stated with the Revolving Loan there would be a ten year call protection. After ten years they could use any resource to help pay down the loan, but they would still have the ten year period that they could not make any redemptions. Mayor Coody stated he had seen in the paper where they were going to have an election on November 20 for Asa Hutchinson's position. Would it be a mistake to move the election from November 6 to November 20. (,r"` Mr. Wilburn stated the statute stated "general or special election". It really did not matter. \� Mayor Coody asked if it would affect their timing? Mr. Wilburn stated they could push it back that far. Alderman Young stated they did not know the exact date of the election. Mr. William stated this was a one hundred and twenty-five million dollar bond issue. If they changed the date of the election they might present an opening for someone to challenge this. They had worked very hard to make sure that this particular ordinance was very legal and constitutional and covered all the bases. He would hate for something which represented such a tiny amount of the bond issue to endanger a potential bond issue. He stated they needed to chose a date tonight. If they wanted to chose November 20, then they could amend Section Three. They could move to reconsider this amendment at their next council meeting. They could not come back anytime they wanted to amend this ordinance without leaving opening for someone to challenge this. Mayor Coody stated the money to him was a small factor in this. One of the things he had heard quite often was that the public felt that they had special elections in order to time it when people were out of town and only the interested people would show up. It would not hurt to make the extra effort to try and get the public to understand they wanted as many people as possible to come to this. Alderman Young stated November 20 was not as good a date as November 6. Have an election just City Council Minutes August 7, 2001 Page 7 before Thanksgiving when a lot of people were out of town. Alderman Zurcher moved to table the ordinance. In response to questions, Mr. Williams stated the next item if it passed would postpone any ordinance for ninety days. That would get them outside time frame. Anytime they were dealing with a large bond issue like this they needed to be as clean as possible and to follow the law exactly and not through any new legal changes. They did not want to push the envelope and be creative when it came to something like this. His advice to them was to go as straight as possible. They did not want to give any room for challenges. The more they played around with this the more openings could happen. They had studied the issue very carefully and had come up with this ordinance after a lot of work. This ordinance right now as it was written, they knew what would it do. If they started changing things on the fly he could not tell them what it would do. When they were dealing with one hundred and twenty-five millions dollars they did not want to learn after the fact that they had made a mistake and that someone could claim that they were confused on what they were voting on. Or that they confused the voters by changing the dates or putting a date in that was not certain and that was set by someone else. They did not want to do anything like that. They wanted it to be clear to the voters exactly what the issue was. C• Alderman Thiel asked Mr. Wilburn if he was in total agreement with Mr. Williams. Mr. Wilburn stated he agreed with Mr. Williams. They needed to go straight down the line with what had been proven and up held. Alderman Zurcher again moved to table the item to the next meeting. The motion failed from lack of a second. Alderman Jordan stated the three-quarter sales tax was the best way that they could go with that. He felt sales taxes were regressive, but in this case he thought the alternative to doubling the sewer rate, that the three-quarter sales tax was the better way to go. He had always been in favor of putting taxes before a vote of the people. This was no exception. If the people voted this down, do not expect him to support doubling people's sewer rates. Mr. Geary Lowery, an area resident, stated he would like to inform them of a rumor that the proposed west side treatment plant already needed expansion to include other communities that lie west of Fayetteville and other communities wanting on line to the Fayetteville Sewer Plant. At another meeting it had been proposed that a park could go around the new sewer plant. At that time the Mayor stated they might need that land for expansion. The number ofpeople using our sewer out side of city limits was one large main tap to Elkins which served them at the current rate of four hundred and seventy-nine sewer connections. Who they were and what they were, the city did not (• know. They had sixty three commercial taps in Farmington. They had twenty two commercial and C City Council Minutes August 7, 2001 Page 8 industrial taps in Greenland. In the growth area they had one large major industrial tap. They had twelve hundred and seventy five residential taps in Farmington, three hundred and eleven in Greenland, four hundred and seventy nine in Elkins and one hundred and fifty eight in Johnson and twenty two in the growth area They currently had twenty four other from Farmington and twenty one other Greenland, and one other for the city of Elkins. He had been trying to get some figures from OMI. Everyone seemed concerned about the infill and age of our sewer lines. They had a lot of problems. They needed to improve their system. He was upset at the cost and that it was only going to be for Fayetteville. It was for Fayetteville and the other communities surrounding us. He was tired of this city taking a hit. There were people within city limits that did not have sewer service who would like to have it. Before they expanded anymore or any more sewer taps were given to anyone else, they needed to tap into their own constituents. It was the duty of the city to service all of the citizens. In the last five years this city has had revenue profits in excess of five million dollars a year in revenue capital improvement money for the sewer system. Why did they need to increase their rates in the next five years, if they had five to nine million dollars available for sewer improvements. Mr. Jeff Erf, an area resident, stated he would like to pin point the numbers that they were talking about for the sewer treatment plant. He asked that they correct him if he was wrong. So far they had CO spent about seven million dollars already towards this project for land, engineering and other related costs. The engineer was estimating that the current cost for the plant and improvements to the Noland Plant and other associated costs was one hundred and twenty million dollars. Mr. Greg Boettcher stated that was correct. Mr. Erf asked if that included construction cost, engineering, legal and administrative costs? Mr. Boettcher stated it also included some contingencies on construction. Mr. Erf stated that the amount of bonds that would need to be sold was about a hundred and fifteen million and five of that came from a bond issue that had been approved last year and carried over to this year for a total of one hundred and twenty million dollars ofmoney that was available for capital costs. The interest on the hundred and fifteen million dollars was roughly twenty and a half million dollars. Mayor Coody stated that was correct. Mr. Erf stated if he tallied up the seven million they had already spent, the one hundred and twenty million construction cost and related expenses and the interest on all of that, he came up with one hundred and forty seven million and one half dollars. He asked if that seemed right for total project cost or the amount of tax payer dollars which would be spent on the project as estimated today. • In response to comments from Mr. Hunt, Mr. Erf stated the total project cost would be nearly one hundred and fifty million dollars. The ballot was asking the voters to approve a bond issue up to one �• City Council Minutes August 7, 2001 Page 9 hundred and twenty five million dollars. Another thing that concerned him was if the voters voted against this bond issue, what did that mean? Mayor Coody replied they could raise sewer rates. If they did not correct their system and get it in line with what the EPA required then not only could they shut them down, but they could fine them twenty five thousand dollars per occurrence. Mr. Erf stated he did not believe the EPA was requiring that the city of Fayetteville provide capacity for eighty five thousand people. He questioned if the voters turned this down in November did the rates have to go up. He thought they needed to put that on the ballot. Mayor Coody stated he was exactly right, but whether the legal department agreed with him or not was another question. Mr. Erf stated he had problem with the choice of "being build " or "build it". They were only talking about how to pay for it. That concerned him. If they were going to see this as a mandate, then that meant they were voting for a rate increase. •Mayor Coody stated they did not want to be in the position of having the public think that if they voted down the three-quarter cent and then they skyrocketed the sewer rates. The public will then say that the city was shoving the rate increase down their throat so that they could get what they want. They kept talking about the need for this project and the fact that it was really the question of how they were going to pay for it. They were trying to make it as clear as they could. They had to let the public know what they were dealing with. Even if not another person moved into town, they had to rebuild their system. Right now they were pumping all their waste from the west side of town through nine lift stations, over the ridge, and down to the Paul Noland Plant and then they were sending it right over the mountain again to the Illinois River. They were trying to do as much as they could with the public. There was one lift station where the sewage crosses the ridge three times to get treated once. They would be able to eliminate nine lift stations and all the required industrial and electrical pumping that went with that. It should decrease their operating cost. Mr. Erf stated it was his understanding that after the new plant was on line and the old plant was improved and all the pipes were put in that they were talking about, an increase in twenty-eight percent for operation and management of the new system. Any saving from the removal of the lift stations was eliminated. Mr. Boettcher stated that grade was calculated on 2005. It was predicted for four years ahead rather than today's dollars. Mr. Erf stated if the voters were to approve this bond issue, it permitted them to go up to one hundred and twenty five million dollars in bonds. Could any of that be used for maintenance or City Council Minutes August 7, 2001 Page 10 operation expenses? Mayor Coody replied they could not, it was for the building and construction. He hoped the public realized that those were the choices. This project started ten years ago. It was time they did something. Doing nothing was simply not an option. Mr. Erf asked if there would be an ordinance in place regarding impact fees before the election. Mayor Coody replied things did not move that fast around here. Mr. Earnest stated impact fees would still be in discussion at the time of the election. Alderman Thiel stated it was her understanding that they could use the impact fees for sewer capacity needs and not to pay the bonds off. It was not going to make her shy away from impact fees, just because they could not be used directly towards this. Alderman Zurcher stated he was going to have trouble supporting this issue if he did not know before hand that the developers were going to pay their fair share by using impact fees. 4, Alderman Thiel stated the people who had lived here for a long time had paid their dues. Some of the affect of.the growth needed to be paid for by the people that were creating the need. Alderman Zurcher moved to amend Section Three from "November 6,2001", to "this election would fall on the same day that would be set by Governor Huckabee for the election for the third congressional district seat". Alderman Davis stated their bond council agreed with Mr. Williams. Since both of them felt the same way, they were probably correct. The motion died from lack of a second. Mayor Coody asked shall this ordinance pass. Upon roll call the ordinance passed unanimously. ORDINANCE 4327 AS RECORDED IN THE OFFICE OF THE CITY CLERIC REFERENDUM PETITIONS: An ordinance amending Section 36.15 of the Code of Fayetteville to change the number of days allowed for referendum petitions to be filed from thirty-one days to ninety days. The ordinance was left on the first reading. Alderman Young moved to suspend the rules and move to the second reading. Alderman �• Jordan seconded the motion. Upon roll the motion carried unanimously. City Council Minutes August 7, 2001 Page 11 Mr. Williams read the ordinance for the second time. Mr. Hunt stated they had brought bond issues to them in the past and that it was important that they take all three readings in one evening because investors had indicated they would buy the bonds, but they did not want to be delayed over a ninety -day period. The market could change dramatically during that period of time. There would become a resistance on the part of the investors to purchase bonds. He thought they needed to be concerned that Arkansas was one of very few States that had the thirty -day referendum requirement currently for bond issues. This was a concern if this was an interest rate environment where interest rates were creeping up. If they went to the ninety -days, he thought they would be compounding that problem significantly. In terms of financing a bond issue, they should seriously consider the implications it would have. Someone was going to buy the bonds, the city was going to be the one taking the interest rate risk. They were going to want a higher interest rate, because they were talking about such an extended period of time. They were not only talking about ninety -days, they would be talking about hundred and ten days before the ordinance was completed. Alderman Zurcher asked if an emergency clause would work? Mr. Williams stated they would have to be very careful with an emergency clause. Generally they had to be for peace and safety as opposed to money. When they were dealing with large bond issues, that made it a target. If they did not have a good reason to have an emergency clause, then that was another way that they could be challenged. That was why they did not have an emergency clause here. Mr. Wilburn stated even with the emergency clause they would still wait thirty -days. If the ordinance passed they would wait ninety -days. The supreme court has cracked down on the use of the emergency clause. People were putting them on every thing. For them to be comfortable to close a multi -million dollar bond issue they would wait the thirty or ninety -days. If the ordinance was not validly adopted, it was his opinion on the line. Mayor Coody stated he was concerned about extending this to ninety -days because they already had initiated referendum on the books. Anyone at anytime can put something on a ballot to be voted on without having to do it in thirty-one days. They could spend up to a year and a half to get something on a ballot. Alderman Young stated he did not think that was correct. He thought they had sixty or ninety -days. Mr. Williams stated if someone wanted something on the ballot they could go through the initiated 1. ballot process. He was not sure when they could start collecting the petitions, but they would have �- City Council Minutes (\D August 7, 2001 Page 12 time to get very organized and have their people ready to go out. If they had an issue they were concerned about, they could get their group together and get organized. They would have plenty of lead time to get on the general election ballot. Mayor Coody stated that within the last ten years there has only been two ordinance that have been questioned with a petition. They had passed over forty ordinance this year alone. Alderman Thiel asked if they would consider forty-five days. In responses to suggestions from Aldermen, Mr. Williams stated Amendment 7, and stated they needed to pick a date and that was when they took affect or the deadline for the referendum. The City Council was not given the right to fine tune it as they went along, ordinance by ordinance. The City Council had to chose a time or if they did not chose a time, then it was ninety -days. He could find nothing in Amendment 7 which would allow a city council to make exceptions for ordinances which were going to be challenged. Amendment 7 was part of their constitution. They had to fall within that framework. They could not go outside either the statutory or the constitutional law. Mayor Coody stated by using parliamentary procedure they had the option to use a motion to reconsider. Mr. Williams stated there were parliamentary ways that they could postpone the affect date of an ordinance. Normally that was not a good thing to do in a tax sort of issue. A lot of these have not been tested in court. But it was a potential possible way it could be done. Alderman Zurcher stated that defeated the purpose of allowing citizens to get something on a ballot. What they were doing was not always the best decision. This would give people the chance to petition the government to put it to a vote. That was different than us allowing it. This would allow them the time to do, because we would not do it. It was not because they agreed with us. It was giving away a little bit of their power to the people and who wanted to give up power. This made him want to almost want to vote wrong so that he would be in the majority on these things so that he could bring it up later. But he was not going to. Alderman Jordan did not believe thirty-one days was long enough. Alderman Davis stated usually it was over something controversial and they were already getting set up. He did not think that thirty-one days was a problem. Usually very few things were done in three readings. They would have some warning ahead of time that this could be a problem. Alderman Trumbo moved to suspend the rules and go to the third and final reading. Alderman Thiel seconded the motion. Upon roll call the motion carried unanimously. C. City Council Minutes August 7, 2001 Page 13 Mr. Williams read the ordinance for the third and final time. Ms. Paula Marioni, an area resident, stated she had worked on an effort to save Camell Hall. They had gotten four thousand signatures in thirty days during their petition drive. They were already organized. It was already an impassioned issue. She did not bring this issue forward, but she could relate to it. Thirty days was not really enough time for the citizens to be able to rally interest and to make their concerns be known. When they get the energy rolling and people were excited about it, then they would jump in. If it was not there it was going to drag on forever. Alderman Thiel asked the attorneys what they thought of the forty-five day proposal. It was critical for bonding purposes? Mr. Wilburn stated they would be different from everyone else in the State. As far as he knew, everyone else in the State was thirty-one days. Alderman Young stated there was a law passed stating that any one who did not have an ordinance on the books, the affective date was ninety -days. Mr. Wilburn stated he had not come across any city which did not have that ordinance on the books. Alderman Santos stated there were other re -courses. They were trying to change an ordinance which was going to have an adverse affect on ninety-nine percent of their ordinances. Alderman Zurcher asked who was being hurt by the delay besides the bond issuer. Alderman Reynolds called for the vote. Mayor Coody asked shall the ordinance pass. Upon roll call the ordinance failed by a votes of 3-5-0, Santos, Reynolds, Thiel, Trumbo, and Davis voting nay. ORDINANCE FAILED. NEW BUSINESS CLIFFS APARTMENTS: An ordinance waiving Ordinance 3793 to accept money- in -lieu of the park land requirement for the Cliffs Apartments Phase II Development. Mr. Williams read the ordinance for the first time. Alderman Davis stated he was in favor of this. The developer was giving one hundred and thirty- five thousand dollars in lieu of land. They were also going to be putting in an olympic sized pool, jogging and walking trails. C City Council Minutes August 7, 2001 Page 14 Mr. Williams stated they were developing as a PUD and this was private park land that they were having for their residents. They were donating money rather than giving additional land for a public park. In response to questions, Mr. Tim Conklin stated this was an extension of the Cliffs. The property is surrounded to the east and north by the original Cliffs Boulevard and Highway 265. The planning and development was in the process right now. They were meeting the open space requirements with regard to the request for increase in density bonus. They had a two hundred and fifty foot setback around the perimeter. It was a Planned Unit Development. It was an expansion of the original Cliffs. They will have park like amenities within the development in addition to the one hundred thirty thousand five hundred dollars. Alderman Thiel stated that they did have parks near by and that they did not really need the park land. Park land acquisition to the north was preferred in the future. She supported this. Ms. Connie Edmonston stated that they encouraged developments to add park amenities for their people because it took stress of the park system. They can still serve the area with other park •amenities such as soccer fields or skate board parks. It was a good compromise that when they had a development with the community spirit ofproviding for the people recreational activities that it was a good deal for both people. Alderman Davis moved to suspend the rules and move to the second reading: Alderman Jordan seconded the motion. Upon roll call the motion carried unanimously. Mr. Williams read the ordinance for the second time. Alderman Santos stated he would like to explain that this fee was an impact fee, it was based on the demand for parks created by the new residents. This was going to be a public park, but it was going to provide recreational facilities for these residents. It was a great deal for the city because in addition to providing for the demand created by the development they were also contributing to the greenspace fund, just as if they had not included a park in their development which already met their new residents demands for recreational facilities. Alderman Santos moved to suspend the rules and move to the third and final reading. Alderman Thiel seconded the motion. Upon roll call the motion carried unanimously. Mr. Williams read the ordinance for the third and final time. Mr. Geary Lowery, an area resident, stated make sure that they collect the money. Subdivisions and places that were suppose to dedicate money or land to the city have not done so. The area where he lived was supposed to dedicate fourteen thousand eight hundred and forty-eight dollars toward the /• City Council Minutes August 7, 2001 Page 15 Parks and Recreation department. They had yet to fulfill their obligation. He suggested that they get their documents recorded and checks certified. Ms. Edmonston stated upon final plat approval there were spaces where everyone had to sign off on. One of them was the parks. If they were requiring park land or money in lieu. If it was land they did not sign off until a deed is received. If it was money they did not sign off until they had paid the money to the city. They did have check and balances in place now. She did not think that could happen. Alderman Thiel stated she had checked on it, during that time the individual when they built a house within a subdivision they were supposed to take care of this. That became very difficult to track. There were probably a lot of older subdivisions still where that happened. For them to try and track that now would be cost prohibitive. Their ordinances now protected them from that situation. Mayor Coody asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. ORDINANCE 4328 AS RECORDED IN THE OFFICE OF THE CITY CLERK RZN 01-10.00: An ordinance approving rezoning request RZN 01-10.00 submitted by George Faucette on behalf of James and Judy McDonald, for property located at 461 East Township. The property is zoned R- 1, Low Density Residential and contains approximately.42 acres. The request is to rezone to C-2, Thoroughfare Commercial. Mr. ]f Illiams read the ordinance for the first time. Alderman Santos asked to leave this item and the next on the first reading tonight. He did not have a problem with any of them. But they needed to give people in the community more time. Mr. Faucett stated this item had passed the Planning Commission by a vote of 9-0. In addition to that over half of the lot was zoned C-2. He thought there was a problem with the zoning map. Alderman Trumbo moved to suspend the rules and move to the second reading. Alderman Davis seconded the motion. Upon roll call the motion carried unanimously. Mr. Williams read the ordinance for the second time. Alderman Trumbo moved to suspend the rules and move to the third and final reading. Alderman Reynolds seconded the motion. Upon roll call the motion carried unanimously. C City Council Minutes August 7, 2001 Page 16 Mr. Williams read the ordinance for the third and final time. Mr. Conklin stated the staff had recommended approval, the Planning Commission did approve it. In this situation, it was a lot which was half zoned C-2 and half R-1. The use had been established in the early seventy's. It was a clean-up rezoning. There was currently a retail business there. Mayor Coody asked shall the ordinance pass. Upon roll the ordinance passed unanimously. ORDINANCE 4329 AS RECORDED IN THE OFFICE OF THE CITY CLERK. ANX 01-2.00: An ordinance approving annexation request ANX 01-2.00 for property located east of Sunshine Road and South of Mount Comfort. The property is in the planning area and contains approximately 14.47 acres. The request is to annex the subject property into the City ofFayetteville. Mr. Williams read the ordinance for the first time. Alderman Zurcher asked if they had any idea of when they wanted those planning areas to develop. Mr.Conklin stated this annexation is directly north of a forty acre annexation that they looked at a couple of months ago. At that time, the Mayor brought up that they would begin looking at annexation policy for the City of Fayetteville. His staff has begun that effort, along with updating their general plan with the 2000 census numbers. What he intended to do was to bring forward an amended General Plan with the first three chapters and adding a chapter with regard to annexation policy. That would be brought through the Planning Commission and the City Council. Most cities that had an annexation policy have placed those policies within their Comprehensive plan. That was what they were looking to do. Mr. Philip Humbard, Engineering Services, this parcel did contain the park land that they were going to dedicate to the city as part of the development. Alderman Thiel stated this was part of a large park. Mr. Conklin stated this was along Hamstring Creek. The idea was to have the land dedicated as part of a potential greenway system along the creek. They had received other land dedications in other developments closer into town. The idea was this would make an ideal location for some type of trail or greenway system. It contained floodway and floodplain. It was a beautiful piece of property that would be good for a trail. ORDINANCE WAS LEFT ON THE FIRST READING. RZN 01-11.00: An ordinance approving rezoning request RZN 01-11.00 submitted by Phillip C C City Council Minutes August 7, 2001 Page 17 Humbard of Engineering Services on behalf of Cross Creek Subdivision for property located east of Sunshine Road and South of Mount Comfort Road. The property is zoned A-1, Agricultural, and contains approximately 14.47 acres. The request is to rezone to R-1, Low Density Residential. Mr. Williams read the ordinance for the first time. ORDINANCE WAS LEFT ON THE FIRST READING. RZN 01-12.00: An ordinance approving rezoning request RZN 01-12.00 submitted by Rob Sharp, on behalf of Brian Reindl, for property located at 509 West Spring Street. The property is zoned I-1, Heavy Commercial/Light Industrial, and contains approximately 1.91 acres. The request is to rezone to C-3, Central Commercial. Mr. Williams read the ordinance for the first time. Alderman Zurcher stated this has been used as commercial. He was concerned about the people who were doing some light industrial there, would they be forced out? Mr. Conklin stated any use that was allowed in I-1, that is now unconforming would be grandfathered in. They did have standards within their zoning ordinances and how long they could be abandoned until they had to comply with the C-3 zone. Typically it was six months. Any parts of the building that was currently being used and continue to be used in that manner can continue as long as they did not stop having business. They were grandfathered in. The city was not going to send them a letter ordering them to discontinue. Alderman Davis asked if they were allowed to expand the inside that building. Mr. Conklin stated they were not allowed to expand. There were limitations on how much remodeling or renovations that they could do. It would allow the business to stay in operation. It was not going to put any burdens on them. C-3 had been passed a few years ago to help revitalize Dickson Street. This allowed existing buildings to used or converted from warehousing to retail without requiring additional parking. Prior to that they required parking. It was very difficult to provide that parking. They had seen a lot of their old industrial buildings on Dickson Street and that area be converted from warehousing /industrial uses to retail, entertainment uses. This rezoning would allow them to convert additional space within that building to retail, restaurants, and entertainment uses without having to provide additional parking. It encouraged the use of these old buildings. Alderman Zurcher moved to suspend the rules and move to the second reading. Alderman Trumbo seconded the motion. Upon roll call the motion carried unanimously. C City Council Minutes August 7, 2001 Page 18 Mr. Williams read the ordinance for the second time. Mr. Bob Sharp, applicant representative, stated they had been approved at the July 9, 2001 Planning Commission meeting. He would appreciate it if they could approve this tonight. Alderman Davis moved to suspend the rules and move to the third and final reading. Alderman Zurcher seconded the motion. Upon roll call the motion carried unanimously. Mr. Williams read the ordinance for the third and final time. Mayor Coody asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. ORDINANCE 4330 AS RECORDED IN THE OFFICE OF THE CITY CLERK. SPECIAL ELECTION: A resolution expressing the intent of the City Council to call a special election to dedicate one -quarter cent (.25%) sales and use tax for bonds to fund development of projects toward achieving the goals of the Master Park Plan and the Master Sidewalk and Trail Plan. C• Alderman Thiel stated she had brought this forward because she knew that people had wanted parks and trails and sidewalks. She had brought this forward now because of the proposed park they had planned around the proposed wastewater treatment plant. She thought it would be a selling point to tie the three-quarter cent sales tax to the park and trail sales tax. She thought people would support the one -quarter of a cent sales tax. The arguments that she had heard indicated that it would complicate the ballot and cause confusion to the voters. Her intention was not to jeopardize the three quarter sales tax proposal. It was critical that it got passed. She wanted to see if people were interested in this idea. No one has come forward one way or the other. She would leave it up to someone else to make a motion. If no one made a motion it would die from lack of a motion. Mayor Coody stated they were starting the budget process for 2002. They have found some ways to consolidate funds to be more affective providing services. Alderman Thiel stated the park proposal around the plant was roughly forty percent of the master park plan. It was roughly a fourteen million dollar park project. She was going to support it for many reasons. It was going to be difficult to fund that project within the next twenty years with their current funding. She thought it was better to not mix it with this issue. FAILED FROM LACK OFA MOTION. Meeting adjourned at 8:45 p.m. 0 City Council Minutes August 7, 2001 Page 19 CO Arkansas Democrat a':j W AFFIDAVIT Ole PUBLICATION t-—J�°•°a• - — -- z, ---_—,-, du suluuuly swear (fiat I am Legal Clerk of the Arkansas Democrat -Gazette Newspaper, printed and publi:;hetI at 1,rr,velI, Arkan:;zts an (I that In) Iii my own lielsunal knuwlC(I ,e anti rcfercucc to the lilts of said publication the advertise rent of r• Was in - •i-tcd in the regular editions on. Publication Charlie—`'/_j/L2 7 c?S_— Purchase Order II Subscribed Dand sworn to b arc me this /day of" — •.-001. RECEIVED AUG 14 2001 CITY OF FAYETTEVILLE CITY CLERICS OFFICE )ZeLL dmL/Lz -/ Notary Public My commission expires �I OFFICIAL SEAL CAROLYN COAKLEY • 1JQiR a�spirdgt if asals \� cnuc, Fayetteville, Arkan;;as 72701, (501)571-6467 1 K( 08-14-01A10:20 RCVD I ORDIWCENO. 4321 UI OA9UTAllCF GIL'NG AN FLECNON ON OIF QUESTION OF TIE ISSUAIIQ OF NOT TO ONE HUpDtW thkIKEVE YUIION emws ($125,OW,00010F CAPOA F 9AEn 9pNp519TNF OIYF-0R'; NRPOSE OF FINANCING All OR A PoROON OF THE COSTS OF THE A(OUISEION, CONSIRUt00H, REFONSITHOLON, ETIEIDIR, 1AU910WNGAND EOUIPPIpfi 01WAfILWA1n, SAN PWNIS SEFEIAGF, App HRAt® FAOUIIES;1E97I8G A SPECIAL LOCAL SALES AND USE TAR AT THE RATE OF 1NNEE-0UARFN6OF ONE PERCENT(0.75%) WTINIp 1NF CIIf'101E PIt!)GI0101NF PRIMER OF THE BONDS, WNIOI IEYF SNAIL LASE UPON RENREAIOOOF INE BONDS; CALLING AND SETTING A DATE FOR A SPECIAL ELECTION ON THE QUESTION OF THE IAUAINE OF THE BONDS; DEFDIHI6 THE iFRM 9RGIE 7W SACDON; ARD'PRES(ItlBfIN�'nSe OHER AWIERS POTIMRING THERETO. WNEREAS,.the (Try (aesd d tho thy of Foyenevllla Arkam reagMm and demrdms themis a veal and pessip Wed tOWSWIdIIXTIm. 511 i7ry1 wmhwahr heaAnN x11 i*, apd,",.'otg WHEREAS, ApddkeadFoyisFudromeospadedryddesal,laxmAmesdesc*MhVmVMi Amen MIT ddolmfdfbadigexpamrodebemadncompactoraOls."I hb impromman by a Imps finest soar tfan for the Motown oldie Fgdtr 6 womemaa fysker0 ad .::"•.wrd WHEREAS,1mCiryCmdd111Oryd%olWge,ArkemahmdetemdwdthealmabogreatwedfaaddendmaimsdmawroAnnaMepRalkePwmmmsroweddromdpofdd'H1 As I the ®1 and . WHEREAS, Idle 11, Qapta 161, Sabthapw 3 oldie Arkamm Cab d 1987 Amororod (the Lod Gmamnmd Band Add 19851 amihabe dm r. d A'.' arils mop h Owed by des phdP of do reml➢b d die vockil ryrlde sops oad me sox praomed by the Lo d Go ammA Bad Ad of 198f and �m � :1- WNERFAS, mid Wedaf MlryrMe cola ad ase mxhrobe lend and mDrtd alfesdn Bta S2,SOOdeothfmple amea®mS and ... WHE1EAf, a exMI dI fees ad m m IsII bdnp bad pafmm ro die Lad Gammmem pond Ad at de tae d Om Pamm(TN)r whith bry exphe m path 31, 2002; add "II M MCI Ddb (5125,000,000) ImP� of r.,.a. nor (Of ee of if Feyeomb oldie Arkmea bm dekemhmd ro k na m opted 61�rarelaenl bads n FAdpd Milml set ro exted One Madre T4ae9A nil relaed fad * 1Mth Bads ae ro be sawed hf dm pledge d an d the rose d 511 aryohmai, tumhfli raaaBaNai, eaerird nspmhq and .gang dreome beanmm pknd; tardph d a dragmt.s d am prom (0.15%1 speed NyeMe_mles and am tor, m adoand by dm Lone 6oranriin'd WHEREAS, do pmpom dales Qdnam b ro Ed o sp m en laoaae d Oro lade by die Dry of FopNedBa ad ro ddM 511 kem'thpb hamaAa; '. ,,,;e NOW, THEREFORE, BE IT ORDAINED by the (Try of Cm d of the Cby d FeyalMga Semonl. Thotm* lmmnhabfd 111 Lad faraawm Bad Ache m* ro lro appord by daebdasd Om Eryd FaeaM& m podded n SKIM 3bdw, Owe hhere6y artaartsaam_ mane of 511 (OyS aped mgraene,l bads n the appreipie prkMpd amamt d ad te need Om Hmdred IaaepFin AL Ike 111($125,000,000) HI 7adsl fa dm pmpom d Ara 'p d er o porn,* ro costs d otgmdtry, cmvc&� remmhuenp, exhndhq, hsWmn1 and espipphsp rmheoror heaLad plmrq sewage and raped fad8ee (die Trole(A lithe emam oldie Bari appord by de eYtKH; 1111CAy,theBadswryOmnohab,bsodnaeamonsrinfromtlmroMenaapprgpleprindpolmnoarnodbntdNpndpdmroadappw byd*mf'sdHappromd dbyIpledEr yf roGmemmod,ondAd. d11gMtumdbfapldpeofada0mmpesolloldpreMelphdathreFgaarhndamperrat(0.7S%lspeddrllYwdesolmmdmetm(daSdmmdUmTax�m",,. ,]Ike and 6mrammat Bad W. ' li Section L The m e& do aahoby d 511 lad Comment Bad Ad and su6Nd ro op cord by Oro dada d do CAy m pored n S.Na 3 Loch' don h hash f Imnd do See and Uw TW m, Mdlhree•gWmnafaropatem(O.IS%ImdnproamelpbbomOmmbmrdaBsddJndaOrydaDAamsdddimasoamndmkkaamGrmledphAdof1941,mamldMaem(odeof 9811 rooted 82652.101 its.;), and a extbe (eras.) tax a the skeaq, me, dhhlbdim a Oder mem,Jl rlddn die Elf d tmbbla pasaxl prgmey pmdmed, lewd a rand From ary re-LFoahitle /m ! Arkomm of* die opadim dale d Oro Sales ad Um Tm (a amp, me, dhMbnbn oe dw cammppm n do COy a dro rob d dxaquahrs d am Hood (0.75%) a die sole pb d Am'"prTplH f"a1n Oro W of lam m rotate, a dro ban a mid pike, 511 roe of the oe rox ro tarnpaid ro the son d da tee rox. The um tm pads d dm fee o d Iles Ta shall Lot MaBeed amdmp ro dr heal bf dri Ad(bmm nnpmanp TW Add1919,mamed Admmm(ded1981 Amaroled 82651101 et seq.l. 1M fee ad Use TW steelbbled ad ohs ale Bodr flrb So,500dawk toe bmaMtla'Ike Amlets aHm9haeo0. Un bry and a0eelaidla Sea ad Um lax shill Mammaees Ap0110025 of hefadc Section 3. Nat doe be, ad then h hereby MoBed, a spedal deabn to Ee hold a Laski, Nosmha 6,2001, a sddth deNa daa shill be mhl�Bted ro 1111 ideas d the COf lM gwem d th j moon of em Bands. soft 1. The alp goombn steel be plead a dm Look for de speed dada n su6smmlo0y dm folardq fan mehWk&WrotheFQM%deledasdtheCeydfayeMkLArkmmm,dmpeftd511bmamdMPWh"Ca mbodrmIIroamrotroacedOneIlmthadfreAy-FheNmmDdas ;12S,000,00011tln testhl pormmd b Tbb 11, Chapke IM, Suhdaphr 3 d 1m Arkamm (de d 1987 Amaad Ithe load ocim a 11m lad AO d 198$) (a Am propose d Mmidnp aA a a pardon of do tmt� di. tm i a�. ad 6np mom s raamtr.Na add des Waderata System bnpraamd FI4.J WM nWnpmm 6 ad pulnmp a sand .,.1._,j,tsaandd 01K nprorlip 111 coned rmtmoke t, i. J pkod, mokfnp Ind and egapnwd padmea Po�9 tomtrmtees ad pmbamrd B p9 �mh and I 4 ad deny oe oOa Wlesmy dale p ro 6mema ed kepmm 111 Cby d Foysem®e's wmrownke sewers ogoNy ad rdnhd fo�mt If 16 baao d m Bad` appord, lie Bads shop be frurd by a pMdpe d ad hm sgan o0 d de nnlpo d o sped dlyeMe sole ad am Ia a Om tea d ilea goartn d am Hamm NI]S%l lerled pesamd m dm load 6orarmem to the(An$desby UmTmlid. bsmaaddmBarthhoppnred,dmbryandafetdtheSalaandUmTaxdellcommamApl1,2002anddalMomspacownmaf111Bads. h a do ganaa Ay a pbtrop T m 1111 d 1n sgma fdbeiop tM quasmo, omen kr or aaai: iR tlro bsmmW d Banb n prnMlpd mnomm an ro exact Om Hmdred TamyFM Ah'Oa ragas 1512$,000,000) fa its pnpW d 8radq e0 a a pwmn d 511 mm d aMgahnp, MamaaAiq, taamautlnp, mthn0. hrgrrMp and ogdppM1q rmierohr beoromA late, seennpe and ofr rents hnpmrnmis 70 IAINST the hsuate d Bad n pMdpd roam net le steed On, Nadrd MatyEm MBBuo 0cki [$125.000,000] for 1n parpom d Pmmiaq diva peas d do Mom d cc ub p, .. Maebuct6p,_�� tai 14,..41mp ad wTaW , rmhwam seamen RImAa smuWe and other hnPorenab 70 annmgi Settles 5. Thm the elednn sled be teed ad mAmd ad 111 mm mnamd ad 1m remhf declared order 16Ior ad n 1m mama rw Hoed fa Arkama muadpd deNan aden athrrbe : aced m do lad GorammA Ind the, aid sly l Ike th ratan d lie fAy del hoe dm dpht ro ram a 1n derma Nn (bf Qrk b here6p d6eeed ro Bsw noAm d 1111 seed ebNm by ere diem room n r Nalnnst Arkmmm tom, the pubiknlla ro b wl less dker ten (10) days pea ro Oro doh d do deNm. srmn6. Thataropyofthh0rdhmmshoobeoleoro111wdt,ia(awryBarddEIICammlommdoedone®mfeleNmofiddsadmppremayheprovvded.AMaefedaped s Ordlnan and a mop Aem1y dawf^B do 6amdmies d la Gry sled abo 6e pradd ro da Dkeem d tlm Depabnem d Nnmxe and AthdMtretlm and m die Ttemua d 511 Sroro dArkmms m San m S.aa 7. The alp resdh d 111 spend dedron ddl6e parleknd by Am Moen, ad hb pralmaAm sled b u6Ashd one Inn m do NaAmet Arkamm Thmc 1111 podmalm shall dvM 1111 i moles m prodcaml shag be todmire mimf doled m the Qom food of WmMVm (any m%6" (30) dais aNr 1p doh of paMfmmo d dm palmosm. S.Na8.- Thathe MofaadlroCOy(brk,faradm6WcflaOry,be, ad luf here6f me alhmked ad dhedd ro do my ad dl dAnp Memory ro al ad feed Aie spode chew red act, 6 *0IM of ro bmam d Aie Bmds h appared bf In dates, ro roe the Sda oil Um Tm ro b• [dledd b aadma 5th die local Gommnmt Bad the, and ro prhmm dl'ad?of" " ' we wmemy ro cm col the admAy Mafemd by fhh Whom. Section 9. The, lapapma d 110 Sales ad Um Tax, dntern msMowsoNaf Is de8md according ro la rumif Haab pmdad as (a8orc "r�''':'h 4 . AWhmcooarandrakenwider,opawM&abyw%mypalmapoperryh,any.rkemporledadamLhdoAnp,6111rwDMed%sadmNdgaNaadddr1�6"`a ethr spuird tobe kewd a no, dom e% woke rmeb, mar rdddes, An maeued WWI and mAh bamm, ore sold m a pram bya segti Seth hdMdd cop, sr6eAw pat d o ,'Biel' :,. weda0 A*bw=ra frthe purpom d On Saps ad Um Tm; .s �'� p.QapeformiOrymNces whMs ere su6laroihe5de ad Um Tea coed rndr'rn hmrhhdaaratlWru srrke Loma :.,..� E rd11d er nth fades ere pad kr daoy, emldf, nmMf a amaM,lid li __ n da0f Mmlmts, and oath fah dally dope hmmrA sk0 b, aeddrd ro b o srople traWNm fa 111 papaw d A11 Sale ad Uso lm; C.Faseedbllftnium andmWiesronmrmse WRdmaodesPena;aamplebamaim,fadespaiamd1eSobsandUsefax,slieobedeemedabemrysodacolarhh6 a ample broke, raeryt a OWMK a ddth a nowevoh Sala (a me) sox Rpm hm been repined o d named ro the Siam d Arkaem: - D. When mom mop brad ma(a horsdml oppheaea ammadd appIfoaea nmbr.eqbnm1 a methlnrf m'* eath mdhbud as del bins a o * 1 hemmlmn lentM••papotiid p.. SObs ad Um Tax; ad ...+•,:s� t LFop m*dropberm,drypoolsad ether rodeparedprapatyad/amrka net exprmdy askedmdesS dos9,eample trmsaea4 for do propose dale Sob ad Um Tdx, shag be nee ro be wry shple silo dddi h refleWd m a smpb imdq rrdpl r srotemmr1, m wlddi m opgrepae safe rox Bpmn hm been txpwhd ad mdaed role Stw ofAtkm a Seaton 10. Thm Rsmk Rak llP b hereby mpoped m pad Camel ad Srophem Ike, b haehf enpopd m UndaeNer a Fhemdd Addm, m approproh, rMl raped a 111 hmanu d O11 lads. swdgp ofbW(amdWt6UrdmvdtaaFhmdd AdrboysholbeuM000fir a cfdmlm&bb*pddwbhpadpaed;Odmmj r SeNm 11. The oil .,d6 mdpmblkaeofm ronfGd berSn heeby repedd to its oxlml dsoth adM. PASSED AND APPROVED thh 7th dry of Aopm, 2001 J..PAa'eKKr..NAMWArFh»41i.n:4i41M.Y..IT?�MW, v,CL.:\J:•J:: +:+wq,:, ".�.. ',' APPROVED: � tot DAN COO ,.» r B7' OT, Maya ESL• GI Robert, Deputy Ory Ork i 1 AU . TIEG7F m%bdd In firy O 21dAm Ory dFapmvOa Arkamm,f 6:30 .M. deslielaepomphahue oil paled apfda Ordimno adopted a a repulm moods; of Nn CRY Cm�d d 111 or dFayaterEx, i amaa hddro Adam 219dd11 Dry Admmhhalan BdOtrym6:30 p.rO. on August 7, 2001. ..,- r m: Augue 8, 2001 i Robrts, sop ty (Tty Oak i1r.r w.'il'aR • RECEIVED OCT 19 2001 ACCTG. DEPT AFFIDAVIT OF PUBLICATION STATE OF ARKANSAS, County of Washington that lain rwaceaimprovements I O AGAINSTtfie issuance of Bonds in jthfOipa amounhnotsto:exce`ed'0ne Hundred .Twenty. Five Milho'n;Dollars ($125,000,000) for the pur- pose of financing all bra portion- of the cost of acquiring,constructiog; reconstructing; ,extending :imprgving. and equipping., waste- watef,treatment.:plahts,sewerage and" other related;impiovements`r.. If approved by the voters -the Bonds shall be paid by the,levy .of a three- uarters of one per- cent f0.75%1 Sams 2nd lien.tev: r..,..j__. solemnly swear o The Morning News of Northwest Arkansas, a daily newspaper having { a general circulation in said county, 111 and do solemnly swear the said ad- vertisement was published for I consecutive in said newspaper, the id publication ap- pearing- ay of. day of. day of___________ day of day of______ day of________ tax which has funded!. the City,In- fuary's new11 I 1 L construction: Upon: payment an=fuh of the Bonds authorized'atove, the levy.of the sales and use tax (0.75%) shall cease automatically. 1 10-23-01 A08:14 IN 0 FAYETTEVILLE SPECIAL ELECTION BALLOT r'ACITY OF FAYt ii EVILLE B WASHINGTON COUNTY G NOVEMBER 6.2001 1, INSTRUCTIONS TO VOTER 1.TO VOTEYOU MUST BLACKEN THE OVAL ( ) COMPLETELY a. NEXT TO YOUR CHOICE. 2.USE ONLY THE PENCIL PRO- - VIDED. 3. AFTER VOTING, DEPOSIT THE - BALLOT IN THE BALLOT BOX, BALLOT STUB IN STUB BOX. U There is submitted to the qualified electors of the City of Fayetteville, Arkansas, the question of the issuance of capital Improvement bonds in prin- cipal amount not to exceed One hun- dred Twenty -Five Million Dollars [$125,000,000] (the "Bonds") pursuant to Title 14, Chapter 164, Subchapter 3 of the Arkansas Code of 1987 Annotated (the "Local Government Bond Act of 1985") for the purpose of financing all or a portion of the costs of the acquisition, construction, recon- struction, extending, Improving and equipping of the Wastewater System LImprovement Project which encom- w passes building and equipping a sec- ond wastewater treatment plant, moth - tying, extending extending and Improving the sewer collection system, reconstruc- 41 � tion and Improving the current waste- water treatment plant, making land and equipment purchases, procuring construction and professional ser- vices, obtaining regulatory approvals and permits, and doing all other neces- sary things to increase and Improve the City of Fayetteville's wastewater treatment capacity and related facili- ties. If the issuance of the Bonds is approved, the Bonds shall be secured by a pledge of and lien upon all of the receipts of a special citywide sales and use tax at the rate of three-quarters of one percent (0.75%) levied pursuant to the Local Government Bond Act (the "Sales and Use Tax"). If the issuance of the Bonds is approved, the levy and Si collection of the Sales and Use Tax shall commence on April 1, 2002 and shall cease upon retirement of the Bonds. O FOR the Issuance of Bonds in prin- cipal amount not to exceed One Hundred Twenty -Five Million • Dollars ($125,000,000) for the pur- pose of financing all or a portion of the costs of acquiring, construct-. ing, reconstructing, extending, Improving and equipping waste- water treatment plants, sewerage and other related Improvements. O AGAINST the Issuance of Bonds In principal amount not to exceed One Hundred Twenty -Five Million Dollars ($125,000,000) for the pur- pose of financing all or a portion of the costs of acquiring, construct- ing, reconstructing, extending, improving and equipping waste- water treatment plants, sewerage and other related Improvements. B O 001 .,. Q Ease 1981 L L• J PROCLAMATION DECLARING RESULTS OF ELECTION c• I, the undersigned mayor of the City ofFayetteville, Arkansas, (the "City"), after examining the election returns and the Certificate of the Washington County Board of Election Commissioners certifying the vote FOR and AGAINST the question of the issuance of capital improvement bonds in principal amount not to exceed One Hundred Twenty -Five Million Dollars (the "Bonds") pursuant to Title 14, Chapter 164, Subchapter 3 of the Arkansas Code of 1987 Annotated (the "Local Government Bond Act of 1985") for the purpose of financing all or a portion of the costs of the acquiring, constructing, reconstructing, extending, improving, and equipping of the Wastewater System Improvement Project which encompasses building and equipping a second wastewater treatment plant, modifying, extending and improving the sewer collection system, reconstruction and improving the current wastewater treatment plant, making land and equipment purchases, procuring construction andprofessional services, obtaining regulatoryapprovals andpemnts, and doing all other necessary things to increase and improve the City of Fayetteville's wastewater treatment capacity and related facilities. If the issuance of the Bonds is approved, the Bonds shall be secured by a pledge of and lien upon all of the receipts of a special citywide sales and use tax at a rate o€ three-quarters of one percent (.75%) levied pursuant to the Local Government Bond Act (the "Sales and Use Tax"). If the issuance of the bonds is approved, the levy and collection of the Sales and Use Tax shall commence on April 1, 2002, and shall cease upon retirement of the Bonds, therefore, pursuant to Ordinance 4327 of the City of Fayetteville adopted August 7, 2001, I do herebyproclaim that the votes FOR and AGAINST the issuance of bonds were as follows: 4069 FOR the issuance of Bonds in principal amount not to exceed One Hundred Twenty -Five Million Dollars ($125,000,000) for the purpose of financing all or a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and other related improvements. 649 AGAINST the issuance ofBonds inprincipal amountnot to exceed One Hundred Twenty -Five Million Dollars ($125,000,000) for the purpose of financing all or a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and other related improvements. All persons are hereby notified that the results of the election on the question of the levy of the sales and use tax shall be conclusive unless attacked in the Circuit Court of Washington County within thirty (30) days after the publication hereof. GIVEN this 14 day of November, 2001. By. an 4yMayor6 CERTIFICATE OF CITY CLERK STATE OF ARKANSAS ) CITY OF FAYEITEVILLE ) COUNTY OF WASHINGTON ) I, Heather Woodruff, City Clerk, within and for the City of Fayetteville, Arkansas do hereby certify that the forgoing is a true and correct copy of the original Mayor's Proclamation Declaring Results of Election filed in this office, said Proclamation now appearing of record in my office. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 1 m ay of November 2001. By. Heather Woodruff, City Cl CERTIFICATE OF RECORD City of Fayetteville, Arkansas State of Arkansas t City of Fayettev:lle I SS. 1, Heather W'ooclruff, City Clerk/Treasurer for the City of Fayetteville, do hereby certify that the foregoing instrume t is true and corre t y C� of the original _��� fitedJ my office o [he / r `rS � .day of LVitp n' seal this�r;�r �hand and %Oi r.: er Waa- uff, Cit Cleml Tred ver V] n ?+ O O 04 H D1 (n o• o C p' Cf4 < b ':7 CD w d' fo 0 0 �~-..rrC rV 0 w. Vi < CD R' a N ^' v, o CD A. Iaaaa .n N t�y : K � O w w -• CD � r CL A ~1 CLer^ w w o pa CD (IQ O O O O C) ~ ' G w I. n iJ$1L r1 i-1 CD a EEn iD1 CD a• rn w r w 'O N N IJ N 0 "11 N V, N CD ' s 0 0 0 0 r `� n b _. CD pa iiLLEL1. b 0 2 T O d d On)- - N C <0- =0 a= o c.. i.r F [ -Ot D D .:. I J to A p..In p. b7.. G N CDLI \ 1 pCbIadCb C O vrI I M ra IA J W O — O' co CD L'• ]. t -r CD N y 0 ' w M AOJ/. W V/ CERTIFICATE OF WASHINGTON COUNTY BOARD OF ELECTION COMMISSIONERS ASCERTAIN - �• AND DECLARING RESULTS OF SPECIAL SEWER BOND EL' LION HELD IN THE CITY OF FAYETTEVII,I„l; O fu 9 REq 9 95 NOVEMBER 6, 2001 f..l -'1 J.. I •. STATE OF ARKANSAS ) COUNTY OF WASHINGTON ) We. the undersigned members of the Board of Election Commissioners of Washington County. Arkansas, do hereby certify that: Returns of the votes of the special sewer bond election held November 6.2001, in the City of Fayetteville in Washington County. Arkansas have been delivered to us by the County Clerk: We ascertain and declare the results of the election to be: On the question of the issuance of bonds and 3/4 cent sales tax: FOR 4069 AGAINST 649 We further certifi• that the polls were open from 7:30 A. M. until 7:30 P.M., that only the duly appointed Election officials made due returns of the votes cast, and that we have canvassed the votes as required by law. IN TESTIMONY WHEREOF, we have hereinto set our hands this 9th day of November. 2001. ..:::r ICATE OF RECORD State of Ar'. ; City of r.:: } ss. I, Heather Wc•tt--_-., Cry Clerk/Treasurer for the City of Fayetteville, do hereby certify that the foregoing Instrum t is true • r Torre ,c py of the r- "! filed i tm o; ,c�e n/,th l day of y hand and seal th.r t3 -:_.;.: e' wouoruir. City C:erk/rreasur 11-14-01 P03.;18 IN OF ELECTION COMMISSIONERS Tom hdndtrum, Member Dan. Williams. Member RECEIVED NOV 14 2001 CITY OF FAYETfEVILLE CRY CLERK'S OFFICE a r U • S • LJ CLOSING CERTIFICATE AND REQUEST OF THE CITY • The undersigned Mayor and City Clerk of the City of Fayetteville, Arkansas, a duly organized municipality and political subdivision of the State of Arkansas (the "City"), do hereby certify, represent, covenant and request as follows: 1. The undersigned are the duly elected, qualified, and acting Mayor and City Clerk of the City, and as such officials have in their possession or have access to the official books and corporate records of the City. This Certificate is executed and delivered in connection with the issuance of (i) the City's $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) the City's $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"). 2. Attached hereto as Exhibit A is a true, complete, and correct copy of Ordinance No. 4768 (the "Bond Ordinance"), duly adopted by a majority of the City Council at a duly called regular meeting of the City Council, open to the public, held October 4, 2005. The Bond Ordinance authorizes the issuance, sale and delivery of the Bonds, and the Bond Ordinance is in full force and effect and has not been altered, amended or repealed as of the date hereof. No petition or petitions to refer the Bond Ordinance to the people under Amendment No. 7 to the Constitution of the State of Arkansas have been filed as of the date hereof, and the City Council has not referred the Bond Ordinance to the people for adoption or rejection. • Attached hereto as Exhibit B is a true, complete and correct copy of the minutes of a meeting of the City Council held October 4, 2005, showing adoption of the Bond Ordinance, as said minutes appear in the official records of the City. At said meeting a quorum was present and acted throughout. Attached hereto as Exhibit C is a true, complete, and correct copy of a publisher's affidavit showing publication of the Bond Ordinance in the Northwest Arkansas edition of the Arkansas Democrat -Gazette on October 14, 2005. No authority or proceeding in connection with the issuance, sale and delivery of the Bonds has been repealed, revoked or rescinded. 3. The following described instruments, as executed and delivered by the Mayor and/or City Clerk, are in substantially the same form and text as the copies of such instruments which were before and approved by the City Council at the October 4, 2005 meeting referred to in paragraph 2 above, with such changes not inconsistent with the Bond Ordinance as have been approved by the officials executing the same. Document Date Other Party or Parties Trust Indenture November 15, 2005 Simmons First Trust Company, • N.A., as trustee (the "Trustee") 4813-6963-7120.2 Document Date Other Party or Parties • Tax Regulatory Agreement November 29, 2005 Trustee Escrow Deposit Agreement November 29, 2005 Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee") Continuing Disclosure November 29, 2005 Trustee Agreement Bond Purchase Agreement November 3, 2005 Stephens Inc. (the "Underwriter") Official Statement November 3, 2005 None The Trust Indenture, the Tax Regulatory Agreement, the Escrow Deposit Agreement, the Continuing Disclosure Agreement, the Bond Purchase Agreement, the Official Statement, the Financial Guaranty Agreement dated November 29, 2005, by and between the City and MBIA Insurance Corporation with respect to the surety bond for the Series 2005A Bonds (the "2005A Guaranty Agreement"), and the Financial Guaranty Agreement dated November 29, 2005, by and between the City and MBIA Insurance Corporation with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement"), are hereinafter collectively referred to as the "City Documents." • 4. The persons named below were on the date or dates of the execution of the City Documents, and are on the date hereof, the duly qualified and acting incumbents of the offices of the City set opposite their respective names. The undersigned, or their successors in office, are the authorized representatives of the City for all purposes of the Bond Ordinance and the City Documents. Title Name Mayor Dan Coody City Clerk Sondra Smith 5. The undersigned Mayor of the City did manually execute each of the City Documents and the undersigned City Clerk of the City did manually attest the Trust Indenture. The undersigned Mayor of the City did manually execute and the undersigned City Clerk did manually attest (i) $27,000,000 aggregate principal amount of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), said series of bonds being initially issued in the form of eight fully registered bonds numbered from R05A-1 upwards, initially dated November 15, 2005, and (ii) $45,000,000 aggregate principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), said series of bonds being initially issued in • the form of six fully registered bonds numbered from R05B-1 upwards, initially dated November 15, 2005. 4813-6963.7120.2 2 • 6. The City has duly authorized, executed and delivered the Bonds and each of the City Documents by all necessary action and, as of the date hereof, the Bonds and each of the City Documents are in full force and effect and each constitutes the valid, binding and enforceable obligation of the City, except to the extent their enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally, or by the availability of equitable remedies, and the City is entitled to the benefits of the same. 7. Any certificate signed by any official of the City (including this certificate) delivered to the Trustee or the Underwriter shall be deemed a representation and warranty by the City to the Trustee or the Underwriter as to the statements made therein (and herein). 8. The seal affixed to this certificate is the legally adopted, proper and only official seal of the City, and has been duly affixed to the Bonds. 9. The meeting of the City Council of the City referred to in paragraph 2 hereof was open to the public in compliance with the provisions of Section 25-19-106 of the Arkansas Code Annotated (2002 Repl.), as amended and supplemented. 10. The present officials of the City and their respective terms are as follows: Date of Expiration Name Office of Term • Dan Coody Mayor 12-31-08 Sondra Smith City Clerk 12-31-08 Kit Williams City Attorney 12-31-06 Kyle Cook Alderman 12-31-06 Bobby Ferrell Alderman 12-31-08 Don Marr Alderman 12-31-08 Robert Reynolds Alderman 12-31-06 Lioneld Jordan Alderman 12-31-08 Shirley Lucas Alderman 12-31-06 Brenda Thiel Alderman 12-31-08 Robert Rhoads Alderman 12-31-06 11. The Authorized Representative of the City for all purposes of the Trust Indenture is Dan Coody, Mayor, whose signature appears on page 8. Until further written notice to you, any instrument authorized by the Trust Indenture to be signed by an Authorized Representative of the City is to be honored if it contains the manual signature of this individual. 12. The City has not and will not engage in any activity which might result in the income of the Bonds becoming taxable to it or any interest on the Bonds becoming taxable to the recipients thereof under the Federal income tax laws. This covenant is made to all owners of the Bonds, their successors and assigns, as a further inducement for the purchase of the Bonds. 4813-6963-7120.2 13. All of the conditions, covenants and agreements required in the Trust Indenture to • be satisfied or performed by the City at or prior to the issuance and sale of the Bonds have been complied with, satisfied or performed in the manner and with the effect contemplated in the Bond Purchase Agreement and the Trust Indenture. The representations and warranties of the City contained in the Bond Purchase Agreement and the Trust Indenture are true and correct in all material respects on and as of the date of this Certificate as if made on the date of this Certificate. 14. The information contained in the Official Statement relating to the City, its organization, properties, operations and financial condition, and the description of the Bonds, the Trust Indenture, Ordinance No. 4327 of the City adopted August 7, 2001 (the "Election Ordinance"), the Bond Ordinance, the three-quarters of one percent (0.75%) special city-wide sales and use tax levied by the Election Ordinance (the "Sales and Use Tax"), and the pledged receipts of the Sales and Use Tax is true and correct in all material respects. To the best of the knowledge of the undersigned, as of its issue date, the Official Statement does not contain any untrue or incorrect statement of a material fact and does not omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading in any material respect. 15. (a) There are hereby delivered to the Trustee eight (8) typewritten Series 2005A Bonds in the aggregate principal amount of $27,000,000, to be registered in the name of Cede & Co. The Trustee is hereby requested to authenticate the Series 2005A Bonds and to receipt for and upon the order of the Underwriter on behalf of the City, deliver the Series 2005A • Bonds to The Depository Trust Company, New York, New York, after authentication and upon payment therefor of $27,165,790.95 plus accrued interest to the date of delivery in the amount of $39,899.51, for a total purchase price of $27,205,690.46. The Trustee is hereby directed to deposit the Series 2005A Bond proceeds as follows: (i) Deposit the accrued interest on the Series 2005A Bonds in the amount of $39,899.51 into the Interest Account of the Bond Fund; (ii) $22,000.00 shall be transferred to MBIA Insurance Corporation [WIRE INSTRUCTIONS: JP Morgan Chase Bank, ABA No. 021000021, For: MBIA Insurance Corporation, A/C No. 910-2-721728; Policy No. 47198(2)] in order to purchase the 2005A Surety Bond (as defined in the Trust Indenture), which shall be deposited into the Series 2005A Account of the Debt Service Reserve Fund; (iii) $67,000.00 shall be transferred to MBIA Insurance Corporation [WIRE INSTRUCTIONS: JP Morgan Chase Bank, ABA No. 021000021, For: MBIA Insurance Corporation, A/C No. 910-2-721728; Policy No. 47198(1)] in payment of the premium on the 2005A Policy (as defined in the Trust Indenture); (iv) $23,209,258.25 shall be transferred to the Escrow Trustee for deposit in the Escrow Fund (as defined in the Escrow Agreement), and shall be used, together with $11,392,013.87 of other legally available funds of the City, to pay the maturing principal • of and interest on the Series 2004 Bonds (as defined in the Trust Indenture); 4813-6963-7120.2 4 (v) Deposit $61,843.27 into the Costs of Issuance Fund and immediately pay • those Costs of Issuance, with respect to the Series 2005A Bonds, as set forth in Exhibit D hereto; and (vi) Deposit the remaining balance, in the amount of $3,805,689.43, in the Project Fund to pay Qualified Project Costs (as defined in the Tax Regulatory Agreement) and invest said moneys pursuant to instructions from the City. (b) There are hereby delivered to the Trustee six (6) typewritten Series 2005B Bonds in the aggregate principal amount of $45,000,000, to be registered in the name of Cede & Co. The Trustee is hereby requested to authenticate the Series 2005B Bonds and to receipt for and upon the order of the Underwriter on behalf of the City, deliver the Series 2005B Bonds to The Depository Trust Company, New York, New York, after authentication and upon payment therefor of $44,900,946.35 plus accrued interest to the date of delivery in the amount of $69,838.71, for a total purchase price of $44,970,785.06. The Trustee is hereby directed to deposit the Series 2005B Bond proceeds as follows: (i) Deposit the accrued interest on the Series 2005B Bonds in the amount of $69,838.71 into the Interest Account of the Bond Fund; (ii) $36,000.00 shall be transferred to MBIA Insurance Corporation [WIRE INSTRUCTIONS: JP Morgan Chase Bank, ABA No. 021000021, For: MBIA Insurance Corporation, A/C No. 910-2-721728; Policy No. 47199(2)] in order to purchase the • 2005B Surety Bond (as defined in the Trust Indenture), which shall be deposited into the Series 2005B Account of the Debt Service Reserve Fund; (iii) $130,000.00 shall be transferred to MBIA Insurance Corporation [WIRE INSTRUCTIONS: JP Morgan Chase Bank, ABA No. 021000021, For: MBIA Insurance Corporation, A/C No. 910-2-721728; Policy No. 47199(1)] in payment of the premium on the 2005B Policy (as defined in the Trust Indenture); (iv) Deposit $71,572.11 into the Costs of Issuance Fund and immediately pay those Costs of Issuance, with respect to the Series 2005B Bonds, as set forth in Exhibit D hereto; and (v) Deposit the remaining balance, in the amount of $44,663,374.24, in the Project Fund to pay Qualified Project Costs (as defined in the Tax Regulatory Agreement) and invest said moneys pursuant to instructions from the City. 16. The City is a city of the first class pursuant to Title 14, Subtitle 3, Chapter 43 of the Arkansas Code Annotated. The City is operating under the mayor -council form of government pursuant to Title 14. 17. The City has not adopted any by-laws or rules of procedure relating to the conduct of its City Council meetings. I 4813-6963-7120.2 5 18. There is no action, suit, proceeding, inquiry or investigation involving the City • before or by any court or public board or body pending or, to the knowledge of the undersigned, threatened wherein an unfavorable decision, ruling or finding would: (i) affect the creation, organization, existence or powers of the City or the titles of its officials to their respective offices, (ii) enjoin or restrain the issuance, sale or delivery of any of the Bonds or the City Documents, the levy or collection of the Sales and Use Tax, or the pledge of the receipts thereof, or the accomplishment of the Project (as defined in the Indenture), (iii) in any way question or affect any of the rights, powers, duties or obligations of the City with respect to the Sales and Use Tax, (iv) in any way question or affect any authority for the issuance, authorization, execution, authentication, sale or delivery of the Bonds or the validity or enforceability of the Bonds, the City Documents, the Sales and Use Tax, the Election Ordinance, the Bond Ordinance, or the assignment by the City of any of the moneys, instruments or other rights pledged under the Indenture, or (v) in any way question or affect the Official Statement or the transactions contemplated thereby, or any other agreement or instrument to which the City is a party and relating to the Bonds. 19. The City will apply a portion of the proceeds from the sale of the Bonds to finance and refinance capital improvements of a public nature, as provided in the Trust Indenture. The Sales and Use Tax authorized under the Act (as defined in the Trust Indenture) has been levied within the City pursuant to the Election Ordinance and the collection of such Sales and Use Tax commenced on April 1, 2002, as approved by the voters of the City. Receipts of the Sales and Use Tax are not presently pledged or hypothecated in any manner or for any purpose other than for the payment of the Bonds as provided in the Trust Indenture. • 20. In the City, the time for filing a referendum petition is fixed at 31 days after the publication of the measure upon which the referendum is sought. 21. The adoption of the Election Ordinance and the Bond Ordinance, the execution and delivery of the City Documents, the authorization, execution and delivery of the Bonds, and compliance with the provisions thereof under the circumstances contemplated thereby does not and will not in any material respect conflict with, or constitute on the part of the City a breach or default under, any agreement or other instrument to which the City is a party, or any existing law, administrative regulation, court order or consent decree to which the City is subject. 22. The City's employer tax identification number is 71-6018462. 23. The City Documents and the information supplied to MBIA in order to obtain the 2005A Surety Bond, the 2005B Surety Bond, the 2005A Policy and the 2005B Policy do not contain any untrue or misleading statement of a material fact and do not fail to state a material fact required to be stated therein or necessary in order to make the information contained therein not misleading. • 4813-6963-7120.2 6 • 24. Dan Coody, Mayor, hereby certifies that the signature of Sondra Smith, City Clerk, affixed hereto is her true and correct signature, and Sondra Smith, City Clerk, hereby certifies that the signature of Dan Coody, Mayor, affixed hereto is his true and correct signature. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of November 29, 2005. CITY OF FAYETTEVILLE, ARKANSAS By: 1 ;FAYLIIEVILLE; = DanCoody, p. C By: Smith, City • r 4813-6963-7120.2 7 • ORDINANCE NO. 4768 AN ORDINANCE AUTHORIZING THE ISSUANCE AND SALE OF THE • CITY'S NOT TO EXCEED (1) $27,000,000 OF SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS, SERIES 2005A, AND (2) $65,000,000 OF SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 20058, FOR THE PURPOSE OF REFUNDING THE CITY'S OUTSTANDING SALES AND USE TAX CAPITAL IMPROVEMENT BONDS, SERIES 2004, AND 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 TRUST INDENTURE PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE ISSUED AND SECURED; • AUTHORIZING THE EXECUTION AND DELIVERY OF AN OFFICIAL STATEMENT PURSUANT TO WHICH THE SERIES 2005 BONDS WILL BE OFFERED; AUTHORIZING. THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT PROVIDING FOR THE SALE OF THE SERIES 2005 BONDS; AUTHORIZING THE EXECUTION AND DELIVERY OF A CONTINUING DISCLOSURE AGREEMENT; AUTHORIZING THE • EXECUTION AND DELIVERY OF AN ESCROW DEPOSIT AGREEMENT PROVIDING FOR THE DEFEASANCE AND REDEMPTION OF THE SERIES 2004 BONDS; 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. & 2005 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 all or a portion of 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 (1) its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (2) its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 .(the "Series 2004 Bonds'), in order to provide for the funding of initial portions of the Project; and WHEREAS, the Series 2002 Bonds have been paid in full from Sales and Use Tax Receipts and the Series 2004 Bonds are presently outstanding in the aggregate principal amount of $34,250,000; 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 (1) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in principal amount not to exceed $27,000,000 (the "Series 2005A Bonds"), and (2) its Sales and Use Tax Capital Improvement Bonds; Series 2005B, in principal • amount not to exceed $65,000,000 (the "Series 2005B Bonds") in order to defease all of the • outstanding Series 2004 Bonds and to provide additional funding for portions of the Project; and WHEREAS, the Series 2005A Bonds and the Series 2005B Bonds will be issued and secured by the Sales and Use Tax receipts on a parity basis; and WHEREAS, the City has made arrangements for the sale of the Series 2005 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 (1) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" (the "Series 2005A Bonds"), and (2) "Sales and Use Tax Capital Improvement Bonds, Series 2005B" (the "Series 2005B Bonds"). The Series 2005A Bonds shall be issued in the original • aggregate principal amount of not to exceed Twenty -Seven Million Dollars ($27,000,000), shall • mature not later than December 1, 2011, and shall bear interest at the rates specified in the Bond Purchase Agreement. The Series 2005B Bonds shall be issued in the original aggregate principal amount of not to exceed Sixty -Five Million Dollars ($65,000,000), shall mature not later than December 1, 2019, and shall bear interest at the rates specified in the Bond Purchase Agreement. The true interest cost of the Series 2005 Bonds to the City, including the interest rates borne by the Series 2005 Bonds and the costs of issuance funded with proceeds of the Series 2005 Bonds, will not exceed 4.00% per annum, and no Series 2005 Bond will bear a coupon interest rate in excess of 4.00% per annum. The proceeds of the Series 2005 Bonds will be utilized (i) to defease the Series 2004 Bonds, (ii) to finance a portion of the cost of the acquisition, construction, reconstruction, extension, improving and equipping of the Project, (iii) to establish a debt service reserve for the Series 2005 Bonds or to purchase a surety bond for reserve purposes, (iv) to pay premiums for bond insurance, if deemed economically beneficial, and (v) to pay printing, underwriting, legal and other expenses incidental to the issuance of the Series 2005 .Bonds. The Series 2005 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 November 1, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), to be entered into by the City and the Trustee in substantially the form submitted to this meeting. The Mayor is hereby authorized and directed to execute and deliver the Series 2005A • Bonds and the Series 2005B Bonds, each series to be in substantially the form thereof contained in the Indenture submitted to this meeting, and the City Clerk is hereby authorized and directed to execute and deliver the Series 2005A Bonds and the Series 2005B 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 2005A Bonds and the Series 2005B 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 2005A • Bonds and the Series 2005B Bonds in substantially the form thereof contained in the Indenture • submitted to this meeting, with such changes as shall be approved by such persons executing the .•Series 2005A Bonds and the Series 2005B Bonds, their execution to constitute conclusive evidence of such approval. Section 2: In order to pay the principal of and interest on the Series 2005 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 as to the Series 2005A Bonds and the Series 2005B Bonds. The levy and collection of the Sales and Use Tax shall continue until such time as the Series 2005 Bonds are no longer outstanding or sufficient funds are on deposit with the Trustee under the Indenture to redeem the Series 2005 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 2005 Bonds are to be executed, authenticated, issued, accepted, held and secured, the Mayor is hereby authorized .... , .. ............... ...... - ..... ._........... • and directed to execute and acknowledge the Indenture, and the City Clerk is hereby authorized and directed to execute and acknowledge.the 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 Indenture to be accepted, executed and acknowledged by the Trustee. The 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 2005 Bonds. The Mayor is hereby authorized to confer with the Trustee, the Underwriter and Bond Counsel in order to complete the Indenture in substantially the form submitted to this meeting, with such changes as shall be approved by such persons executing.the Indenture, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the 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 2005 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 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 insubstantially 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 2005 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.) • 4 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 provide for the defeasance and redemption of the Series 2004 Bonds, the Mayor is hereby authorized and directed to execute an Escrow Deposit Agreement to be dated as of the date of its execution (the "Escrow Agreement), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"), and the Mayor is hereby authorized and directed to cause the Escrow Agreement to be executed by the Escrow Trustee. The Escrow Agreement is hereby approved in substantially the form submitted to this meeting, and the Mayor is hereby authorized to confer with the Underwriter, the Escrow Trustee and Bond Counsel in order to complete the Escrow Agreement in substantially the form • submitted to this meeting, with such changes as shall be approved by such persons executing the Escrow Agreement, their execution to constitute conclusive evidence of such approval. (Advice is given that a copy of the Escrow 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 8: In order to secure lower interest rates on the Series 2005A Bonds and the Series 2005B Bonds, the Underwriter has proposed that the City consider the purchase of a policy or policies of bond insurance with a portion of the proceeds of the Series 2005 Bonds, which policy or policies would guarantee the payment of the principal of and interest on the Series 2005 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 or policies with respect to the Series 2005 Bonds. In order to that the maximum amount of proceeds of the Series 2005 Bonds be available to pay costs of the Project, the Underwriter has proposed that the City consider the purchase of a surety bond or bonds with a portion of the proceeds of the Series 2005 Bonds, which surety bond or bonds would satisfy the funding requirements of the debt service reserve. If deemed • economically advantageous by the Mayor, upon the advice of the Underwriter, the Mayor is • hereby authorized to execute a commitment and to do any and all things necessary to accomplish the delivery of a surety bond or bonds with respect to the debt service reserve for the Series 2005 Bonds. Section : 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 2005 Bonds and to effect the execution and delivery of the Indenture, the Bond Purchase Agreement, the Official Statement, the Continuing Disclosure Agreement, the Escrow Agreement and a Tax Regulatory Agreement relating to the tax. exemption of interest on the Series 2005 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 10: 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 2005 Bonds. Section 11: 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 12: Upon the issuance and delivery of the Series 2005 Bonds, Ordinance No. 4718, adopted and approved by the City Council on July 5, 2005, will be deemed to be repealed. All other ordinances, resolutions and parts thereof in conflict herewith are hereby repealed to the extent of such conflict. PASSED and APPROVED this 4a' day of October, 2005. . • I 'ISA i 1 • By: APPRO DAN COODY, Mayor Eti► cps ;FAYEITEVILLE; 11 • I City Council Meeting Minutes October 4, 2005 Page 1 of 21 w Mayor Dan Coody City Attorney Kit Williams City Clerk Sondra Smith City of Fayetteville Arkansas City Council Meeting Minutes October 4, 2005 Aldermen Ward I Position 1 - Robert Reynolds Ward I Position 2- Brenda Thiel Ward 2 Position I - Kyle B. Cook lr�I- Ward 2 Position 2- Don Mart Ward 3 Position I - Robert K. Rhoads Ward 3 Position 2— Robert Ferrell Ward 4 Position I - Shirley Lucas Ward 4 Position 2- Lioneld Jordan A meeting of the Fayetteville City Council was held on October 4, 2005 at 6:00 PM in Room 219 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Vice Mayor Lioneld Jordan called the meeting to order. • PRESENT: Alderman Reynolds, Thiel, Cook, Marr, Rhoads, Ferrell, Lucas, Jordan, City Attorney Kit Williams, City Clerk Sondra Smith, Staff, Press, and Audience. I ABSENT: Mayor Coody Pledge of Allegiance Vice Mayor Jordan: The Mayor has been out of town during the past week. He went to Washington D.C. to testify before the United States Senate Committee on Homeland Security and Government Affairs regarding "Recovering from Hurricane Katrina; responding to the needs of those displaced, today and tomorrow. He then went to Albuquerque, New Mexico to the United States Conference of Mayors regarding the Urban Water Summit. Sergeant Shannon Gabbard and Captain William "Casey" Brown of the Police Department introduced the 2005 Citizen's Police Academy Graduates. Vice Mayor Jordan thanked the graduates for serving our community. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Page 2 of21 • Approval of the August 25, 2005 Special City Council meeting minutes and the September 6, 2005 City Council meeting minutes. Approved. Arkansas Parks & Tourism Grant — Botanical Gardens: A resolution authorizing the Mayor to apply for an Arkansas Parks and Tourism Outdoor Recreation Grant in the amount of $250,000.00 for the construction of Phase 1A of the Botanical Gardens. Resolution 198-05 as Recorded in the Office of the City Clerk VA! resolution authorizing the Mayor to apply for and accept a State and Tribal Assistance Grant (STAG) from the U.S. Environmental Protection Agency for Sanitary Sewer System Improvements; designating the Mayor as the City's authorized representative in all matters relating to the procurement and administration of said grant; and approving a budget adjustment recognizing $481,200.00 in Grant Revenue. Resolution 199-05 as Recorded in the Office of the City Clerk. South Fayetteville Community Development Corporation - Waiving of Fees: A resolution to waive the Building Permit Fee and other developmental fees for South Fayetteville Community • Development Corporation. Resolution 200-05 as Recorded in the Office of the City Clerk. Alderman Reynolds moved to approve the Consent Agenda. Alderman Marr seconded the motion. Upon roll call the motion passed 7-0. Alderman Rhoads was absent during the vote. UNFINISHED BUSINESS: ANX 05-1488 (Collins/Kinghorn, 533/534): An ordinance annexing that property described in annexation petition ANX 05-1488 for property located at 6102 and 6110 Lake Sequoyah Drive, containing 17.33 acres. This ordinance was left on the First Reading at the September 20, 2005 City Council meeting. Jeremy Pate stated the applicant would like to table this item indefinitely. Alderman Marr moved to table the ordinance indefinitely. Alderman Lucas seconded the motion. Upon roll call the motion passed unanimously. This ordinance was tabled indefinitely. • 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Page 3 of 21 Planning Commission Appeal: Collins/Kinehorn Rezoning: An ordinance rezoning that • property described in rezoning petition RZN 05-1489 for approximately 17.64 acres located at 6102 and 6110 Lake Sequoyah Drive from R -A, Residential Agricultural, to RSF-4, Residential Single Family, 4 units per acre. This ordinance was left on the First Reading at the September 20, 2005 City Council meeting. Jeremy Pate stated the applicant would like to table this item indefinitely. Alderman Marr moved to table the ordinance indefinitely. Alderman Reynolds seconded the motion. Upon roll call the motion passed unanimously. This ordinance was tabled indefinitely. C-PZD 05-1670 (Pratt Place Inn, 481): An ordinance establishing a Commercial Planned Zoning District titled C-PZD 05-1670, Pratt Place Inn, located at the west end of Markham Road, containing approximately 72 acres, more or less; amending the official zoning map of the City of Fayetteville; and adopting the Associated Master Development Plan. This ordinance was left on the First Reading at the September 20, 2005 City Council meeting. Alderman Cook moved to suspend the rules and go to the second reading. Alderman Reynolds seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. • Jeremy Pate gave a brief update of the project. He stated this development would increase the traffic by 446 trips per day on an average week day. The existing zoning of RSF-4 and R -A would allow for 207 dwelling units and would generate approximately 1,981 vehicle trips per day on an average week day. Alderman Lucas asked about the sewer problems. Jerry Kelso, Crafton Tull and Associates: We are not aware of any sewer problems. Kenneth Smith a resident he would like the undeveloped open space to remain as open space. He would also like the track runners to be able to continue to run on the property. He stated he is in favor of this rezoning. John McDonald, Track Coach, U of A stated they use the property. He stated they are allowed to run there for free. Sandy Edwards, Associate Vice Chancellor for Development, U of A stated that throughout her dealing with the Archer's she has been impressed with their initiative to maintain a strong and positive connection with the University. She stated they have improved the grounds by adding trees, landscaping, burying electric and phone lines and renovating buildings. They keep • the grounds well maintained and available to the track teams. In dealing with the University the Archer's have been responsive, caring and community minded. They have been insistent that we contact them when issues arise. She stated they encourage the Council to approve this request. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayettevi I le.org City Council Meeting Minutes October 4, 2005 Page 4 of 21 Ann Foster stated she helps the Archer's with the Pratt Place barn. She stated she monitors the noise at various locations during events. She stated has not been able to hear any noise when she does the monitoring. Do you use a device to monitor the noise? Jamie Hall 1655 Markham Road stated he believes he is the closest property on Markham Road to the Archer's place. I agree with this PZD zoning. I have never noticed any noise from any events at the barn. I have noticed a little extra traffic but not enough to inconvenience me. Felicia Farris 2215 Haskell Heights voiced her concern about trees that have been removed from the property and the run off caused by the tree removal. She voiced her concern about the barn that was built for horses but has been used for parties. She asked the Council to look at the Doug Albert stated he has provided landscape services for the Archer's for over 10 years. He stated the reason the trees were removed was to provide for the barn. They do not have horses at this time because the fencing is not complete. Tim Crane, a resident stated he has had good experiences with the Archer's but he feels there is reason to be careful. He stated in general he is in favor of this because of the alternative. He stated he is concerned about the removal of the trees and the damage to other trees. He does not want anything built on Planning Area 3. Did you purchase your property from the Archer's? According to the PZD, will dwelling units be allowed on Planning Area 3? Jeremy Pate: There are no dwelling units on Planning Area 3, structures this area as a conditional use but would have to be agricultural use. Could they add on to the house? Jeremy Pate: They could eventually add on to a house but they have a ma footage. They could not add any additional dwelling units to the planning requesting a rezoning request. There is no conservation easement proposed. Alderman Marr asked about street improvements. Jeremy Pate stated that once they get an idea of exactly how m1 generated through each phase of this development they would access need to be approved. '.701 (479)521-7700 accessfayetteville.org City Council Meeting Minutes October4,2005 Page 5 of 21 Alderman Lucas stated that she would like to be assured that should this go forward that the • sewer be studied around the property and below the property at the bottom of the hill. Jeremy Pate: We can include that as part of our down stream assessment. Alderman Marr: This PZD would supercede any current Bill of Assurances on this property? Jeremy Pate: That is correct. Albert Skiles, Architect for the project stated there are complaints about increased traffic, we acknowledge that. The bottom line is this is an enterprise that is extremely low impact. A lot of these issues about the details of the project are handled through large scale development. What we are doing here is to approve or disapprove a template. I urge you to consider this as a matter of preservation of something that is very valuable to Fayetteville. Beverly Roberts, caretaker stated there is no noise from the property. Trees on the property have been marked so they will not be cut. This is a wonderful place to live. The Archer's could sell this property and it could become anything. John Williams: They do have events in the barn. It is a fantastic barn and a great place to have a party. He voiced his concern about the sewer system or septic system. Darlene Gooding a landscaper for the Archer's stated she could not think of a more beautiful • place to go and have dinner. She stated this is a wonderful place. Alderman Ferrell asked if new structure and existing structures will be on sewer instead of septic. Jeremy Pate stated he believed that is correct. Jerry Kelso said the Archer's have hired them to do a full structure analysis of the barn and we will make sure this barn will be up to code if this zoning passes. That will have to be addressed and permitted. Lynn Wade, 100 North Sang voiced his concern about the lack of the conservation easement. He asked if Planning Area I can be altered since there is no conservation easement to provide the protection that we have been promised. This is bringing a commercial activity into a residential area please consider these issues in this rezoning. A discussion followed on conditions of approval and Planning Area 1. Jeremy Pate stated this is a template that has been developed and the Planning Commission and staff will see this and make approval or denial on the development based on the final plan. Kit Williams: I think the City Council wants to be able to assure the neighbors that the future • development that they would be approving tonight, that those locations may not be identical as shown on the plat that they would not be in a very different location that would affect the neighbors. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayettevi I le.org City Council Meeting Minutes October 4, 2005 Page 6 of 21 Jeremy Pate stated they would anticipate these cabins would be generally located in the areas • shown. James Coger stated a lot of the cabins on the property did not have water, electricity or indoor plumbing. His main concern is Markham Road and bringing it up to code. This would be starting a commercial development. He voiced his concern about the notification process. He voiced his concern about some of the existing buildings on the property. He also is concerned about the increase in traffic to Markham Road. He also voiced his concern about the barn that has had parties in it. He is also concerned about the sound to the neighborhood from the property. He is concerned about the PZD process. Scott Harden stated the Archer's have a real since of ownership. He sated he would like to see this developed with this PZD than sold off for houses or apartments. Tom Terminella stated we are talking about spot zoning a commercial application in the middle of a dead end residential area with under improved access and utilities. Please hold these folks to the same standards as you hold other folks to. Those streets are narrow going to the property. Alderman Lucas: Will there be another access to the property. Jeremy Pate: All of their access points shown in their plan are from Markham. Alderman Reynolds: Is the recourse on future complaints from neighbors? • Jeremy Pate: If it is a zoning violation they would need to lodge a complaint in the Planning office and we would make sure the zoning is enforced. Alderman Ferrell asked if the streets will be altered, fixed or built to carry the load. Jeremy Pate stated yes. Alderman Ferrell asked how many acres are zoned RSF-4. Jeremy Pate: 49.1 acres. 207 dwelling units are currently allowed. The plan is to leave a large amount of that property undeveloped. Alderman Marr said he came tonight thinking the impact of developing this as RSF-4 was much more significant than what is being proposed. There are things in the package that concern me. I would not be supportive if this became a commercial node. This ordinance was left on the second reading. R-PZD 05-1636 (Wellspring): An ordinance establishing a Residential Planned Zoning District titled R-PZD 05-1636, Wellspring, located at Rupple Road and Highway 16, containing • approximately 152 acres, more or less: amending the official zoning map of the City of Fayetteville; and adopting the Associated Master Development Plan. This ordinance was left on the First Reading at the September 20, 2005 City Council meeting. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville. org City Council Meeting Minutes October 4, 2005 Page 7 of 21 Alderman Marr moved to table this ordinance until the October 18, 2005 City Council • meeting. Alderman Ferrell seconded the motion. Upon roll call the motion passed unanimously. This ordinance was tabled to the October 18, 2005 City Council meeting. The following item was added to the City Council agenda: Re -approval of Resolution # 188-05. This item was approved at the September 20, 2005 City Council meeting but the amount in the resolution that was to be paid to Landers Ford was incorrect. William's Tractor LB75B Backhoe and Landers Ford F550 4x4: A resolution authorizing the purchase of one (1) Skid Steer Loader and one (1) LB75B Backhoe from William's Tractor in the amount of $77,192.41; and the purchase of one (1) F550 4x4 Cab and Chassis with Dump Body from Landers Ford in the amount of $38,243.00 for use at the Fayetteville Municipal Airport; and approving a budget adjustment in the amount of $115,435.00. Alderman Marr moved to add the William's Tractor LB75B Backhoe and Landers Ford F550 4x4 resolution to the agenda. Alderman Cook seconded the motion. Upon roll call the motion passed unanimously. • City Attorney Kit Williams read the resolution. Kit Williams: There was a clerical error when this was originally passed. Approving this again will clear up the clerical error. Alderman Reynolds moved to approve the resolution. Alderman Marr seconded the motion. Upon roll call the resolution passed unanimously. Resolution 201-05 as Recorded in the Office of the City Clerk. NEW BUSINESS: Alderman Ferrell moved to suspend the rules and move New Business #13 VAC 05-1689 (JDM Investments) to New Business #1. Alderman Reynolds seconded the motion. Upon roll call the motion passed unanimously. VAC 05-1689 (JDM Investments): An ordinance approving VAC 05-1689 submitted by Roger Trotter for property located between 2716 and 2728 North Candlewood Drive, vacating a right of way as indicated on the attached map and legal description. City Attorney Kit Williams read the ordinance. • Jeremy Pate gave a brief description of the Vacation. Planning Commission voted 5-2 in favor of the vacation request. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) access fayetteville.org City Council Meeting Minutes October 4, 2005 Page8 of21 • Alderman Thiel asked if a full 50 foot will be maintained as a utility easement. Jeremy Pate: Correct. Alderman Cook: When we do plats if we work for future connectivity based on the right of ways, do we require stub outs? Jeremy Pate: We typically do require stub outs. That is something the Planning Commission determines. A discussion followed on connectivity. Eva Madison, 2600 Candlewood Drive spoke on behalf of the Candlewood Property Owners Association. She stated they support this right of way vacation. They have three arguments against the use of this right of way. Safety is an issue, traffic cuts through this subdivision which causes a safety issue. She gave a summary of the traffic problem in this area. The second issue is connectivity. She stated the connectivity would be for only eleven homes. She stated there are other developments that do not have connectivity. She stated exceptions are made regarding connectivity and they would like the Council to make an exception tonight as well. The third issue is fairness. She stated the Candlewood home owners were completely unaware of the potential of a street between these homes because of a lack of notice from the City. The City did not require the developer to stub out the street or provide any other notice to the residents of • Candlewood that a street might come through. She stated the developer built these two homes with part of the driveway in the right of way. Alderman Rhoads: What is the City's current position in regards to this stub out? Jeremy Pate: The Planning Commission is recommending that it be vacated; Planning staff is recommending that it be constructed as part of the development to the north. A discussion followed on the vacation and some of the issues that have been raised. Jeremy Pate stated it is their policy to allow driveways in the right of way. He said these properties were permitted showing the right of way on the site plan and an additional set back. That is why these two homes are 100 feet a part as opposed to your typical 16 feet. He stated that connectivity was not required in some of the subdivisions in this area due to being surrounded by developed lots so there was not a way to connect a street. Alderman Ferrell stated that when the home owners made improvements to their properties there was no knowledge that there was an easement through there or they would not have spent the time, money and resources to do that. If it had been stubbed out to where it was obvious, then it would be a different story. Evelyn Brooks, 2728 Candlewood stated they purchased their property in May, 2004 and had no • knowledge of any of this. She stated they found out about the right of way in April, 2005. She stated they did not have a survey completed when they purchased the property. She said this 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4,2005 Page 9 of 21 right of way if not vacated would be devastating to her family, to her neighbor and the • neighborhood. Pat Brown, 2716 Candlewood Drive stated the lack of stub out is a concern of his. I would ask that you approve the vacation. Jay McClelland, JD Investments: They do not want this easement from Candlewood due to safety concerns. He stated they would have to remove trees to provide for this connection. Alderman Marr: I am typically a big proponent of connectivity but I also believe in the do right rule. Alderman Marr moved to suspend the rules and go to the second reading. Alderman Reynolds seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Reynolds moved to suspend the rules and go to the third and final reading. Alderman Marr seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Cook stated he is also in favor of connectivity. He stated the easy thing would be to • vacate this right of way, but he did not take this job to make friends and there are times when he has to think beyond what he personally feels and he has to make decisions that he thinks is right for the City of Fayetteville. Typically he is very supportive of neighborhoods and their needs. He stated he will vote against this not because of the neighbors but because it is the right thing for the City of Fayetteville. Alderman Lucas stated she is opposed to the City giving up property and she is in favor of neighborhoods. She stated there are other areas in the City where streets are not stubbed out but streets could be built. She stated she is not in favor of vacating the road. Alderman Rhoads stated he is also for connectivity but he feels the right thing to do is vacate this. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed 6- 2. Alderman Marr, Rhoads, Ferrell, Jordan, Reynolds and Thiel voting yes. Alderman Cook and Lucas voting no. Ordinance 4767 as Recorded in the Office of the City Clerk. Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A — Wastewater Treatment: An ordinance authorizing the issuance and sale of the City's not to exceed (1) • $27,000,000 of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and (2) $65,000,000 of Sales and Use Tax Capital Improvement Bonds, Series 2005B, for the purpose of Refunding the City's outstanding Sales and Use Tax Capital Improvement Bonds, 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Mating Minutes October 4.2005 Page 10 of 21 Series 2004, and 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 Trust Indenture pursuant to which the Series 2005 Bonds will be issued and secured; authorizing the execution and delivery of an Official Statement pursuant to which the Series 2005 Bonds will be offered; authorizing the execution and delivery of a Bond Purchase Agreement providing for the sale of the Series 2005 Bonds; authorizing the execution and delivery of a Continuing Disclosure Agreement; authorizing the execution and delivery of an Escrow Deposit Agreement providing for the Defeasance and Redemption of the Series 2004 Bonds; and prescribing other matters relating thereto. City Attorney Kit Williams read the ordinance. Steve Davis: The reason why we are doing this tonight is because on July 5`s the City Council approved a $65,000,000 loan agreement with the Arkansas Soil and Water Conservation Commission which is partially funded by an EPA grant. EPA procurement rules require a sealed bid purchasing process. The low bid was above the amount of money that the City certified and it was beyond the 25% threshold for us to negotiate with. There is a new law that has been passed that allows the City to negotiate this contract. The City has completed the negotiation process. He stated this contract is a cost plus guaranteed maximum price contract. The estimated completion time is May or June, 2008. We had to transfer the $65,000,000 loan from Arkansas Soil and Water to a market based bond issue. Alderman Cook moved to suspend the rules and go to the second reading. Alderman • Ferrell seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Ferrell moved to suspend the rules and go to the third and final reading. Alderman Cook seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4768 as Recorded in the Office of the City Cleric EPA and Audubon Arkansas Cost Share: An ordinance waiving the requirements of formal competitive bidding and approving a cost share in the amount of $25,000.00 with the U.S. Environmental Protection Agency (EPA) and Audubon Arkansas to fund the collection of Water Quality Data along College Branch in the City of Fayetteville to assist staff with storm water ordinance revisions in compliance with Federal MS4 Storm Water Regulations. City Attorney Kit Williams read the ordinance. • Melissa Terry with Audubon explained the cost share. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October4,2005 Page!! of21 Alderman Thiel stated she is in favor of this. Alderman Reynolds: Will these funds cover three years? Melissa Terry: Yes sir. This will allow us to collect data for three years. Alderman Marr thanked the City Attorney on getting this ordinance drafted and the Council for putting this on the agenda. He stated this is a really good step in terms of Fayetteville's storm water management water quality initiatives. Alderman Ferrell: What length of time will this study be good for? Melissa Terry: For the length of time the data is collected, three years then it will become historical data. Alderman Ferrell: At the end of three years will there be a proposal to continue testing or will you use that historical data to make projections. Melissa Terry: I hope so. We hope this will continue to grow and expand. Alderman Marr moved to suspend the rules and go to the second reading. Lucas seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Marr moved to suspend the rules and go to the third and final reading. Alderman Thiel seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4769 as Recorded in the Office of the City Clerk. Fayetteville Municipal Property Owners' Improvement District #9 — Biella: An ordinance to establish and lay off Fayetteville Municipal Property Owners' Improvement District No. 9 — Biella. City Attorney Kit Williams read the ordinance. Alderman Ferrell moved to suspend the rules and go to the second reading. Cook seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4,2005 Page I2 of 21 Alderman Ferrell moved to suspend the rules and go to the third and final reading. • Alderman Cook seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4770 as Recorded in the Office of the City Clerk. Southwestern Bell Telephone Service Agreement: An ordinance waiving the requirements of formal competitive bidding and approving a five-year renewal of the service agreement with Southwestern Bell Telephone, L.P. in the amount of $69,000.00 to provide Plexar Custom Telecommunications Service. City Attorney Kit Williams read the ordinance. Alderman Cook moved to suspend the rules and go to the second reading. Alderman Marr seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. • Alderman Cook moved to suspend the rules and go to the third and final reading. Alderman Marr seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4771 as Recorded in the Office of the City Clerk, Fayetteville Depot, LLC Lease Agreement: A resolution approving a lease agreement with Fayetteville Depot, LLC for property located at the northwest comer of Dickson Street and West Avenue to provide parking enforcement and revenue collection services for a proposed parking lot. Sharon Jenkins gave a brief description of the lease agreement. She stated the owners of this parking lot have requested the City to enter into a lease agreement to provide parking services on this property. Staff recommends approval. Alderman Thiel stated she agreed with the continuity of parking lot management throughout the city and the revenue stream this will provide. She stated her concern is the budget adjustment • that is proposed with this lease agreement. She is also concerned with the City hiring a new person to maintain this lot. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Page 13 of21 • Sharon Jenkins: We will be asking that the new position be approved regardless of this lease agreement. There are many things that new person will do other than provide parking service for this lot. A discussion followed on parking in the downtown area and the residential parking in the downtown area. They also discussed the charge for parking in this lot and what hour's people will pay to park in this lot. Sharon also explained this contract. Alderman Lucas: I am concerned about requesting an additional person. She also asked if the money the City would receive from this agreement would pay for the expenses and the expenses of cleaning the lot. Sharon Jenkins: Typically your citation revenues will cover your salaries. Gregg House explained how they got to the point of this lease agreement with the City. He stated they saw this as a pilot project and that they are going to charge for parking on this lot with this lease agreement it will generate funds for the City and they will have enforcement and cleaning by the City on the lot. Alderman Marr: For me I think there are two separate issues, our parking management strategy to get a downtown parking deck is one and whether to contract services for a private • land owner to manage parking is another. I think we need a strategy to address downtown parking and I think we are in the process of that with residential meetings. When I look at this contract of services that we are suppose to provide and hear that the Depot Group will be doing this regardless. He stated there are several issues in the contract that he is concerned about. A discussion followed on the contract and the issues that the Council is concerned about. Alderman Ferrell stated he did not feel the funds generated would pay for the expenses on this lot. Alderman Cook stated he is also concerned about the contract. He stated he thinks we are getting the cart before the horse. He said we need to have discussions on parking and get everyone on board before we make decisions like this. Alderman Thiel stated she is also concerned about us rushing this issue before we have a study of the paid parking in the downtown area. Alderman Rhoads moved to table this resolution until the October 18, 2005 City Council meeting. Alderman Ferrell seconded the motion. Upon roll call the motion passed 7-0. Alderman Reynolds abstained. This resolution was tabled to the October 18, 2005 City Council meeting. EI 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Associated Time & Parking Controls, Inc.: • competitive bidding and approving the purcha: Associated Time and Parking Controls, Inc. contingency in the amount of $4,408.50; and $51,213.60. Page 14 of 21 An ordinance waiving the requirements of formal ;e of Parking Revenue Collection Equipment from in the amount of $46,805.10; approving a 10% approving a budget adjustment in the amount of Alderman Ferrell moved to table this ordinance until the October 18, 2005 City Council meeting. Alderman Thiel seconded the motion. Upon roll call the motion passed unanimously. This ordinance was tabled to the October 18, 2005 City Council meeting. Parking Management Division Position: A resolution authorizing the addition of one (1) full- time position in the Parking Management Division; and approving a budget adjustment in the amount of $3,282.00. Alderman Rhoads moved to table this ordinance until the October 18, 2005 City Council meeting. Alderman Marr seconded the motion. Upon roll call the motion passed unanimously. This ordinance was tabled to the October 18, 2005 City Council meeting. • RZN-05-1687 (Hopmann): An ordinance rezoning that property described in rezoning petition RZN 05-1687 for approximately 0.18 acres located at 935 North College Avenue from R -O Residential -Office to C-1, Neighborhood Commercial. City Attorney Kit Williams read the ordinance. Jeremy Pate gave a brief description of the sign requested and the code regarding signs. A discussion followed on the zonings in this area and the signs that can be allowed. Alderman Ferrell moved to suspend the rules and go to the second reading. Alderman Rhoads seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Ferrell moved to suspend the rules and go to the third and final reading. Alderman Lucas seconded the motion. Upon roll call the motion failed 4-4. Alderman Rhoads, Ferrell, Lucas and Jordan voting yes. Alderman Cook, Marr, Reynolds and Thiel voting no. This ordinance was left on the second reading. • RZN-05-1688 (JDM Investments): An ordinance rezoning that property described in rezoning petition RZN 05-1688 for approximately 6.34 acres located at 2806 Crossover, north boundary 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Page 15 of 21 of Candle Wood Subdivision from R -A Residential -Agricultural to RSF-4, Residential Single • Family, 4 units per acre. City Attorney Kit Williams read the ordinance. Jeremy Pate gave a brief description of the rezoning. Planning Commission voted 7-0 to recommend approval. He stated 24 units would be allowed on the property. Alderman Ferrell moved to suspend the rules and go to the second reading. Alderman Rhoads seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Jay McClelland with JD Investments stated they have meet with the neighborhood and the church on this project. Alderman Ferrell moved to suspend the rules and go to the third and final reading. Alderman Reynolds seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. • Ordinance 4772 as Recorded in the Office of the City Clerk. RZN-05-1711 (Mathias): An ordinance rezoning that property described in rezoning petition RZN 05-1711 for approximately 1.25 acres located at Highway 62 West from R -A, Residential - Agricultural to C-1, Neighborhood Commercial. City Attorney Kit Williams read the ordinance. Jeremy Pate gave a brief description of the rezoning. The Planning Commission voted 6-0 to approval this rezoning. Alderman Lucas moved to suspend the rules and go to the second reading. Alderman Jordan seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Cook: The neighbors didn't have any problem with the fact that this C -I will back up closer as houses develop along Old Farmington. Jeremy Pate: No. • Alderman Jordan moved to suspend the rules and go to the third and final reading. Alderman Lucas seconded the motion. Upon roll call the motion passed unanimously. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) access fayetteviii e.org City Council Mecting Minutes October 4, 2005 Page 16 of 21 City Attorney Kit Williams read the ordinance. • Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed 6- 2. Alderman Rhoads, Ferrell Lucas, Jordan, Reynolds and Thiel voting yes. Alderman Cook and Marr voting no. Ordinance 4773 as Recorded in the Office of the City Clerk. VAC 05-1632 (East Square Development): An ordinance approving VAC 05-1632 submitted by Bob Kohler for an alley located on the City Block between East Avenue and College Avenue and Center Street and Mountain Street, as indicated on the attached map and legal description. City Attorney Kit Williams read the ordinance. Jeremy Pate gave a brief description of the vacation. Planning Commission and staff recommended approval. Alderman Lucas: This will not cost the City; the developers are paying for the relocation cost? Jeremy Pate: That is correct. Alderman Ferrell moved to suspend the rules and go to the second reading. Alderman • Marr seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Marr moved to suspend the rules and go to the third and final reading. Alderman Reynolds seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4774 as Recorded in the Office of the City Clerk. VAC 05-1686 (Schultz): An ordinance approving VAC 05-1686 submitted by N. Arthur Scott for property located at 1921 South Vale Avenue, vacating a portion of the right of way as indicated on the attached map and legal description. City Attorney Kit Williams read the ordinance. Jeremy Pate gave a brief description of the vacation. Planning Commission voted 7-0 in favor • of this vacation and staff is recommending approval. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Page 17 of 21 Alderman Lucas moved to suspend the rules and go to the second reading. Alderman Jordan seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Reynolds moved to suspend the rules and go to the third and final reading. Alderman Lucas seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4775 as Recorded in the Office of the City Clerk. R-PZD 05-1543 (Vantage Center): An ordinance establishing a Residential Planned Zoning District titled R-PZD 05-1543, Vantage Center, located at the end of Shepard Lane adjacent to Frontage Road, containing approximately 4.7 acres, more or less; amending the official zoning map of the City of Fayetteville; and adopting the Associated Master Development Plan. City Attorney Kit Williams read the ordinance. Jeremy Pate gave a brief description of the PZD. Planning Commission and staff recommend approval. Alderman Marr asked if this was going to be a standard model for their apartments. Kim Fugitt stated he is not sure if they will even build these again. Alderman Marr moved to suspend the rules and go to the second reading. Ferrell seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Alderman Reynolds moved to suspend the rules and go to the third and final reading. Alderman Ferrell seconded the motion. Upon roll call the motion passed 7-1. Alderman Marr, Rhoads, Ferrell, Lucas, Jordan, Reynolds and Thiel voting yes. Alderman Cook voting no. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4776 as Recorded in the Office of the City Clerk. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org Amend Title XI: Chapter 117, Article IV: Taxicabs: An •Chapter 117, Article IV: Taxicabs, of the Code of Fayetteville Zone Map for the City of Fayetteville Taxi Coupon Program. City Attorney Kit Williams read the ordinance. City Council Meeting Minutes October 4, 2005 Page 18 of21 ordinance amending Title XI: to provide a Rate Structure and Steve Davis: One of the taxi companies has requested that the waiting time be amended from $10 to $18. Alderman Cook: Why are we setting the rates, why don't we let the taxi's set their own rates? Steve Davis: This ordinance gets the City out of the business of setting taxicab rates except for our taxi program that is run through our Community Development Department. Those taxi rates are set by Zone A and Zone B. Zone I is $8 if the trip originates and ends in the same zone, if it is a trip that encompasses two zones it is $12, all other taxi travel is established by the free market. Brice Curry, Dynasty Cab voiced his concern about the fees not being prorated if a cab is put in service other than the first of the year. He stated the registration fees are high. A discussion followed on prorating the fee for cabs. Alderman Marr moved to suspend the rules and go to the second reading. Alderman • Reynolds seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. • Alderman Reynolds moved to suspend the rules and go to the third and final reading. Alderman Ferrell seconded the motion. Upon roll call the motion passed unanimously. City Attorney Kit Williams read the ordinance. Vice Mayor Jordan asked shall the ordinance pass. Upon roll call the ordinance passed unanimously. Ordinance 4777 as Recorded in the Office of the City Clerk. 2005 Millage Levy: An ordinance levying a tax on the Real and Personal Property within the City of Fayetteville, Arkansas, for the year 2005 fixing the rate thereof at 2.0 mils for General Fund — Operations, 0.4 mils for the Firemen's Pension and Relief Fund, 0.4 mils for the Policemen's Pension and Relief Fund and 1.0 mil for the Fayetteville City Library; and certifying the same to the County Clerk of Washington County, Arkansas. City Attorney Kit Williams read the ordinance. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Mceting Minutes October 4, 2005 Page 19 of 21 Steve Davis: This is the annual millage levy for the City of Fayetteville. We need to have our levy to the Quorum Court in October. This year we are asking for two mils for the General Fund • to provide funds for us to get close to balancing the budget in the General Fund. Alderman Thiel: The amount that is being requested in the budget for the library this year is $1.5 million dollars from the General Fund? Steve Davis: Yes that is correct. Alderman Thiel: Two mils will generate $1.781 million dollars. Steve Davis: That is correct. Alderman Thiel: So basically those two mils are paying for the library operations? Steve Davis: You could consider it that way, yes. The opportunity to pass these two mils will be available every year. Alderman Cook: I agree that we need to start thinking about other funding options rather than depending on sales tax. My problem is the General Fund; we are shifting more and more funds to operations. If we pass these 2 mils then I think it should be ear marked for something specific. Alderman Ferrell: It is my understanding that the library will seek funding other than from the City. Steve Davis: The resolution does not address whether the library should seek its own millage or move off the City's General Fund. It recommends that the library board do a strategic service plan and a long term financing strategy for continued library services. Alderman Ferrell: I would like to see us forgo the 2 mils for the City and let the library decide their fate. Alderman Lucas: If the library brings something forward after the first of the year, when will they start getting the money? Steve Davis: October, 2007. Alderman Lucas: If we fund this through his 2 mils when would we get the money? Steve Davis: October, 2006. Alderman Lucas: So we would have funding for a year until they were able to pass millage and get their money. I think this is a good idea. We need to have this to get us through until the library gets something passed and then we can look at not funding this. The people in Ward 4 have not been opposed to an increase in taxes they know we need funding. • Alderman Marr: I think it is smart business to diversify your revenue income stream between sales tax, franchise fees and property tax. I think there are a lot of good reasons to do it and to 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Meeting Minutes October 4, 2005 Page 20 of 21 diversify. The more we help cities like Farmington, Greenland and Elkins create sewer systems • and trash systems the more we are going to give them the ability to have commercial and force us to have another revenue stream. I think the best argument for it is the annexation debate which speaks to the fact that today we benefit from the sales tax of many of these places because people are shopping here when we get nothing from the property tax perspective and yet we have a cost of increase services. I think that is a very strong argument that also supports diversification of revenue. I don't disagree with the comments on the library but I think it is not only bad timing but it is the wrong timing right now. I think the library is one of the best amenities that we have in the City. I think it is our job to educate individuals on why we need to diversify revenue streams. I also think we need to discuss how to earmark the money. Alderman Thiel: On a $150,000 appraised value home the increase in taxes would be $60.00 a year? Steve Davis: That is correct. Alderman Thiel: I have had some calls in Ward 1 about this millage increase. Alderman Marr: We have as well. I don't take it lightly any time we add to what we are going to charge someone for fees or services. That is the reason we would like more information as to what this will be going to. Steve Davis: Would it be helpful for us to prepare a chart showing where the City's General • Fund money has gone to over the past five years. Alderman Thiel: That would be great. Alderman Thiel also asked if a study on departments and their efficiency had been considered. She stated a study like this would be a way for us to recognize the need. Jeff Erf asked who initiates the process for a vote on library millage. Kit Williams: The library board. Jeff Ed: What assurance do you have that they would actually do that? As I recall last year the library's budget before the new library and the increase in operating and maintenance was about $1 million. So what we are talking about is an additional $500,000 for operation and maintenance, now we are including their entire budget. There is $1 million of General Fund money that we are unable to cover with current revenues. My concern is raising the property tax, I agree with diversity and I have no problem with the higher tax but I want to know where it is going and how it is going to be used. I am concerned that this is not going to fix the problem of the budget short fall every year. I would rather see you go through the budget and see what you can take out. Kit Williams: Technically the library board would request the election but the City Council would actually call for the special election if it is requested. • Alderman Thiel: Could the City Council call for the election on its own? 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) access fayetteville.org City Council Meeting Minutes October4,2005 Page 21 of 21 Kit Williams: I don't think so. I would have to research that. This ordinance was left on the first reading. Meeting Adjourned at 11:15 PM. Dan Coody, Mayor Sondra Smith, City Clerk/Treasurer s • 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org "Nortiunit Arksuuas'Most Widely Read Newspaper" AFFIDAVIT OF PUBLICATION I, Erin Emis. do solemnly swear that I am the Legal Clerk of the Arkansas Democrat-Gazette/Northwest Arkansas Times newspaper, printed and published in Lowell, Arkansas, and .tat trom my own personal knowledge and reference to the files of said publication, that advertisement of: dj/>?t„ 497 was inserted in the regular editions on PO# Publication Charge: $ lD__• l/Q • .• Subscribe, and sworn to before me this day of , 2005. • hialYL(1km) Notary Public Sharlene D. Williams Notaryublic My Commission Expires: Stay fArkansas My Commission Expires October 18, 2014 " Please do not pay from Affidavit An invoice will be sent • P.O. BOX 1607 • 212 N. EAST AVENUE • FAYErrEVILLE. ARKANSAS 72701 • 479-571-6470 • ♦ • • JINb . . . 1 U. 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II..:;. •, ..• .. .. -. .•. • S ...pp . ..1 EXHIBIT D COSTS OF ISSUANCE Bond Counsel Fee and Expenses (estimated through closing and transcript preparation) Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, AR 72201 $78,000.00 Rating Fee Standard & Poor's Corporation 2542 Collection Center Drive Chicago, IL 60693 25,000.00 Verification Fee BKD, LLP Accounts Receivable P.O. Box 3667 Little Rock, AR 72203-3667 6,000.00 Trustee Acceptance Fee Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, AR 71601 5,500.00 • Escrow Trustee and Prior Trustee Fee Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, AR 71601 13,000.00 Reimbursement for Ordinance Publication Expenses City of Fayetteville 113 West Mountain Fayetteville, AR 72701 Attn: Finance and Internal Services Director 610.08 Official Statement Printing Ivize 400 West Capitol Avenue, Suite 10IB Little Rock, AR 72201 1,625.40 Underwriting Expenses Stephens Inc. 3425 North Futrall Drive, Suite 201 Fayetteville, AR 72703 3.679.90 Total: $133.415.3g I 4813-6963-71202 D-1 KUTAK ROCK LLP Check Remit To: • LITTLE ROCK, ARKANSAS Kutak Rock LLP PO Box 30057 asphone 501-975-3000Omaha, NE 68103-1157 Facsimile 501-975-3001 Federal ID 47-0597598 Wire Transfer Remit To: ABA #104000016 First National Bank of Omaha November 29, 2005 Kutak Rock LLP A/C # 24-690470 City of Fayetteville 113 West Mountain Fayetteville, AR 72701 Invoice No. 1006099 Matter No. 1123401-3 $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS • SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A AND $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B • For Professional Legal Services Rendered as Bond Counsel in connection with the issuance of $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B Estimated expenses through Closing and Transcript Distribution TOTAL FEES AND ESTIMATED EXPENSES DUE $75,000.00 3,000.00 i,_ 111 11 4843-7524-9408.1 rL ;:slvize. e innovativeinsightful informative 400W. Capitol, Suite 1016 • Little Rock, AR 72201 Phone: (501) 376-8000 • Fax: (501) 376-8001 1-866-390-5890 • Tax ID# 62-1703732 SOLDTO: KUTAK ROCK LLP 425 W. CAPITOL AVE. STE,1100 SUITE 1100 LITTLE ROCK, AR 72201 ORDERED BY: PAT JONES PLEASE PAY FROM THIS INVOICE INVOICE NO93147 INVOICE DATE: 11/16/05 CUSTOMER I.D. ,PURCHASE ORDER . PAYMENT TERMS,;" ,SALESPERSON I.D. 02014 FAYETTEVILLE NET 30 100 .,. wr,ry I I I T - I.I EM NUMBER • •- ,:. . -.. .:: - • - . DESCRIPTION `. ... .. 'UNIT PRICE 'c. EXTENSION. 14,490 405 STRAIGHT RUN 0.0500 724.50 315 454 FASTBACK BINDING 2.5000 . 787.50 • Item Total: 1,512.00 Sales Tax: 113.40 Shipping: I0.00 THANK YOU FOR CHOOSING IVIZE, LLC 1,625.40 .am„ ,e.;e,p.. no excepnons far tnira party payments. If Invoice Is not paid within 30 days, a five percent (5%) finance charge may be added. Customer is responsible for all costs of collection, including reasonable attorney fees. Form 8038-G I Information Return for Tax -Exempt Governmental Obligations (Rev. November 2000) ► Under Internal Revenue Code section 149(e) Depranera d tha ir.awy No, See separate Instructions. Mernpi Revenue service Caution: B the issue price is under $100,000, use Fonn 8038 -GC. O,,.4il Dana..... w. - OMB No. 1545-0720 1 City Issuer's name of Fayetteville, Arkansas - 2 Issuer's employer Identification number 71-6018462 3 113 Number and street (or P.O. box if mail is not delivered to street address) West Mountain Street Room/suite 4 Report number 3 05-2 5 Fayetteville, City, town, or post office, state, and ZIP code AR 72701 6 Date of Issue 11/29/05 7 Name of issue Sales & Use Tax Refunding and Capital Improvement Bonds, Series 2005A and Series 20058 8 CUSIP number 312673DJ2 9 Name and title of officer or legal representative whom the IRS may call for more Information Gordon M. Wilbourn, Esg., Kutak Rock LLP 10 Teleplpro rnanber of Vicar a legal rep,eaenWhe I 501-975-3000 Pat Ih Type of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule 11 12 13 14 15 16 17 18 19 20 ❑ Education.................................................................. ❑ Health and hospital........................................................... ❑ Transportation ...............................• ❑ Public safety ................................. ...... .cE....V........ ® Environment(includingsewagebonds)................. .....771 ❑ Housing ..................................... m .Ut.l. ❑ Utilities ...................................... .....' ❑ Other. Describe► If obligations are TANS or RANs, check box ► ❑ If obligation a If obligations are in the form of a lease or installment sale, chec ox ...... ...... ► ❑ 11 12 13 14 15 72,534,737 16 17 18 +"7a4,+ ____ ' ` "^ PaitIIEI Description of Obligations. (Complete for the entire issue for which this form is being filed.) (a) Final maturity date (b) Issue price (c) Stated redemption price at maturity - (d) Weighted average maturity () 'Yield 1 12/01/15 $ 72,534,737 $ -72,000,000 5.491 years' .3.8900% -attIV4l Uses of Proceeds of Bond Issue (including underwriters' discount) __ww 23 rnuv.eeua usau ,v, auauau uneresr.................................................. Issue priceof entire issue (enter amount from line 21, column (b)) .......................... 22 109,738 23 72,534,737 24 25 26 27 28 Proceeds used for bond issuance costs (including underwriters' discount) 24 601 Proceeds used for credit enhancement ........................... 25 197,000 Proceeds allocated to reasonably required reserve or replacement fund .. 26 58 Proceeds used to currently refund prior issues ..................... 27 Proceeds used to advancerefund prior issues ..................... 28 23,209,258 415 000 0 `` v '., ;: 29 30 Total (add lines 24 through 28) ..................................................... Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here) ........ 24,065,673 29 30 48, 469, 064 Part vj Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 32 33 34 Enter the remaining weighted average maturity of the bonds to be currently refunded ........... Enter the remaining weighted average maturity of the bonds to be advance refunded ........... Enter the last date on which the refunded bonds will be called ............................ Enter the date(s) the refunded bonds were issued ► 11/16 / 04 ► years ► 2. 475 years ► 12-1-08 Part vl( Miscellaneous 35 36a Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) ......... Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) 35 0 .... 36a 0 b 37 b Enter the final maturity date of the guaranteed investment contract ► Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental Units ........... If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► O and 37a enter the name of the issuer ► " "' and the date.of the issue ►. - - 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(III) (small issuer exception), check box ..........:: ► ❑ 39 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box ....... ❑ 40 If the issuer has iden 'fled a hedge, check box ............:... ..... - - ......................0.............. Under penaldeGf besjuzy, I declare 8 1 have examjned this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, q&rect and complete./ / // 11/29/05 Dan Coody Mayor Type or print name and title For Paperwork Reduction Act Notice, see paglrs'2 o'the Instructions. sw Form 8038-G (Rev 11-2000) SIP FED6403F 1 I • • Complete Items 1, 2, and 3. Also, complete Item 4 If Restricted Delivery Is desired. • Print your name and address on the reverse so that we can return the card to you. • Attach this card to the back of the mailplece, or on the front If space permits. 1. Article Addressed to InternaltRevenue Service Cent Ogden,=Utah 84201 • r .. lijitiilihuulljll ■ - ■ r ;r?j, I i L ( 2. A"ld°Numb 7099 3400 0015 8354 6145 (7J&. nwn.aemce leoep PS Form 3811, Fetmrary 2004 j Domestic Return Receipt 1d759S -MIe/a • KUTAK ROCK LLP ATLANTA • CHICAGo SUITE 1100 DENVER NVER 425 WEST CAPITOL AVENUE Dee MOINES NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 FAYETTEVILLE IRVINE THE THREE SISTERS BUILDING 601-975-3000 KANSAS CITY 214 WEST DICKSON STREET FACSIMILE 501-975-3001LOS ANGELES FAYETTEVILLE. ARKANSAS 72701-6221 OKLAHOMA CITY 470-073-4200 www.kutakrOOk.com OMAHA PASADENA RICHMOND SCOTTSDALE GORDON M. WILBOURN December 1, 2005 „W, OSN INIGTON BGdhw'BbG2e@Imabortwm (501)973-3101 VIA CERTIFIED MAIL RETURN RECEIPT REQUESTED Receipt#70993400001583546145 Internal Revenue Service Center Ogden, Utah 84201 • C $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A AND $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B Ladies and Gentlemen: I have enclosed above -captioned bonds. self-addressed envelope. paj Enclosures for filing an original and one copy of Form 8038-G with respect to the Please return one copy, showing your file mark, in the enclosed prepaid, Very truly yours, 4-A. 1 G$tdon M. Wilbourn 4818-5637-2992.1 0 J • i s' - I CJ CITY OF FAYETTEVILLE, ARKANSAS to SIMMONS FIRST TRUST COMPANY, N.A. as Trustee TRUST INDENTURE Dated as of November 15, 2005 EXECUTION COPY • Providing for: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A • (TAI $45,000,0000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 4838-2657-8944.6 TABLE OF CONTENTS • (This Table of Contents is not a part of the Trust Indenture and is only for convenience of reference.) Page No. Parties. 1 Recitals............................................................................................................................................ I GrantingClauses............................................................................................................................. 3 ARTICLE I DEFINITIONS Section101. Definitions........................................................................................................ 4 Section102. Use of Words................................................................................................. 12 ARTICLE II THE BONDS Section 201. Security for the Bonds................................................................................... 12 Section 202. Authorized Amount....................................................................................... 13 Section 203. Details of the Bonds....................................................................................... 14 Section204. Forms............................................................................................................. 15 Section205. Payment.......................................................................................................... 15 Section206. Execution....................................................................................................... 15 • Section 207. Authentication................................................................................................15 Section 208. Delivery of the Bonds....................................................................................16 Section 209. Mutilated, Destroyed or Lost Bonds.............................................................. 18 Section 210. Registration and Transfer of Bonds............................................................... 18 Section211. Cancellation................................................................................................... 19 Section 212. Additional Bonds and Drawdowns Under RLF Loans .................................. 20 Section 213. Superior Obligations Prohibited.................................................................... 20 Section214. [RESERVED]................................................................................................ 21 Section 215. Temporary Bonds......... . . ................................................. 21 Section 216. Book -Entry Bonds; Securities Depository..................................................... 21 • ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section 301. Redemption of the Bonds............................................................................... 22 Section302. Notice............................................................................................................. 23 Section 303. Selection of Bonds to be Redeemed.............................................................. 23 Section 304. Surrender of Bonds Upon Redemption.......................................................... 24 Section 305. Redemption in Part ........................................................................................ 24 Section 306. Redemption of Additional Bonds.................................................................. 24 ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest ..................................... 24 Section 402. Performance of Covenants............................................................................. 25 4838-2657-8944.6 i Section 403. Instruments of Further Assurance Section 404. .................................................................. Recordation and Filing................................................................................... 25 • Section 405. Inspection of Books 25 Section 406. ....................................................................................... Tax Covenants 25 Section 407. ............................................................................................... Trustee's and Paying Agent's Fees and Expenses 25 ......................................... 26 Section 408. Construction of Project; Certification of Completion Date ........................... 26 Section 409. Encumbrances Section 410. ................................................................................................ Continuing Disclosure 26 Section 411. ................................................................................... Drawdowns Under RLF Loans 26 ...................................................................... 27 ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts.................................................................... 27 Section502. Project Fund...................................................................................................27 Section503. Revenue Fund................................................................................................ 29 Section504. Bond Fund...................................................................................................... 30 Section 505. Cost of Issuance Fund.................................................................................... 30 Section 506. Redemption Fund.. 31 Section507. Rebate Fund................................................................................................... 31 Section 508. Debt Service Reserve Fund............................................................................ 32 Section 509. Cessation of Fund Deposits........................................................................... 33 Section 510. Separate Accounts Authorized....................................................................... 33 • ARTICLE VI INVESTMENTS Section 601. Investment of Moneys.................................................................................... 33 Section 602. Investment Earnings....................................................................................... 34 Section 603. Valuation of Funds......................................................................................... 34 Section 604. Responsibility of Trustee............................................................................... 34 ARTICLE VII DISCHARGE OF LIEN Section 701. Discharge of Lien........................................................................................... 34 Section 702. Bonds Deemed Paid.................................................... ....... ...... .. . . . . ....... . . . . . . . .. 34 Section 703. Non -Presentment of Bonds............................................................................ 35 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 801. Events of Default........................................................................................... 35 Section802. Acceleration................................................................................................... 36 Section 803. Other Remedies; Rights of Bondholders....................................................... 36 Section 804. Right of Bondholders to Direct Proceedings ................................................. 37 Section 805. Appointment of Receiver............................................................................... 37 Section806. Waiver............................................................................................................ 37 • Section 807. Application of Moneys.................................................................................. 37 483&2657.8944.6 11 Section 808. Remedies Vested in Trustee........................................................................... 39 • Section 809. Rights and Remedies of Bondholders............................................................ 39 Section 810. Termination of Proceedings........................................................................... 39 Section 811. Waivers of Events of Default......................................................................... 40 ARTICLE D{ TRUSTEE AND PAYING AGENTS Section Section 901. 902. Acceptance of Trusts...................................................................................... Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's 40 Section Section Section Section Section Section Section Section Section Section Section 903. 904. 905. 906. 907. 908. 909. 910. 911. 912. 913. PriorLien....................................................................................................... 42 Additional Duties of Trustee........ 43 Notice to Bondholders of Default.................................................................. 43 Intervention by Trustee.................................................................................. 43 Merger or Consolidation of Trustee............................................................... 44 Resignation by Trustee.................................................................................. 44 Removal of Trustee........................................................................................ 44 Appointment of Successor Trustee................................................................ 44 Concerning Any Successor Trustee............................................................... 44 Reliance Upon Instruments............................................................................ 45 Appointment of Co-Trustee........................................................................... 45 Designation and Succession of Paying Agents .............................................. 46 ARTICLE X • SUPPLEMENTAL INDENTURES Section 1001. Supplemental Indentures Not Requiring Consent of Bondholders ................ 46 Section 1002. Supplemental Indentures Requiring Consent of Bondholders ....................... 47 Section 1003. Effect of Supplemental Indentures................................................................. 48 ARTICLE XI 2005 BOND INSURANCE AND SURETY BONDS Section 1101. Consent of 2005 Insurer................................................................................. 48 Section 1102. Notice to 2005 Insurer................................................................................... 48 Section 1103. Defeasance of Section 2005 Bonds.........................................................A...... 49 Section 1104. Direction of Remedies................................................................................... 49 Section 1105. Payments Under 2005 Policies...................................................................... 49 Section 1106. Payments Under 2005 Surety Bonds............................................................. 51 Section1107. Miscellaneous................................................................................................ 52 ARTICLE XII MISCELLANEOUS Section 1201. Consents, etc. of Bondholders....................................................................... 52 Section1202. Notices........................................................................................................... 53 Section 1203. Limitation of Rights....................................................................................... 53 • Section 1204. Severability.............................................................................A......................53 Section 1205. Applicable Provisions of Law........................................................................ 53 4838-2657-8944.6 iii • Section 1206. Section 1207. Section 1208. Section 1209. Section 1210. Exhibit A Exhibit B Exhibit C Exhibit D Counterparts ............................................ Successors and Assigns ........................... Captions.................................................. Photocopies and Reproductions .............. Bonds Owned by the City ....................... ....................................................... 51 ....................................................... 54 ....................................................... 54 ....................................................... 54 ....................................................... 54 Form of Series 2005A Bond......................................................................... A-1 Form of Series 2005B Bond......................................................................... B-1 Form of Coverage Certificate....................................................................... C-1 RequisitionForm.......................................................................................... D-1 4838-2657.8944.6 iv • TRUST INDENTURE THIS TRUST INDENTURE, dated as of November 15, 2005, 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 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, the City Council of the City has determined that there is a great need for a source of revenue to finance all or 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 people of the State of Arkansas (the "State") by the adoption of Amendment No. 62 to the Constitution of the State, approved November 6, 1984 ("Amendment 62"), have authorized cities and counties in the State to issue bonds, upon voter approval, to • finance and refinance certain capital improvements of a public nature, and to secure said bonds by a pledge of the proceeds of certain taxes; and WHEREAS, the provisions of Amendment 62 have been implemented by the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq. (as from time to time amended, the "Act"); and WHEREAS, pursuant to the provisions of Ordinance No. 4327, duly adopted by the City Council of the City 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 principal amount of capital improvement bonds pursuant to Amendment 62 and the Act to finance the Project, 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 at the rate of three-quarters of one percent (0.75%) levied pursuant to the 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 aforementioned question approved the issuance of the capital improvement bonds and the corresponding levy of the Sales and Use Tax and pledge of Sales and Use Tax receipts to the payment of the capital improvement bonds; and WHEREAS, pursuant to ordinances of the City and in accordance with Amendment 62 and the Act, the City has previously issued (i) its $25,000,000 Sales and Use Tax Capital •Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (ii) its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"); and 4838-2657-8944.6 I WHEREAS, the Series 2002 Bonds have been redeemed in full from receipts of the Sales and Use Tax and the Series 2004 Bonds presently remain outstanding in the aggregate principal amount of $34,225,000; and WHEREAS, pursuant to the provisions of Ordinance No. 4768 of the City, adopted by the City Council on October 4, 2005 (the "Authorizing Ordinance"), and in accordance with the provisions of Amendment 62 and the Act, the City proposes to issue (i) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), in the aggregate principal amount of $27,000,000, and (ii) its Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), in the aggregate principal amount of $45,000,000, in order to accomplish an advance refunding of the outstanding Series 2004 Bonds and to provide for the financing of a portion of the Project; and WHEREAS, the City has determined to enter into this Indenture to authorize the issuance of and to secure the Series 2005 Bonds by granting to the Trustee a pledge and assignment of the interests and other rights herein contained, and certain funds and accounts created hereby; and WHEREAS, the regularly scheduled payment of principal of and interest on the Series • 2005A Bonds and the Series 2005B Bonds when due will be guaranteed under separate financial guaranty insurance policies (the "2005 Policies") issued simultaneously with the delivery of the Series 2005 Bonds by MBIA Insurance Corporation (the "2005 Insurer"); and WHEREAS, the Series 2005 Bonds are to be dated, bear interest, mature and be subject to redemption as hereinafter in this Indenture set forth in detail; and WHEREAS, provision is made in this Indenture for the issuance of Additional Bonds (hereinafter defined) and the incurring of RLF Loans (hereinafter defined) upon compliance with certain conditions set forth herein; and WHEREAS, the execution and delivery of this Indenture and the issuance of the Series 2005 Bonds have been in all respects duly and validly confirmed, authorized and approved under the provisions of the Authorizing Ordinance; and WHEREAS, all things necessary to make the Series 2005 Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the City according to the import thereof, and to constitute this Indenture a valid pledge of the Sales and Use Tax receipts to the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds, as specified in and in accordance with the provisions hereof, have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution, issuance and delivery of the Series 2005 Bonds, subject to the terms hereof, have in all respects been duly authorized; • 4838-2657-8944.6 •NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS INDENTURE WITNESSETH: That the City, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created, the issuance of the 2005 Policies (hereinafter defined) and the 2005 Surety Bonds (hereinafter defined) by the 2005 Insurer (hereinafter defined), and of the purchase and acceptance of the Series 2005 Bonds by the Holders and owners thereof, and the sum of Ten Dollars ($10.00), lawful money of the United States of America, to it duly paid by the Trustee, at or before the execution and delivery of these presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds and all Additional Bonds (hereinafter defined), if any, according to their tenor and effect, to secure the reimbursement to the 2005 Insurer of all amounts reimbursable pursuant to the 2005 Policies and the 2005 Surety Bonds and to secure the performance and observance by the City of all the covenants expressed or implied herein and in the Series 2005 Bonds and Additional Bonds (collectively, the "Bonds"), subject to all of the provisions hereof, does hereby grant, bargain, sell, convey, mortgage, assign, transfer and pledge unto the Trustee, and unto its successor or successors in trust, and to them and their assigns forever, for the securing of the performance of the obligations of the City hereinafter set forth the following: • Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, (i) the proceeds of the sale of the Bonds, (ii) all receipts from the Sales and Use Tax, which are hereby irrevocably assigned and pledged to secure all obligations under this Indenture, and (iii) the Revenue Fund, Bond Fund, Debt Service Reserve Fund (subject to the limitations set forth in Section 508 hereof), Project Fund and Redemption Fund established by this Indenture, including the investment earnings thereon, if any. 2. Any and all other properties, rights and interests of every kind and nature from time to time which have been, are hereby, or hereafter are, by delivery or by writing or transfer of any kind, conveyed, mortgaged, pledged, assigned or transferred, as and for additional security hereunder, by the City or by any other Person, firm or corporation, or with the written consent of the City, to the Trustee, which is hereby authorized to receive any and all such properties, rights and interests at any time and at all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all the same (the "Trust Estate") with all privileges and appurtenances hereby conveyed and assigned, or agreed or intended so to be, to the Trustee and its successors in said trusts and to them and their assigns forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal • and proportionate benefit, security and protection of all owners of the said Bonds issued under and secured by this Indenture without privilege, priority or distinction as to lien or otherwise of 4838-2657-8944.6 3 • any of the Bonds over any of the other Bonds; provided, however, that if the City, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, premium, if any, and interest due on the Bonds, at the times and in the manner provided in the Bonds, according to the true intent and meaning thereof, and shall make the payments as required under this Indenture or shall provide, as permitted hereby, for the payment thereof by depositing or causing to be deposited with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of this Indenture to be kept, and shall pay to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, and shall pay all amounts due to the 2005 Insurer by way of reimbursement or otherwise, then upon such final payments or deposits this Indenture and the lien and rights hereby granted shall cease, determine and be void; otherwise, this Indenture is to be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH that, and it is expressly declared that, all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all revenues and income hereby pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the City has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective owners from time to time of the Bonds or any part thereof, as follows, that is to say: ARTICLE I DEFINITIONS Section 101. Definitions. In addition to the words and terms elsewhere defined in this Indenture, the following words and terms as used in this Indenture shall have the following meanings: "Account" means an Account established by Article V of this Indenture. "Act" means the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" means Bonds in addition to the Series 2005 Bonds which are issued under the provisions of Section 212 of this 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. 4838-2657-8944.6 4 • "Authorized Representative" means either the Mayor or the 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. 4768, adopted by the City on October 4, 2005, which authorized the issuance of the Series 2005 Bonds pursuant to this 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 Section 501 of this Indenture. "Bonds" mean the Series 2005 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 is limited to the extent described in Section 212 hereof. "Book -Entry System" means the book -entry system maintained by the Securities Depository described in Section 216 of this Indenture. "Business Day" means any day other than (a) a Saturday or Sunday, (b) a day on which commercial banks in New York, New York, or the city in which the corporate trust office of the Trustee is located are authorized or required by law or executive order to close, or (c) a day on which the New York Stock Exchange or the Securities Depository is closed. "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. "City Clerk" means the person holding the office and performing the duties of the City Clerk of the City. "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. 4838-2657-8944.6 S "Code" means the Internal Revenue Code of 1986, as from time to time amended, and applicable regulations issued or proposed thereunder. "Completion Date" means the date upon which the Project (or portion thereof) is first ready for normal continuous operation, as determined by a Qualified Engineer. "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 Section 501 of this 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 Section 501 of this 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 hereof. "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 Article V of this Indenture. "Government Securities" means direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the • Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. 4838-2657-8944.6 6 S "Holder" or "Bondholder" or "owner of the Bonds" means the registered owner of any Bond. "Indenture" means this Trust Indenture dated as of November 15, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any amendments and supplements hereto. "2005 Insurer" means MBIA Insurance Corporation, the issuer of the 2005 Policies. "Investment Securities" means, if and to the extent the same are at the time legal for investment of Funds and Accounts held under this Indenture: (a) Government Securities; (b) bonds, debentures, notes or other evidence of indebtedness issued or generated by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): • • (1) U.S. Export -Import Bank (Eximbank) — direct obligations or fully guaranteed certificates of beneficial ownership; (2) Farmers Home Administration (FmHA) — certificates of beneficial ownership; (3) _ Federal Financing Bank; (4) Federal Housing Administration Debentures (FHA); (5) General Services Administration — participation certificates; (6) Government National Mortgage Association (GNMA or "Ginnie Mae") — (a) GNMA — guaranteed mortgage -backed bonds (b) GNMA — guaranteed pass -through obligations; (7) U.S. Maritime Administration - guaranteed Title XI financing; and (8) U.S. Department of Housing and Urban Development (HUD) — Project Notes; Local Authority Bonds; New Communities Debentures — U.S. government guaranteed debentures; U.S. Public Housing Notes and Bonds — U.S. government guaranteed public housing notes and bonds; 4838-2657-8944.6 • (c) bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): (1) Federal Home Loan Bank System — senior debt obligations; (2) Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") — participation certificates and senior debt obligations; (3) Federal National Mortgage Association (FNMA or "Fannie Mae") — mortgage -backed securities and senior debt obligations; (4) Student Loan Marketing Association (SLMA or "Sallie Mae") — senior debt obligations; (5) Resolution Funding Corp. (REFCOPR) obligations; and (6) Fann Credit System — consolidated systemwide bonds and notes; (d) money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G, AAA -m or AA -m, and if rated by Moody's rated Aaa, Aal or Aa2; • (e) certificates of deposit secured at all times by collateral described in (a) and/or (b) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral; (f) certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF; (g) bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies; and (h) other forms of investments approved in writing by the 2005 Insurer, including the 2005A Surety Bond and the 2005B Surety Bond. "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 this Indenture, except: • 4838-2657-8944.6 • (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 VII of this Indenture; and (c) Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to this 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. "2005 Policies" means, collectively, the 2005A Policy and the 2005B Policy. "2005A Policy" means the financial guaranty insurance policy issued by the 2005 Insurer • insuring the payment when due of the principal of and interest on the Series 2005A Bonds as provided therein. "2005B Policy" means the financial guaranty insurance policy issued by the 2005 Insurer insuring the payment when due of the principal of and interest on the Series 2005B Bonds as provided therein. "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 this 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, 4838-2657-8944.6 9 • 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; (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 Section 501 of this Indenture. "Qualified Engineer" means an independent consulting engineer or firm of independent consulting engineers not in the regular employ of the City. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 Section 501 of this 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 Section 501 of this 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 4838-2657-8944.6 10 (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 "Reserve Requirement" means, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of this Indenture, the Reserve Requirement may be satisfied by cash or by Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. "Revenue Fund" means the fund by that name created and "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. "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 "Securities Depository" means The Depository Trust Company, New York, New York, or its nominee, and its successors and assigns, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refundii Improvement Bonds, Series 2005A, issued under and secured by this Indenture aggregate principal amount of $27,000,000. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued under and secured by this Indenture in the original aggregate principal amount of $45,000,000. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental Indenture, adopted by the City in accordance with Article X hereof. •"2005 Surety Bonds" means, collectively, the 2005A Surety Bond and the 2005B Surety Bond. "2005A Surety Bond" means the surety bond issued by MBIA Insurance Corporation guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "2005B Surety Bond" means the surety bond issued by MBIA Insurance Corporation guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "Surplus Tax Receipts" shall have the meaning ascribed to such term in Section 503 hereof. "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 this Indenture. Section 102. Use of Words. Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond", "owner", "holder" and "person" shall include the plural, as well as the singular, number. ARTICLE II THE BONDS Section 201. Security for the Bonds. (a) The Bonds are special and limited obligations of the City payable as to principal, premium, if any, and interest solely out of the Trust Estate. The Trust Estate is hereby pledged, appropriated and assigned to the payment of the principal of, premium, if any, and interest on the Bonds, all in accordance with their terms and the provisions of this Indenture. The Bonds do not constitute an indebtedness for which the faith and credit of the State of Arkansas or the City is pledged within the meaning of any Constitutional or statutory limitation. The Bonds shall never constitute an obligation of or a charge against the general credit or general taxing powers of the City. • 4838-2657-8944.6 12 (b) The pledge, charge, lien, trusts and assignments made herein with respect to the Trust Estate shall be valid and binding, and shall be deemed continuously perfected from the time of issuance of the Series 2005 Bonds, and the Trust Estate shall thereupon be immediately subject to the pledge, charge, lien, trust and assignment created hereby upon receipt thereof by or for the City or by the Trustee or the Paying Agent hereunder, without any physical delivery, segregation thereof or further act, and such pledge, charge, lien, trust and assignment shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice thereof. (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, Surplus Tax Receipts shall be applied to redemption prior to maturity in the following order of priority: first FIRST: to the redemption of the Series 2005B Bonds; SECOND: to the redemption of any series of Additional Bonds; THIRD: to the redemption of any RLF Loan; and FOURTH: to the redemption of the Series 2005A Bonds. • (d) So long as any Bonds are Outstanding under the provisions of this Indenture, all receipts derived from the Sales and Use Tax shall be deemed to be necessary to accomplish the purposes of the City and shall be subject to the covenants and agreements set forth in this Indenture, and no such revenues or receipts shall ever be used or deposited otherwise except as herein expressly permitted. (e) The City covenants, as permitted by the Act, that while any of the Bonds are Outstanding it will use due diligence in causing the collection of the Sales and Use Tax. Nothing herein shall prohibit the City from increasing any sales and use tax from time to time, to the extent permitted by law, and no part of the revenues or receipts derived by the City from any such increase shall become part of the receipts derived from the Sales and Use Tax unless authorized and pledged by a Supplemental Indenture. Section 202. Authorized Amount. There is hereby authorized the issuance of bonds of the City to be designated (1) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" in the principal amount of Twenty -Seven Million Dollars ($27,000,000) (the "Series 2005A Bonds") and (2) "Sales and Use Tax Capital Improvement Bonds, Series 2005B" in the principal amount of Forty -Five Million Dollars ($45,000,000) (the "Series 2005B Bonds"). No Bonds may be issued under the provisions of this Indenture except in accordance with this Article II. The total principal amount of Bonds that may be issued hereunder and any RLF Loans that may be incurred by the City is hereby limited to $92,000,000, except as provided in Section 209 and except for refunding bonds issued under the provisions of Section 212 hereof. • 4838-2657-8944.6 13 •Section 203. Details of the Bonds. (a) The Series 2005A Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A," (ii) shall be in the aggregate principal amount of $27,000,000, (iii) shall be dated as of November 15, 2005, (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, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05A-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 1 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 2005A Bonds: Year (December 1) Principal Amount Interest Rate 2006 $4,415,000 3.500% 2006 1,975,000 3.150% 2007 5,940,000 4.000% 2007 800,000 3.250% 2008 6,110,000 4.000% 2008 900,000 3.350% 2009 6,260,000 4.000% 2009 600,000 3.450% • (b) The Series 2005B Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B," (ii) shall be in the aggregate principal amount of $45,000,000, (iii) shall be dated as of November 15, 2005, (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, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05B-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 1 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 2005B Bonds: Year (December 11 Principal Amount Interest Rate 2009 $ 430,000 4.000% 2010 6,655,000 4.000% 2010 925,000 3.650% 2011 7,430,000 4.000% 2011 455,000 3.800% 2015 29,105,000 4.000% • 4838-2657-8944.6 14 • Section 204. Forms. (a) The Series 2005A Bonds shall be initially issued as fully registered Bonds, without coupons, in the form of eight 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 2005A Bonds, except upon the occurrence of the events described in Section 216 hereof 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 2005A Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit A hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. (a) The Series 2005B Bonds shall be initially issued as fully registered Bonds, without coupons, in the form of six 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 2005B Bonds, except upon the occurrence of the events described in Section 216 hereof 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 2005B Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit B hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. • Section 205. Payment. The Bonds shall be payable, with respect to principal, premium, if any, and interest in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. The principal of and premium, if any, on the Bonds shall be payable upon surrender thereof at the principal corporate trust office of the Trustee. Payment of interest on each Bond shall be made by check or draft mailed to the registered owner of such Bond as of the applicable Record Date at his address as it appears on the registration books maintained by the Trustee. For purposes of this Indenture, interest on the Bonds shall be deemed to accrue on the basis of a 360 -day year of twelve 30 -day months. So long as the Securities Depository or its nominee is the sole registered owner of the Bonds, payment of interest thereon shall be made by wire transfer of immediately available funds by the Paying Agent to the Securities Depository or its nominee. Section 206. Execution. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor and City Clerk and shall have impressed or imprinted thereon the seal of the City. A facsimile signature shall have the same force and effect as if manually signed. In case any officer whose manual signature or a facsimile of whose signature shall appear on the Bonds shall cease to be such officer before the delivery of such Bonds, such signature or such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such official had remained in office until delivery. Section 207. Authentication. Only such Bonds as shall have endorsed thereon a • certificate of authentication substantially in the form set forth in Exhibit A or Exhibit B attached hereto duly executed by the Trustee shall be entitled to any right or benefit under this Indenture. 4838.2657-8944.6 15 • No Bond shall be valid and obligatory for any purpose unless and until such certificate of authentication shall have been duly executed by the Trustee, and such certificate of the Trustee upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed if signed by an authorized officer of the Trustee, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds issued hereunder. Section 208. Delivery of the Bonds. The City shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds of any series and deliver said Bonds to the Securities Depository as may be directed in this Section 208, in Section 212 hereof or in any Supplemental Indenture. (a) Prior to the delivery or original issuance by the Trustee of any authenticated Bonds of any series, there shall be delivered to the Trustee: (1) An original executed counterpart of this Indenture or, in the case of Additional Bonds, a Supplemental Indenture by and between the City and the Trustee setting forth the details concerning such Additional Bonds; (2) Original executed counterparts of the Continuing Disclosure Agreement and the Tax Regulatory Agreement applicable to such series of Bonds; • (3) A Certificate directing the Trustee to authenticate the Bonds and containing instructions as to the delivery of the Bonds upon payment to the Trustee, for the account of the City, of a sum specified in such Certificate; (4) A copy, duly certified by the City Clerk, of the proceedings of the City authorizing the levy of the Sales and Use Tax and the issuance of the Bonds; (5) A written opinion of Bond Counsel approving the legality of the Bonds; (6) In the case of any series of Additional Bonds, a Certificate signed by the Mayor of the City certifying that (i) the City is not then in default in the performance of any of the covenants, conditions, agreements or provisions contained in this Indenture, and (ii) the City is current as to all required deposits at that time in all the Funds and Accounts described in Article V of this Indenture or hereafter created by the Supplemental Indenture, or if the City is in default or is not so current, certifying in the case of (i) or (ii) as to that fact and that, upon the application of the proceeds of the sale of such Additional Bonds as provided in the Supplemental Indenture authorizing the issuance thereof, the City will not be in default or will be current thereafter; (7) In the case of any series of Additional Bonds, a written opinion of Bond Counsel to the effect that the exemption from federal income tax of the interest on the Series 2005 Bonds and any Additional Bonds theretofore issued will not be adversely • affected by the issuance of the Additional Bonds being issued; and 4838-2657-8944.6 16 • (8) Such further documents and certificates as may be required by the Original Purchaser of such series of Bonds. (b) Simultaneously with the delivery of the Series 2005A Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005A Bonds shall be deposited in the Interest Account of the Bond Fund; (2) $22,000.00 shall be transferred to the 2005 Insurer in order to purchase the 2005A Surety Bond, which shall be deposited in the Series 2005A Account of the Debt Service Reserve Fund; (3) $67,000.00 shall be transferred to the 2005 Insurer in payment of the premium on the 2005A Policy; (4) An amount equal to $61,843.27 shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) An amount sufficient, together with moneys held by Simmons First Trust Company, N.A., as trustee for the Series 2004 Bonds, in funds and accounts created by the trust indenture securing the Series 2004 Bonds, to refund the Series 2004 Bonds shall be deposited in Trust with Simmons First Trust Company, N.A., as escrow trustee (the • 2004 Escrow Trustee"), in accordance with the provisions of an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005A Bonds (the "2004 Escrow Agreement"), by and between the City and the 2004 Escrow Trustee. The 2004 Escrow Agreement shall provide for the investment of the funds, to the extent feasible, in Government Securities which will mature and bear interest at such times and in such amounts as will, together with any uninvested moneys held by the 2004 Escrow Trustee, provide sufficient moneys to pay as due at maturity and upon redemption prior to maturity as provided in the 2004 Escrow Agreement, all principal of and premium, if any, and interest on the Series 2004 Bonds. The 2004 Escrow Agreement will provide for the giving of notice of redemption prior to maturity of the Series 2004 Bonds, for the payment of required trustee and paying agent fees on the Series 2004 Bonds, and for the release of all claims of the Series 2004 Bonds on the Trust Estate; and (6) The balance of said proceeds, in the amount of $3,805,689.43, shall be deposited in the Series 2005A Account of the Project Fund. (c) Simultaneously with the delivery of the Series 2005B Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005B Bonds shall be deposited in the Interest Account of the Bond Fund; • 4838-2657-8944.6 17 C • (2) $36,000.00 shall be transferred to the 2005 Insurer in order to purchase the 2005B Surety Bond, which shall be deposited in the Series 2005B Account of the Debt Service Reserve Fund; (3) $130,000.00 shall be transferred to the 2005 Insurer in payment of the premium on the 2005B Policy; (4) An amount equal to $71,572.11 shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) The balance of said proceeds, in the amount of $44,663,374.24, shall be deposited in the Series 2005B Account of the Project Fund. Section 209. Mutilated, Destroyed or Lost Bonds. In case any Bond issued hereunder shall become mutilated or be destroyed or lost, the City shall, if not then prohibited by law, cause to be executed and the Trustee may authenticate and deliver a new Bond of like series, date, number, maturity and tenor in exchange and substitution for and upon cancellation of such mutilated Bond, or in lieu of and in substitution for such Bond destroyed or lost, upon the Holder's paying the reasonable expenses and charges of the City and the Trustee in connection therewith, and, in the case of a Bond destroyed or lost, filing by the Holder with the Trustee evidence satisfactory to the Trustee that such Bonds were destroyed or lost, and of the Holder's ownership thereof, and furnishing the City and Trustee with indemnity satisfactory to them. The Trustee is hereby authorized to authenticate any such new Bond. In the event any such Bonds • shall have matured, instead of issuing a new Bond, the City may pay the same without the surrender thereof. Upon the issuance of a new Bond under this Section 209, the City may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Section 210. Registration and Transfer of Bonds. The City hereby constitutes and appoints the Trustee as Bond registrar of the City, and as Bond registrar the Trustee shall keep books for the registration and for the transfer of the Bonds as provided in this Indenture at the principal corporate trust office of the Trustee. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and payment of or on account of the principal of and interest on any such Bond shall be made only to or upon the order of the registered owner thereof, or the owner's legal representative, and neither the City, the Trustee nor the Bond registrar shall be affected by any notice to the contrary, but such registration may be changed as herein provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. 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 4838-2657-8944.6 18 • 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. Bonds may be exchanged at the principal corporate trust office of the Trustee for an equal aggregate principal amount of Bonds of any other authorized denomination or denominations of the same series with corresponding maturities. The City shall execute and the Trustee shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive, bearing numbers not contemporaneously then outstanding. The execution by the City of any Bond of any denomination shall constitute full and due authorization of such denomination and the Trustee shall thereby be authorized to authenticate and deliver such Bond. Such 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. If the Securities Depository or its nominee is the sole registered owner of the Bonds, • transfers of ownership and exchanges shall be effected on the records of the Securities Depository and its Participants pursuant to rules and procedures established by the Securities Depository and its Participants. In such case, the Trustee shall deal with the Securities Depository as representative of the Beneficial Owners of the Bonds for purposes of exercising the rights of Bondholders hereunder, and the rights of the Beneficial Owners of such Bonds held by the Securities Depository or its nominee shall be limited to those established by law and agreements between such Beneficial Owners and the Securities Depository and its Participants. Requests, consents and directions from, and votes of, the Securities Depository or its nominee as representative shall not be deemed inconsistent if they are made with respect to different Participants or Beneficial Owners. Section 211. Cancellation. All Bonds surrendered for payment, redemption, transfer or exchange, if surrendered to the Trustee, shall be promptly cancelled by it, and, if surrendered to any person other than the Trustee, shall be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The City may at any time deliver to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder, which the City may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Trustee. All cancelled Bonds held by the Trustee shall be disposed of as directed by the City. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee may, upon the written request of the City, in lieu of such cancellation and delivery, destroy such Bonds in the presence of any officer of the City (but only if the City shall so require), and deliver a certificate of such destruction to the City. • 4838-2657-8944.6 19 Section 212. Additional Bonds and Drawdowns Under 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 acquisition, construction, reconstruction, extension, improving or equipping of the Project, (ii) refunding the Series 2005 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 2005 Bonds and any other series of Additional Bonds theretofore issued or any RLF Loan theretofore incurred and then Outstanding, except insofar as any teens or conditions of redemption or purchase established under this 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 a 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 Section 208 hereof, plus a Certificate of the Finance and Internal Services Director of the City (in the form attached as Exhibit C hereto) certifying that, based upon necessary investigation, the Sales and Use Tax receipts transferred to the Trustee for deposit to the Revenue Fund during the most recent twelve (12) months were not less than (i) 125% of the average 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 (in the form attached as Exhibit C hereto) certifying that, based upon necessary • investigation, the Sales and Use Tax receipts transferred to the Trustee for deposit to the Revenue Fund during the most recent twelve (12) months were not less than 125% of the average Annual Debt Service on all the Outstanding Bonds and any RLF Loan theretofore incurred, plus the average Annual Debt Service on the amount of the additional RLF Loan then to be incurred. Notwithstanding anything herein to the contrary, no Additional Bonds shall be issued and no RLF Loan shall be incurred unless there is no default at the time of issuance under this Indenture. Notwithstanding any provision of this indenture to the contrary, the aggregate principal amount of Additional Bonds and drawdowns under RLF Loans shall not exceed $20,000,000, except with respect to Additional Bonds issued for the purpose of refunding the Series 2005 Bonds or any previously issued series of Additional Bonds. Section 213. Superior Obligations Prohibited. Except to the extent permitted in Section 212 hereof for the issuance of Additional Bonds, from and after the issuance of any of the Bonds and for so long as any of the Bonds are Outstanding, the City shall not create or permit the creation of any indebtedness, or issue any bonds, notes, warrants, certificates or other obligations or evidences of indebtedness payable in any manner from the Sales and Use Tax receipts or otherwise from the Trust Estate which (i) will in any way be superior to or rank on a parity with the Bonds, or (ii) will in any way be secured by a lien and charge on the Sales and Use Tax receipts or on the moneys deposited in or to be deposited in the Revenue Fund, prior to or equal with the lien, pledge and charge created herein for the security of the Bonds, or (iii) will be payable prior to or equal with the payments to be made from the Sales and Use Tax receipts and the Revenue Fund into the Bond Fund, Debt Service Reserve Fund and Redemption Fund or • from said Bond Fund, Debt Service Reserve Fund and Redemption Fund for the payment of the Bonds. 4838-2657-8944.6 20 • Section 214. [RESERVED]. Section 215. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the City may execute, and upon the request of the City, the Trustee shall authenticate and deliver, subject to the provisions, limitations and conditions set forth herein, one or more Bonds in temporary form, whether printed, typewritten, lithographed or otherwise produced, substantially in the form of the definitive Bonds, with appropriate omissions, variations and insertions, and in authorized denominations. Until exchanged for Bonds in definitive form, such Bond in temporary form shall be entitled to the lien and benefit of this Indenture. Upon the presentation and surrender of any Bond or Bonds in temporary form, the City shall, without unreasonable delay, prepare, execute and deliver to the Trustee and the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds in definitive form. Such exchange shall be made by the Trustee without making any charge therefor to the Holder of such Bond in temporary form. Section 216. Book -Entry Bonds; Securities Depository. The Bonds shall initially be registered to Cede & Co., the nominee for The Depository Trust Company, New York, New York (the "Securities Depository"), and no Beneficial Owner will receive certificates representing their respective interests in the Bonds, except in the event the Trustee issues replacement bonds as provided in this Section 216. It is anticipated that during the term of the Bonds, the Securities Depository will make book -entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Trustee authenticates and delivers replacement bonds to the Beneficial Owners as • described in the following paragraph. If the City or the Trustee determines (A) that the Securities Depository is unable to properly discharge its responsibilities, or (B) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, or (C) that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, or (2) if the Trustee receives written notice from Participants representing interests in not less than 50% of the Bonds Outstanding, as shown on the records of the Securities Depository (and certified to such effect by the Securities Depository), that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, then the Trustee shall notify the Bondholders of such determination or such notice and of the availability of certificates to Bondholders requesting the same, and the Trustee shall register in the name of and authenticate and deliver replacement bonds to the Beneficial Owners or their nominees in principal amounts representing the interest of each; provided, that in the case of a determination under (A) or (B) of this paragraph, the City or the Trustee may select a successor securities depository in accordance with the following paragraph to effect book -entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has possession of at least one Bond. Upon the issuance of replacement bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to • be imposed upon and performed by the Trustee, to the extent applicable with respect to such replacement bonds. If the Securities Depository resigns and the City, the Trustee or Bondholders 4838-2657-8944.6 21 are unable to locate a qualified successor of the Securities Depository in accordance with the following paragraph, then the Trustee shall authenticate and cause delivery of replacement bonds to Bondholders, as provided herein. The Trustee may rely conclusively on information from the Securities Depository and its Participants as to the names and addresses of the Beneficial Owners of the Bonds. The cost of printing, registration, authentication, and delivery of replacement bonds shall be paid for by the City. In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, the City may appoint a successor Securities Depository provided the Trustee receives written evidence satisfactory to the Trustee with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities and Exchange Act of 1934, as amended, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Trustee upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of Bonds to the successor Securities Depository in appropriate denominations and form as provided herein. ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY • Section 301. Redemption of the Bonds. (a) The Series 2005A Bonds shall be subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005A 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds, to the redemption of Additional Bonds, and to the redemption of RLF Loans prior to their application for redemption prior to maturity of the Series 2005A Bonds. • (b) The Series 2005B Bonds shall be subject to redemption prior to maturity as follows: 4838-2657-8944.6 22 • (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005B 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder or for the redemption of any RLF Loan. (iii) The Series 2005B Bonds maturing on December 1, 2015, are subject to mandatory redemption, to be selected by lot in such manner as the Trustee shall determine, on December 1 in the years and the amounts set forth below, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the • date of redemption. Date Principal Amount December 1, 2012 $8,200,000 December 1, 2013 8,530,000 December 1, 2014 8,870,000 December 1, 2015 (maturity) 3,505,000 Section 302. Notice. Notice of the call for any redemption, identifying the 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 the Securities Depository or its nominee is the sole registered owner of the Bonds, by any other means acceptable to the Securities Depository, including facsimile) to the registered owner of each such 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 Bond with respect to which no such failure or defect has occurred. Any notice mailed as provided in this Section 302 shall be conclusively presumed to have been duly given, whether or not the registered owner receives the notice. Section 303. Selection of Bonds to be Redeemed. If less than all of the Bonds of like • series, maturity, interest rate and otherwise identical payment terms shall be called for redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected by lot by 4838-2657-8944.6 23 • the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate; provided, however, that the portion of any Bond of a denomination of larger than the minimum denomination may be redeemed in the principal amount of such minimum denomination or a multiple thereof, and that for purposes of selection and redemption, any such Bond of a denomination larger than the minimum denomination shall be considered to be that number of separate Bonds of such minimum denomination which is obtained by dividing the principal amount of such Bond by such minimum denomination. So long as the Securities Depository or its nominee is the sole registered owner of a series of Bonds, the procedures established by the Securities Depository shall control with respect to the selection of the particular Bonds of such series to be redeemed. Section 304. Surrender of Bonds Upon Redemption. Notice having been given in the manner and under the conditions hereinabove provided, and moneys for payment of the redemption price being held by the Trustee as provided in this Indenture (i) the Bonds or portions of Bonds so called for redemption shall, on the date fixed for redemption designated in such notice, become due and payable at the redemption price provided for redemption of such Bonds, and interest on such Bonds or portions of Bonds so called for redemption shall cease to accrue, (ii) upon surrender of the Bonds or portions of Bonds so called for redemption in accordance with such notice, such Bonds or portions of Bonds shall be paid at the applicable redemption price, (iii) such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and (iv) the owners of said Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. • Section 305. Redemption in Part. Any Bond which is to be redeemed only in part shall be surrendered to the Trustee (with, if the City or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the City and the Trustee duly executed by, the owner thereof or his attorney duly authorized in writing), and the appropriate officials of the City shall execute and the Trustee shall authenticate and deliver to the owner of such Bond, without service charge, a new Bond or Bonds of the same series, of any authorized denomination or denominations, having the same maturity and interest rate as requested by such owner, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. Section 306. Redemption of Additional Bonds. Additional Bonds may be made subject to optional, extraordinary and mandatory sinking fund redemption, in whole or in part, in such manner, at such times and at such prices as may be provided in the Supplemental Indenture providing for their issuance. ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest. The City covenants that it will promptly pay or cause to be paid the principal of and premium, if any, and • interest on every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof. The 4838-2657-8944.6 24 • principal, premium, if any, and interest (except interest paid from the proceeds from the sale of the Bonds and accrued interest) are payable solely from the Trust Estate which is hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Bonds or this Indenture should be considered as assigning or pledging any funds or assets of the City other than the Trust Estate. Anything in this Indenture to the contrary notwithstanding, it is understood that whenever the City makes any covenants involving financial commitments it pledges no funds or assets other than the Trust Estate in the manner and to the extent herein specified, but nothing herein shall be construed as prohibiting the City from using any other funds or assets. The City covenants to use due diligence in causing the collection of the Sales and Use Tax and the application of Sales and Use Tax receipts in the manner provided in this Indenture. Section 402. Performance of Covenants. The City covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all ordinances pertaining hereto. The City covenants that it is duly authorized under the Constitution and laws of the State of Arkansas, including particularly and without limitation Amendment 62 and the Act, to issue the Bonds authorized hereby and to execute this Indenture and to make the pledge of the Sales and Use Tax receipts and to make the covenants in the manner and to the extent herein set forth, that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken, and that the Bonds in the hands of the Holders and owners thereof are and will be valid and enforceable • obligations of the City according to the import thereof. Section 403. 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 hereby pledged or assigned, or intended so to be, or which the City may become bound to pledge or assign. Section 404. Recordation and Filing. To the extent necessary, the City covenants that it will cause this Indenture, such security agreements, financing statements, and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve and protect the security of the owners of the Bonds and the rights of Trustee hereunder, and to perfect the security interest created by this Indenture. Section 405. Inspection of Books. The City shall keep proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the Project and the Funds and Accounts established by this Indenture. • Section 406. 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 4838-2657-8944.6 25 • 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. Section 407. Trustee's and Paying Agent's Fees and Expenses. Subject to the provisions of Section 902 hereof, the City hereby agrees and covenants to make payments for the fees, expenses and charges of the Trustee and Paying Agent, if any, as authorized and provided by this Indenture. The City is to make payments on statements rendered by the Trustee and Paying Agent either (i) directly to the Trustee and Paying Agent or (ii) pursuant to Section 503(b) hereof. Section 408. Construction of Project; Certification of Completion Date. The City hereby covenants to use its best efforts to acquire, construct and equip each portion of the Project being partially financed with proceeds of the Bonds with all reasonable dispatch and to use its best efforts to cause the acquisition, construction and equipping of such portion of the Project to be completed as soon as may be practicable, but in any case within a period not to exceed three years after the issuance of the applicable series of Bonds, delays caused by force majeure only excepted, but if for any reason such acquisition, construction and equipping is not completed • within said period, there shall be no diminution or postponement of payments required hereunder to be made by the City. Promptly after each such Completion Date, the City shall submit to the Trustee the certificate of a Qualified Engineer which shall specify the Completion Date and shall state that acquisition, construction and equipping of the portion of the Project being financed with a particular series of Bond proceeds has been completed and the Project Costs have been paid, except for any Project Costs which have been incurred but are not then due and payable, or the liability for the payment of which is being contested or disputed by the City, and for the payment of which the Trustee is directed to retain specified amounts of moneys in the Project Fund. Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any rights against third parties which exist at the date thereof or which may subsequently come into being. Section 409. Encumbrances. The City covenants that it will not create or suffer to be created any lien or charge upon the Trust Estate, except in accordance with the provisions of this Indenture. Section 410. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of each Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture to the contrary, failure of the City or the Trustee to comply with the provisions of a Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee may (and at the request of the Original Purchaser of a series of Bonds, the owners of at least 25% in aggregate Outstanding • principal amount of such series of Bonds, shall) or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by 4838-2657-8944.6 26 • court order, to cause the City or the Trustee, as the case may be, to comply with its obligations under this Section 410. For purposes of this Section 410 only, "Beneficial Owner" shall mean any Person which (a) 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, depositories or other intermediaries) or (b) is treated as the owner of Bonds for federal income tax purposes. Section 411. Drawdowns Under RLF Loans. The City hereby covenants and agrees not to requisition amounts available under any RLF Loan unless the Sales and Use Tax receipts during the twelve months immediately preceding the submission of the requisition were not less than 125% of the average Annual Debt Service on all Outstanding Bonds and any RLF Loan following such requisition. ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts. (a) There are hereby created and established the following Funds and Accounts: (i) Project Fund, and a Series 2005A Account and a Series 2005B Account therein; • (ii) Revenue Fund; (iii) Bond Fund, and an Interest Account and a Principal Account therein; (iv) Redemption Fund; (v) Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein; (vi) Cost of Issuance Fund; and (vii) Rebate Fund. (b) All Funds and Accounts shall be held by the Trustee, which shall hold and maintain said Funds and Accounts in trust, for the use and benefit of the Bondholders and the City, but subject to the permitted applications expressed herein. Section 502. Project Fund. (a) The Trustee shall deposit a portion of the proceeds of the Series 2005 Bonds to the credit of the Project Fund in accordance with the written directions of the City given as provided in Section 208 of this Indenture. • (b) Moneys credited to the Project Fund shall be expended only as set forth in this Section 502. 4838-2657-8944.6 27 • (c) Amounts in the Project Fund shall be expended and applied for the payment. of Project Costs. Disbursements shall be made from the Project Fund on the basis of consecutively numbered Requisitions in the form attached hereto as Exhibit D signed by an Authorized Representative. Requisitions may be submitted to the Trustee by certified mail, first class mail or facsimile transmission. If the Trustee deems that a Requisition submitted by the City is sufficient pursuant to this Section 502, the amount requested thereunder shall be disbursed in payment of the Project Costs set forth therein, or in reimbursement of such Project Costs, within two (2) Business Days of the date of receipt of such Requisition by the Trustee. Moneys in the Series 2005A Account of the Project Fund shall be fully disbursed prior to any disbursements from the Series 2005B Account of the Project Fund. Each Requisition shall specify: (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. (d) The Trustee shall keep full and complete records concerning and reflecting all disbursements from the Project Fund and shall file an accounting of said disbursements if and when requested by the City. The Trustee shall only make payments from the Project Fund pursuant to and in accordance with Requisitions. In making payments from the Project Fund, the Trustee may rely on any Requisitions delivered to it pursuant to this Section 502, and the Trustee shall be relieved of all liability relating to payments made in accordance with such Requisitions and any supporting certificate or certificates requested by the Trustee without physical inspection of the Project. 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 Account of 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 the corresponding series of Bonds by redemption or purchase, as provided by Section 301(a)(i) and (b)(i) and Section 506 hereof. (e) Upon the occurrence and continuance of an Event of Default or the occurrence and continuance of an event which with notice or lapse of time or both would constitute an Event of Default, amounts on deposit in the Project Fund shall not be • 4838-2657-8944.6 28 • disbursed but shall instead be applied to the payment of Debt Service or the redemption price of the Bonds. Section 503. Revenue Fund. (a) There shall be deposited to the credit of the Revenue Fund, as and when received, all receipts derived from the Sales and Use Tax. For the purposes of financial reporting by the City with respect to the Sales and Use Tax, "receipts" and "revenues" shall have the same meaning. (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 December 31, 2005, there shall be transferred from the Revenue Fund, in the following order, the amounts set forth below: FIRST: For deposit to 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; 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; • THIRD: For deposit to the Debt Service Reserve Fund, an amount sufficient to cure any deficiency in the Debt Service Reserve Fund (including reimbursement to the 2005 Insurer for amounts advanced under the 2005 Surety Bonds); 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 2005 Insurer, an amount equal to interest incurred on amounts advanced under the 2005 Surety Bonds; SIXTH: 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 SEVENTH: 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(a)(ii) and (b)(ii) and Section 506 hereof. (c) Required deposits into Accounts of the Bond Fund and the Debt Service Reserve Fund shall be reduced by investment earnings, if any, in said Funds and Accounts and, with respect to required deposits to the Interest Account of the Bond Fund only, by any accrued interest deposited to the Interest Account of the Bond Fund upon the initial sale of a series of • Bonds. In the event there shall be insufficient moneys in the Revenue Fund in a particular month 4838-2657-8944.6 F to make the required transfers described above, then any deficiencies shall be added to the required deposits during the next month. Section 504. Bond Fund. (a) There shall be deposited to the credit of the appropriate Account of the Bond Fund all moneys required to be transferred thereto pursuant to Sections 208, 503, 505, 506 and 508 of this Indenture and all other moneys received for said Fund. (b) Moneys credited to the Bond Fund shall be expended only as set forth in this Section 504. (c) (i) On each interest payment date for any of the Bonds Outstanding or any RLF Loan, the Trustee shall pay out of moneys credited to the Interest Account of the Bond Fund the amounts required for the payment of interest on the Bonds or the RLF Loan due on such date, and on each redemption date, the amounts required for the payment of accrued interest on the Bonds or the RLF Loan then to be redeemed or purchased unless the payment of such accrued interest shall be otherwise provided for, and such amounts shall be applied to such payments. (ii) On each principal payment or redemption date for any of the Bonds Outstanding or any RLF Loan, the Trustee shall pay out of moneys credited to the Principal Account of the Bond Fund the amounts required for the • payment of principal and premium, if any, due on the Bonds or the RLF Loan on such date and such amounts shall be applied to such payments. (iii) If there shall be insufficient moneys in the Bond Fund to pay in full interest, principal or premium, if any, due on the Bonds or any RLF Loan on any interest or principal payment or redemption date, the Trustee shall, one day prior to such date, transfer an amount equal to the deficiency into the appropriate Account of the Bond Fund from the Funds indicated in the following order: FIRST: the Revenue Fund; SECOND: the Redemption Fund; and THIRD: the corresponding Account of the Debt Service Reserve Fund (for payment of principal and interest on the Bonds on any interest or principal payment date only). (d) All payments made pursuant to this Section 504 shall be made in immediately available funds. Section 505. Cost of Issuance Fund. There shall be deposited to the credit of the Cost of Issuance Fund all moneys received for said Fund pursuant to Section 208 hereof. 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 (and in any event not later than 4838-2657-8944.6 30 • February 1, 2006 with respect to the Series 2005 Bonds), any remaining moneys in the Cost of Issuance Fund shall be transferred to the Interest Account of the Bond Fund. Section 506. Redemption Fund. (a) There shall be deposited to the credit of the Redemption Fund all moneys required to be transferred thereto pursuant to Section 502 and Section 503 of this Indenture. (b) Moneys credited to the Redemption Fund shall be expended only as set forth in this Section 506. (c) 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, on the first available date, redemptions of Bonds required by Section 301(a) and (b) of this Indenture. Notwithstanding any other provision of this Indenture to the contrary, Surplus Tax Receipts shall be applied to the redemption of Bonds and any RLF Loan in the following order of priority: FIRST: to the redemption of the Series 2005B Bonds; SECOND: to the redemption of any series of Additional Bonds; THIRD: to the redemption of any RLF Loan; and • FOURTH: to the redemption of the Series 2005A Bonds. (d) The amounts accumulated in the Redemption Fund, if so directed by the City by means of a Certificate delivered to the Trustee, shall be applied by the Trustee to the purchase of Bonds of the maturities which would otherwise be redeemed pursuant to Section 301(a) and (b) and this Section 506 but for the provisions of this subsection (d), at prices directed by the City not exceeding the applicable redemption prices of the Bonds which would be redeemed but for the operation of this sentence. Interest accrued on the Bonds so purchased shall be paid from moneys credited to the Interest Account of the Bond Fund. Section 507. Rebate Fund. (a) The Trustee shall establish and maintain, separate and apart from any other Funds and Accounts established and maintained hereunder, a Fund to be designated as the Rebate Fund, which Fund is not pledged to the payment of any Bonds. Subject to the transfer provisions provided in subsection (c) below, all moneys at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (as defined in each Tax Regulatory Agreement), for payment to the United States of America, and neither the City nor the Owner of any Bond shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by this Section 507, by Section 406, and by each Tax Regulatory Agreement (which are incorporated herein by reference). (b) As provided in Section 503(b) hereof, there shall be deposited in the • Rebate Fund the amount of all income or gain on moneys deposited in any of the Funds 4838-2657-8944.6 31 • and Accounts established by this Indenture which is required to be rebated to the United States and is designated for deposit therein, as calculated by the City to be owing to the United States pursuant to the Tax Regulatory Agreement, which shall be delivered by the City concurrently with the issuance of a series of Bonds. (c) The Trustee, upon receipt of written instructions from the Mayor or Finance and Internal Services Director of the City, shall pay to the United States out of amounts in the Rebate Fund such amounts as are required pursuant to each Tax Regulatory Agreement. (d) Any moneys remaining in the Rebate Fund after payment to the United States, within sixty (60) days after the date on which the last Bond is redeemed, of one hundred percent (100%) of the rebate amount as described in Section 148(f)(2) of the Code, shall be transferred to the Revenue Fund. (e) The Trustee, as instructed by Certificate of the City, shall invest all amounts held in the Rebate Fund in Investment Securities, subject to the restrictions set forth in the applicable Tax Regulatory Agreement. Money shall not be transferred from the Rebate Fund except as provided in subsection (c). (f) Notwithstanding any other provision of this Indenture, the obligation to remit the Rebate Amount to the United States and to comply with all other requirements • of this Section 507, Section 406 and each Tax Regulatory Agreement shall survive the defeasance or payment in full of the Bonds. Section 508. Debt Service Reserve Fund. As provided in Section 208(b)(2) and (c)(2) hereof, upon the issuance of each series of Bonds, there shall be deposited into the appropriate Account of the Debt Service Reserve Fund, from proceeds of the Bonds, an amount sufficient to cause the amounts on deposit therein to be equal to 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, whether or not structured as Additional Bonds. Each Account within the Debt Service Reserve Fund shall be maintained in an amount equal to the related Reserve Requirement. Amounts on deposit in Accounts within the Debt Service Reserve Fund shall be used solely to pay the principal of and interest on the corresponding series of Outstanding Bonds for which there are no available funds in the Bond Fund to make such payments, as the same become due at maturity (including mandatory sinking fund redemption). If an Account of the Debt Service Reserve Fund, by virtue of any such payment, is reduced below the related Reserve Requirement, it shall be reimbursed in the amount of any such deficiency as provided in Section 503. Notwithstanding the above provisions of this Section 508, the amount on deposit in an Account of 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 related series of Outstanding Bonds. If an excess shall exist in an Account in the Debt Service Reserve Fund over and above the related Reserve Requirement, such excess shall be transferred to the Interest Account of the Bond Fund. • 483&2657-8944.6 32 Section 509. Cessation of Fund Deposits. When the moneys in the Revenue Fund, the Bond Fund, the Debt Service Reserve Fund (except that investments in surety bonds shall not be counted for this purpose) and the Redemption Fund shall be and remain sufficient to pay in full the principal and interest on all Bonds then Outstanding in accordance with Article VII of this Indenture, together with the required fees and expenses to be paid or reimbursed to the Trustee and any Paying Agent, the City shall have no further obligation to make further payments into said Funds. Pursuant to Arkansas Code Annotated Section 14-164-329(c)(2), the Sales and Use Tax shall be abolished on the first day of the calendar month subsequent to the expiration of thirty (30) days from the date there is filed with the Director of the Arkansas Department of Finance and Administration a written statement signed by the Mayor and the Trustee wherein either (a) the Trustee certifies that it has or will have sufficient funds on hand to pay the principal of and interest on the Bonds and any RLF Loan at maturity or upon redemption prior to maturity, and the Mayor certifies that the Sales and Use Tax is not pledged to any other indebtedness of the City, or (b) the Mayor certifies that there are no longer any Bonds or any RLF Loan outstanding payable from Sales and Use Tax receipts. Section 510. Separate Accounts Authorized. A Supplemental Indenture authorizing the issuance of Additional Bonds may provide for the creation of separate Accounts within the Bond Fund, Debt Service Reserve Fund, Project Fund, Costs of Issuance Fund and Rebate Fund for such series of Bonds and such other Accounts as the City may direct; provided, that the creation of such separate Accounts shall be solely for the ease of administration and shall in no event affect the equal and ratable security of the Bonds of each series. • If any Supplemental Indenture authorizing the issuance of Additional Bonds provides for the establishment of separate Accounts for a series of Bonds, then such Supplemental Indenture shall require that the Sales and Use Tax receipts received by the City shall be deposited pursuant to written direction of the City into each of the Accounts within the Bond Fund and Debt Service Reserve Fund for each series of Bonds on the basis of the installments of principal, premium, if any, and interest on each series of Bonds and the amounts required to be deposited in the Accounts within the Debt Service Reserve Fund during the applicable period, to the end that the Bonds of each series shall be equally and ratable secured by the Sales and Use Tax receipts. Any Supplemental Indenture authorizing the issuance of Additional Bonds may provide that any proceeds of such series of Bonds and investment earnings thereon remaining after some specified date, or after the construction of all facilities to be financed with the proceeds of such series of Bonds, shall be applied to the redemption of such series of Bonds. ARTICLE VI INVESTMENTS Section 601. Investment of Moneys. 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 (other than 4838-2657-8944.6 33 • the 2005 Surety Bonds) 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. Section 602. Investment Earnings. Subject to the provisions of the Tax Regulatory Agreement and Article V hereof, Investment Securities purchased with moneys held in or attributable to any Fund or Account held by the Trustee under the provisions of this Indenture shall be deemed at all times to be a part of such Fund or Account and the income or interest earned, profits realized or losses suffered by a Fund or Account due to the investment thereof shall be retained in, credited or charged, as the case may be, to such Fund or Account unless otherwise provided pursuant to this Indenture. Section 603. Valuation of Funds. In determining the value of any Fund or Account held by the Trustee under this 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 hereunder 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 hereunder, and the Trustee shall not be liable for any loss resulting from any such sale. • Section 604. 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. ARTICLE VII DISCHARGE OF LIEN Section 701. Discharge of Lien. If the City shall pay or cause to be paid to the owners of the Bonds the principal, premium, if any, and interest to become due thereon at the times and in the manner stipulated therein, and if the City shall keep, perform and observe all and singular the covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it on its part, then these presents and the estate and rights hereby granted shall cease, determine and be void, and thereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the City such instruments in writing as shall be requisite to satisfy the lien hereof, and reconvey to the City the estate hereby conveyed, and assign and deliver to the City any property at the time subject to the lien of this Indenture which may then be in its possession, except moneys or Government Securities held by it for the payment of the principal of and premium, if any, and interest on the Bonds. Section 702. Bonds Deemed Paid. Any Bond shall be deemed to be paid within the meaning of this Article VII when payment of the principal of and premium, if any, and interest • on such Bond (whether at maturity or upon redemption as provided in this Indenture, or otherwise), either (i) shall have been made or caused to be made in accordance with the terms 4838-2657-8944.6 34 • 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) cash 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 amount 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. In the case of any defeasance of Bonds pursuant to subsection (ii) above, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable mandatory redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. Section 703. Non -Presentment of Bonds. In the event any Bonds shall not be presented for payment when the principal thereof becomes due, either at maturity or otherwise, or at the date fixed for redemption thereof, if there shall have been deposited with the Trustee for that purpose, or left in trust if previously so deposited, funds sufficient to pay the principal thereof, and premium, if any, together with all interest unpaid and due thereon, to the due date •thereof, for the benefit of the Holder thereof, all liability of the City to the Holder thereof for the payment of the principal thereof, premium if any, and interest thereon, shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such fund or funds, without liability for interest thereon, for the benefit of the Holder of such Bonds, who shall thereafter be restricted exclusively to such fund or funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, the Bonds. ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 801. Events of Default. Each of the following events shall constitute and is referred to in this 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 this • Indenture or the performance or observance of any other of the covenants, agreements or conditions contained in this Indenture, or in the Bonds issued hereunder, and continuance 4838-2657-8944.6 35 thereof for a period of thirty (30) 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 Bondholders of not less than 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; (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 this 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 this Indenture or in the Bonds Outstanding hereunder, exclusive of any period of grace required to constitute a default an "Event of Default" as hereinabove provided. Section 802. 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 hereunder shall, by notice in writing delivered to the City, declare the principal of all Bonds then Outstanding, together with the interest accrued thereon, immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Section 803. 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 hereunder. If an Event of Default shall have occurred, and if it shall have been requested so to do by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder and if it shall have been indemnified as provided in Section 901(1) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred upon it by this Section 803 as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. • 4838-2657-8944.6 36 • No remedy by the terms of this 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 hereunder 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 hereunder, 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. Section 804. Right of Bondholders to Direct Proceedings. Anything in this Indenture to the contrary notwithstanding, the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceeding hereunder; provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. • Section 805. Appointment of Receiver. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled to the appointment of a receiver or receivers of the Trust Estate and of the tolls, rents, revenues, issues, earnings, income, products and profits thereof, including, without limitation, the Sales and Use Tax receipts, pending such proceedings with such powers as the court making such appointment shall confer. Section 806. Waiver. In case of an Event of Default on its part, as aforesaid, to the extent that such rights may then lawfully be waived, neither the City nor anyone claiming through the City or under the City shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or thereafter in force, in order to prevent or hinder the enforcement of this Indenture, but the City, for itself and all who may claim through or under it, hereby waives, to the extent that it lawfully may do so, the benefit of all such laws and all right of appraisement and redemption to which it may be entitled under the laws of the State. Section 807. Application of Moneys. Available moneys remaining after discharge of costs, charges and liens prior to this Indenture shall be applied by the Trustee as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: 4838-2657-8944.6 37 • First: To the payment to the Persons entitled thereto of all installments of interest then due, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or privilege; Second: To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or privilege of any Bond over any other 'Bond and without preference or priority of principal over interest or of interest over principal; and Third: To the payment of the interest on and the principal of the Bonds, and to the redemption of Bonds, all in accordance with the provisions of Article V of this Indenture. (b) If the principal of all the Bonds shall have become due or shall have been • declared due and payable, all such moneys shall be applied first to the payment of the interest then due and unpaid upon the Bonds, and then to the payment of the principal then due and unpaid upon the Bonds, in each case without preference or priority of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article VIII then, subject to the provisions of paragraph (b) of this Section 807, in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section 807. Whenever moneys are to be applied by the Trustee pursuant to the provisions of this Section 807, such moneys shall be applied by it at such times, and from time to time, as it shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such • moneys and of the fixing of any such date and shall not be required to make payment to the 4838-2657-8944.6 38 Holder of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Section 808. Remedies Vested in Trustee. All rights of action (including the right to file proof of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee, without the necessity of joining as plaintiffs or defendants any Bondholders hereby secured, and any recovery of judgment shall be for the equal benefit of the Holders of all Outstanding Bonds. Section 809. Rights and Remedies of Bondholders. No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other remedy hereunder, unless a default has occurred of which the Trustee has been notified as provided in subsection (g) of Section 901, or of which by said subsection 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 hereunder shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore 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 subsection (1) of Section 901, nor unless the Trustee shall thereafter fail or refuse to exercise the • powers hereinbefore granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture or for the appointment of a receiver or for any other remedy hereunder; 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 this Indenture by action of the Holder or Holders or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, held and maintained in the manner herein provided for the equal benefit of the Holders of all Bonds Outstanding hereunder. Nothing in this 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 hereunder to the respective Holders thereof at the time and place in said Bonds expressed. Section 810. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the City and the Trustee shall be restored to their former positions and rights hereunder with respect to the property herein conveyed, and all rights, remedies and powers of the Trustee shall continue as if no such • proceedings had been taken, except to the extent the Trustee is legally bound by such adverse determination. 4838-2657-8944.6 39 • • Section 811. Waivers of Events of Default. The Trustee may, and upon the written request of the Holders of not less than 51% in principal amount of all Bonds Outstanding hereunder shall, waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal; provided, however, there shall not be waived any Event of Default described in clause (a) or (b) of the first paragraph of Section 801 hereof, unless prior to such waiver or rescission all arrears of principal (due otherwise than by declaration) and interest, and all expenses of the Trustee and Paying Agent, shall have been paid or provided for. In case of any such waiver or rescission the City, Trustee and the Bondholders shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right subsequent thereon. ARTICLE IX TRUSTEE AND PAYING AGENTS Section 901. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture and agrees to perform said trusts, but only upon and subject to the following expressed terms and conditions: (a) The Trustee may execute any of the trusts or powers hereof and perform any duties required of it by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trusts hereof and its duties hereunder, and may in all cases pay reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. Reimbursement of such compensation paid by the Trustee is subject to the provisions of Section 902 hereof. The Trustee may act upon the opinion or advice of any attorney, surveyor, engineer or accountant selected by it in the exercise of reasonable care, or, if selected or retained by the City prior to the occurrence of a default of which the Trustee has been notified as provided in subsection (g) of this Section 901, or of which by said subsection the Trustee is deemed to have notice, approved by the Trustee in the exercise of such care. The Trustee shall not be responsible for any loss or damage resulting from an action or nonaction in accordance with any such opinion or advice. (b) The Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the certificate of authentication of the Trustee endorsed on such Bonds), or for the validity of the execution by the City of this Indenture or of any Supplemental Indentures or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for the value of the title of the property herein conveyed or otherwise as to the maintenance of the security hereof; except that in the event the Trustee enters into possession of a part or all of the property herein conveyed pursuant to any provision of this Indenture, it shall use due diligence in preserving such property; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions and agreements aforesaid as to the condition of the property herein conveyed. 4838-2657-8944.6 40 (c) The Trustee may become the owner of Bonds secured hereby with the same rights which it would have if not Trustee. (d) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it, in the exercise of reasonable care, to be genuine and correct and to have been signed or sent by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of the owner of any Bond secured hereby, shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof (e) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a Certificate of the City signed by its Mayor and attested by the City Clerk as sufficient evidence of the facts therein contained and, prior to the occurrence of a default of which it has been notified as provided in subsection (g) of this Section 901, or of which by that subsection it is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction, or action is necessary or expedient, but may at its discretion, at the reasonable expense of the City, in every case secure such further evidence as it may think necessary or advisable but shall in no case be bound to secure the same. The Trustee may accept a certificate of the City Clerk of the City under its seal to the effect that a resolution in the form therein set forth has been • adopted by the City as conclusive evidence that such resolution has been duly adopted, and is in full force and effect. (f) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty of the Trustee, and the Trustee shall be answerable only for its own gross negligence or willful misconduct. (g) The Trustee shall not be required to take notice or be deemed to have notice of any default hereunder (except for defaults under clause (a) or (b) of the first paragraph of Section 801 hereof as to which the Trustee shall be deemed to have notice) unless the Trustee shall be specifically notified in writing of such default by the City or by the Holders of at least 10% in aggregate principal amount of Bonds Outstanding hereunder, and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered to the principal corporate trust office of the Trustee, and in the absence of such notice so delivered, the Trustee may conclusively assume there is no such default except as aforesaid. (h) [Reserved]. (i) At any and all reasonable times the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right fully to inspect any and all of the property herein conveyed, including all books, papers and • records of the City pertaining to the Sales and Use Tax receipts and the Bonds, and to take such memoranda from and in regard thereto as may be desired. 4838-2657-8944.6 41 0 (j) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (k) Notwithstanding anything elsewhere in this Indenture contained, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action by the Trustee, deemed desirable for the purpose of establishing the right of the City to the authentication of any Bonds, the withdrawal of any cash, the release of any property, or the taking of any other action by the Trustee. (1) Before taking such action hereunder, the Trustee may require that it be furnished an indemnity bond satisfactory to it for the reimbursement to it of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee, by reason of any action so taken by the Trustee. Section 902. Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's Prior Lien. (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 2005A 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, $2,750. With respect to the Series 2005B Bonds, the Trustee's initial authentication fee shall be $3,500 and the annual administration fee of the Trustee shall be up to, but not exceeding, $4,500. With respect to RLF Loans in aggregate principal amount up to $20 million, the Trustee's initial authentication fee (if such RLF Loan is structured as an Additional Bond) shall be $2,000 and the annual administration fee of the Trustee shall be up to, but shall not exceed $2,850. 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. (b) The City shall pay to the Trustee compensation for its services as described in Section 902(a), provided that such compensation, together with all expenses, charges and other disbursements of the Trustee and its attorneys, agents and employees and all reimbursements to • the Trustee for all costs and other disbursements as described in Section 901(a) hereof shall not exceed $7,500 annually (not including the initial authentication fee) without the prior written 4838-2657-8944.6 42 approval of the City, which approval shall not be unreasonably withheld. If the Trustee wishes to consult with or retain counsel for any purpose hereunder whose anticipated fees, together with all other compensation, disbursements and reimbursements of the Trustee and its attorneys, agents and employees to be paid by the City hereunder, shall exceed $10,000 annually, then such counsel shall have to be acceptable to the City and such fees shall have to be approved by the City as described above. Section 903. Additional Duties of Trustee. (a) In addition to the other duties of the Trustee described in this Indenture, it shall be the duty of the Trustee, on or before the tenth day of each month after the month in which the Series 2005 Bonds are delivered, to file with the City a statement setting forth in respect of the preceding calendar month: (i) . the amount withdrawn or transferred by it and the amount deposited with it on account of each Fund and Account held by it under the provisions of this Indenture; (ii) the amount on deposit with it at the end of such month to the credit of each such Fund and Account; (iii) a brief description of all obligations held by it as an investment of moneys in each such Fund and Account; (iv) the amount applied to the purchase or redemption of Bonds under the • provisions of this Indenture and a description of the Bonds or portions of Bonds so purchased or redeemed; and (v) any other information that the City may reasonably request, including, but not limited to, submittal of monthly statements of activity relating to the Bonds. Such information shall also be provided at the direction of the City to one additional designated entity. All records and files pertaining to each such Fund and Account in the custody of the Trustee hereunder shall be open at all reasonable times to the inspection of the City and its agents and representatives, and the City may make copies thereof. (b) The Trustee additionally shall be responsible for the preparation and timely distribution of any and all forms and reports required by law to all Bondholders, the State and the Internal Revenue Service in connection with the payment to the Bondholders of interest on the Bonds. Section 904. Notice to Bondholders of Default. If a default occurs of which the Trustee is pursuant to the provisions of Section 901(g) deemed to have or is given notice, the Trustee shall promptly make demand upon the City and give notice to each owner of Bonds then Outstanding. Section 905. Intervention by Trustee. In any judicial proceeding to which the City is a • party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Holders of Bonds issued hereunder, the Trustee may intervene on behalf of 4838-2657.8944.6 43 • Bondholders and shall do so if requested in writing by the Holders of at least 51% of the aggregate principal amount of Bonds Outstanding hereunder. The rights and obligations of the Trustee under this Section 905 are subject to the approval of the court having jurisdiction in the premises. Section 906. Merger or Consolidation of Trustee. Any bank or trust company to which the Trustee may be merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any bank or trust company resulting from any such sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor trustee hereunder and vested with all of the title to the whole property or Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed, or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that such successor trustee shall have capital and surplus of at least $40 million. Section 907. Resignation by Trustee. The Trustee and any successor trustee may at any time resign from the trusts hereby created by giving written notice to the City and the Bondholders, and such resignation shall take effect upon the appointment of a successor trustee by the Bondholders or by the City. Such notice may be served personally or sent by registered mail (to the City) or first class mail (to the Bondholders). • Section 908. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the City, and signed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder. Section 909. Appointment of Successor Trustee. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by the court, a successor may be appointed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder, by an instrument or concurrent instruments in writing signed by such Holders, or by their attorneys in fact, duly authorized; provided, nevertheless, that in case of such vacancy the City by an instrument executed and signed by its Mayor and attested by its City Clerk under its seal, shall appoint a temporary trustee to fill such vacancy until a successor trustee shall be appointed by the Bondholders in the manner above provided. Any such temporary trustee appointed by the City shall immediately and without further act be superseded by the trustee appointed by such Bondholders. Every such temporary trustee and every such successor trustee shall be a trust company or bank in good standing, having capital and surplus of not less than $40 million. Section 910. Concerning Any Successor Trustee. Every successor or temporary trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to • the City an instrument in writing accepting such appointment hereunder, and thereupon such successor or temporary trustee, without any further act or conveyance, shall become fully vested 4838-2657-8944.6 44 with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the City or of its successor trustee, execute and deliver an instrument transferring to such successor all the estate, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor trustee shall deliver all securities, moneys and any other property held by it as trustee hereunder to its successor. Should any instrument in writing from the City be required by any successor trustee for more fully and certainly vesting in such successor the estates, rights, powers and duties hereby vested or intended to be vested in the predecessor trustee, any and all such instruments in writing shall, on request, be executed, acknowledged, and delivered by the City. Section 911. Reliance Upon Instruments. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted and relied upon by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for its actions taken hereunder. Section 912. Appointment of Co -Trustee. The City and the Trustee shall have power to appoint, and upon the request of the Trustee the City shall for such purpose join with the Trustee in the execution of all instruments necessary or proper to appoint, another corporation or one or more Persons approved by the Trustee, either to act as co -trustee or co -trustees jointly with the Trustee of all or any of the property subject to the lien hereof, with such powers as may be provided in the instrument of appointment and to vest in such corporation or Person or Persons as such co -trustee any property, title, right or power deemed necessary or desirable. In • the event that the City shall not have joined in such appointment within fifteen (15) days after the receipt by it of a request so to do, the Trustee alone shall have the power to make such appointment. Should any deed, conveyance or instrument in writing from the City be required by the co -trustee so appointed for more fully and certainly vesting in and confirming to such co - trustee such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the City. Every such co -trustee shall, to the extent permitted by law, be appointed subject to the following provisions and conditions, namely: • (1) The Bonds shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Trustee in respect of the custody of all money and securities pledged or deposited hereunder, shall be exercised solely by the Trustee; and (2) The Trustee, at any time by an instrument in writing, may remove any such separate Trustee or co -trustee. Every instrument, other than this Indenture, appointing any such co -trustee shall refer to this Indenture and the conditions of this Article LX expressed, and upon the acceptance in writing by such co -trustee, the co -trustee shall be vested with the estate or property specified in such instrument, jointly with the Trustee (except insofar as local law makes it necessary for any separate trustee to act alone), subject to all the trusts, conditions and provisions of this Indenture. Any such co -trustee may at any time, by an instrument in writing, constitute the Trustee as the • co -trustee's agent or attorney -in -fact with full power and authority, to the extent authorized by 4838.2657-8944.6 45 • law, to do all acts and things and exercise all discretion authorized or permitted by the co -trustee, for and on behalf of the co -trustee and in the co -trustee's name. In case any co -trustee shall die, become incapable of acting, resign or be removed, all the estate, properties, rights, powers, trusts, duties and obligations of said co -trustee shall vest in and be exercised by the Trustee until the appointment of a new trustee or a successor to such co -trustee. Section 913. Designation and Succession of Paying Agents. The Trustee and any other banks or trust companies designated as Paying Agent or Paying Agents in any Supplemental Indenture or in an instrument appointing a successor Trustee shall be the Paying Agent or Paying Agents for the Bonds. Any bank or trust company with which or into which any Paying Qgent may be merged or consolidated, or to which the assets and business of such Paying Agent may be sold, shall be deemed the successor of such Paying Agent for the purposes of this Indenture. If the position of Paying Agent shall become vacant for any reason, the City shall, within thirty (30) days thereafter, appoint such bank or trust company as shall be specified by the City as such Paying Agent to fill such vacancy; provided, however, that, if the City shall fail to appoint such Paying Agent within said period, the Trustee shall make such appointment. The Paying Agents shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Section 901 hereof with respect to the Trustee insofar as such provisions may be applicable. • ARTICLE X SUPPLEMENTAL INDENTURES Section 1001. 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 this 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 this 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 this Indenture other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with this Indenture as theretofore in effect; • 4838-2657-8944.6 46 (d) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, this 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 this 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) of Section 1002 hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Section 1002. Supplemental Indentures Requiring Consent of Bondholders. Subject to the terms and provisions contained in this Section 1002, 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 this Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such indenture or indentures supplemental hereto 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 terns or provisions contained in this Indenture or in any Supplemental Indenture; provided, however, that nothing herein contained 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 hereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Bond issued hereunder, or (c) the creation of any lien on the Trust Estate or any part thereof, except as hereinbefore expressly permitted, 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 hereby created on the Trust Estate. Nothing herein contained, however, shall be construed as making necessary the approval of Bondholders of the execution of any Supplemental Indenture as provided in Section 1001 of this Article X. If, at any time the City shall request the Trustee to enter into any Supplemental Indenture for any of the purposes of this Section, 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 4838-2657-8944.6 47 not affect the validity of such Supplemental Indenture when consented to and approved as provided in this Section 1002. 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 as herein provided, 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. Section 1003. Effect of Supplemental Indentures. Upon the execution of any Supplemental Indenture entered into pursuant to Section 1001 or 1002 hereof, this Indenture shall be deemed to be modified and amended in accordance therewith. ARTICLE XI 2005 BOND INSURANCE AND SURETY BONDS Section 1101. Consent of 2005 Insurer. (a) Any portion of this Indenture expressly recognizing or granting rights in or to the 2005 Insurer (whether relating to the 2005 Policies or the 2005 Surety Bonds) may not be amended in any manner which affects the rights of the 2005 Insurer hereunder without the prior written consent of the 2005 Insurer. • (b) The consent of the 2005 Insurer shall be required with respect to any amendment to or supplement of this Indenture that requires the consent of Bondholders pursuant to Section 1002, and copies of all such amendments and supplements shall be furnished to Standard & Poor's, a division of The McGraw-Hill Companies, Inc. (c) If this Indenture is to be supplemented or amended for any reason other than (1) a refunding to obtain interest savings or (2) the issuance of Additional Bonds upon satisfaction of the 125% coverage test set forth in Section 212 hereof, the consent of the 2005 Insurer shall be obtained prior to the issuance of any such Additional Bonds or the effectiveness of any amendment to or supplement of this Indenture. Section 1102. Notice to 2005 Insurer. (a) The City or the Trustee (on behalf of the City), as appropriate, shall furnish to the 2005 Insurer: (i) as soon as practicable after the filing thereof, a copy of the annual budget and annual financial statements of the City; (ii) a copy of any amendment to or supplement of this Indenture; (iii) a copy of any notice to be given to the registered owners of the Series 2005 Bonds, including, without limitation, notice of any redemption or defeasance of the Series 2005 Bonds, and any certificate rendered pursuant to this Indenture relating to the • security for the Series 2005 Bonds; 4838-2657-8944.6 48 (iv) notice of the resignation or removal of the Trustee and the appointment of any successor thereto; (v) a copy of any disclosure document circulated with respect to the issuance of Additional Bonds; and (iv) such additional information as it may reasonably request. Notices: Any notice that is required to be given to a Holder of the Series 2005 Bonds or to the Trustee pursuant to the Indenture shall also be provided to the 2005 Insurer. All notices required to be given to the 2005 Insurer under the Indenture shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504 Attention: Surveillance. Section 1103. Defeasance of Series 2005 Bonds. In the event of a legal defeasance of the Series 2005 Bonds pursuant to the provisions of Section 702 of this Indenture, the 2005 Insurer shall be provided with an opinion of Bond Counsel acceptable to the 2005 Insurer that the Series 2005 Bonds have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Series 2005 Bonds within the meaning of this Indenture and any Supplemental Indenture relating to the Series 2005 Bonds. In addition, the 2005 Insurer will be entitled to receive (i) 15 Business Days notice of any advance refunding of the Series 2005 Bonds and (ii) an accountant's report verifying the sufficiency of the amounts deposited in escrow to • defease the Series 2005 Bonds. Section 1104. Direction of Remedies. The 2005 Insurer, acting alone, shall have the right to direct all remedies with respect to the Series 2005 Bonds upon the occurrence of an Event of Default hereunder. The 2005 Insurer shall be recognized as the registered owner of each Series 2005 Bond for the purposes of exercising all rights and privileges available to holders of the Series 2005 Bonds. With respect to the Series 2005 Bonds, the 2005 Insurer shall have the right to institute any suit, action or proceeding at law or in equity under the same terms as a Holder of a Series 2005 Bond in accordance with the applicable provisions of this Indenture. Other than redemption of the Series 2005 Bonds as provided in Section 301(a) or (b) of this Indenture, any acceleration of principal payments on the Series 2005 Bonds shall be subject to the 2005 Insurer's prior written consent. Section 1105. Payments Under 2005 Policies. (a) In the event that, on the second Business Day, and again on the Business Day, prior to the payment date on the Series 2005 Bonds, the Trustee has not received sufficient moneys to pay all principal of and interest on the Series 2005 Bonds due on the second following or following, as the case may be, Business Day, the Trustee shall immediately notify the 2005 Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency. (b) If the deficiency is made up in whole or in part prior to or on the payment date, • the Trustee shall so notify the 2005 Insurer or its designee. 4838-2657-8944.6 49 • (c) In addition, if the Trustee has notice that any 2005 Bondholder has been required to disgorge payments of principal or interest on the Series 2005 Bonds to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such 2005 Bondholder within the meaning of any applicable bankruptcy laws, then the Trustee shall notify the 2005 Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. (d) The Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney -in -fact for Holders of the Series 2005 Bonds as follows: (1) If and to the extent there is a deficiency in amounts required to pay interest on the Series 2005 Bonds, the Trustee shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under the 2005 Policies (the "Insurance Paying Agent/Trustee"), in form satisfactory to the Insurance Paying Agent/Trustee, an instrument appointing the 2005 Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the 2005 Insurer of the claims for interest to which such deficiency relates and which are paid by the 2005 Insurer, (b) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the 2005 Policies payment from the Insurance Paying Agent/Trustee with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and • (2) If and to the extent of a deficiency in amounts required to pay principal of the Series 2005 Bonds, the Trustee shall (a) execute and deliver to the Insurance Paying Agent/Trustee in form satisfactory to the Insurance Paying Agent/Trustee an instrument appointing the 2005 Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the 2005 Insurer of any of the Series 2005 Bonds surrendered to the Insurance Paying Agent/Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Trustee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent/Trustee is received), (b) receive as designee of the respective Holders (and not as Trustee), in accordance with the tenor of the applicable 2005 Policy, payment therefor from the Insurance Paying Agent/Trustee, and (c) disburse the same to such Holders. (e) Payments with respect to claims for interest on and principal of Series 2005 Bonds disbursed by the Trustee from proceeds of the 2005 Policies shall not be considered to discharge the obligation of the City with respect to such Series 2005 Bonds, and the 2005 Insurer shall become the owner of such unpaid Series 2005 Bonds and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. (f) Irrespective of whether any such assignment is executed and delivered, the City and the Trustee hereby agree for the benefit of the 2005 Insurer that: • 4838-2657-8944.6 50 • (1) They recognize that to the extent the 2005 Insurer makes payments, directly or indirectly (by paying through the Trustee), on account of principal of or interest on the Series 2005 Bonds, the 2005 Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the City, with interest thereon as provided and solely from the sources stated in this Indenture and the Series 2005 Bonds; and (2) They will accordingly pay to the 2005 Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the 2005 Policies, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Series 2005 Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Series 2005 Bonds to Holders, and will otherwise treat the 2005 Insurer as the owner of such rights to the amount of such principal and interest. Section 1106. Payments Under 2005 Surety Bonds. So long as either the 2005A Surety Bond or the 2005B Surety Bond shall be in full force and effect, the City, the Trustee and the Paying Agent, if any, agree to comply with the following provisions: (a) In the event and to the extent of moneys on deposit in the applicable Bond Fund Accounts, plus all moneys on deposit in and credited to the corresponding Account of the Debt • Service Revenue Fund in excess of the amount of the related 2005 Surety Bond, are insufficient to pay the principal (at maturity or pursuant to mandatory sinking fund redemption) and interest coming due on the applicable series of Series 2005 Bonds, then upon the later of (i) three (3) days after receipt by the 2005 Insurer of a Demand for Payment in the form attached to the applicable 2005 Surety Bond, duly executed by the Paying Agent, or (ii) the applicable payment date, the 2005 Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent of amounts which are then due to the Paying Agent (as specified in the Demand for Payment) up to but not in excess of the Surety Bond Coverage (as defined in the applicable 2005 Surety Bond). (b) In the event an Account in the Debt Service Revenue Fund contains both a 2005 Surety Bond and cash, the cash shall be drawn completely to pay debt service on the applicable series of Series 2005 Bonds before any demand is made on the 2005 Surety Bond. (c) In the event an Account in the Debt Service Revenue Fund contain a surety bond issued by another entity and a 2005 Surety Bond, pro rata draws shall be made on each of the surety bonds. (d) Replenishment of an Account within the Debt Service Revenue Fund pursuant to Section 503(b) of this Indenture shall be accomplished in such a manner as to first reimburse the 2005 Insurer, thereby reinstating the applicable 2005 Surety Bond, and second to replenish any • necessary cash within such Account. 4838-2657-8944.6 51 Section 1107. Miscellaneous. (a) The City agrees to reimburse the 2005 Insurer immediately and unconditionally upon demand, to the extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the 2005 Insurer in connection with (i) the enforcement by the 2005 Insurer of the City's obligations, or the preservation or defense of any rights of the 2005 Insurer, under this Indenture and any other document executed in connection with the issuance of the Series 2005 Bonds, and (ii) any consent, amendment, waiver or other action with respect to the Indenture or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by Arkansas law, whichever is less. In addition, the 2005 Insurer reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved. (b) The City agrees not to use the 2005 Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the 2005 Insurer's prior consent; provided however, such prohibition on the use of the 2005 Insurer's name shall not relate to the use of the 2005 Insurer's standard approved form of disclosure in public documents issued in connection with the Series 2005 Bonds to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the 2005 Insurer's name in order to comply with public notice, public meeting or public reporting requirements. • (c) The City shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Series 2005 Bonds are tendered or purchased for any purpose other than the redemption and cancellation or legal defeasance of such Series 2005 Bonds without the prior written consent of the 2005 Insurer. ARTICLE XII MISCELLANEOUS Section 1201. Consents, etc. of Bondholders. Any request, direction, objection or other instrument required by this Indenture to be signed and executed by the Bondholders may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondholders in person or by agent appointed in writing. Proof of the execution of any such request, direction, objection or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument, namely: (a) The fact and date of the execution by any Person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the Person signing such writing • acknowledged before such officer the execution thereof, or by an affidavit of any witness to such execution. 4838-2657-8944.6 52 (b) The fact of ownership of Bonds and the amount or amounts, numbers, and other identification of such Bonds, and the date of holding the same shall be proved by the registration books of the City maintained by the Trustee, as Bond registrar. Section 1202. Notices. Except as otherwise provided in this Indenture, all notices, certificates or other communications shall be sufficiently given and shall be deemed given when mailed by registered or certified mail, postage prepaid, to the City or the Trustee. Notices, certificates or other communications shall be sent to the following addresses: City: City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 Attention: Mayor Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: Glenda L. Dean, Corporate Trust Either of the foregoing may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. • Section 1203. Limitation of Rights. With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture, or the Bonds issued hereunder, is intended or shall be construed to give to any person or company other than the parties hereto, and the Holders of the Bonds secured by this Indenture any legal or equitable rights, remedy, or claim under or in respect to this Indenture or any covenants, conditions, and provisions hereof being intended to be and being for the sole exclusive benefit of the parties hereto and the Holders of the Bonds hereby secured as herein provided. Section 1204. Severability. If any provisions of this 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. The invalidity of any one or more phrases, sentences, clauses or paragraphs in this Indenture contained shall not affect the remaining portions of this Indenture or any part thereof. Section 1205. Applicable Provisions of Law. This 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. 4838-2657-8944.6 53 Section 1206. Counterparts. This 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 1207. Successors and Assigns. All the covenants, stipulations, provisions, agreements, rights, remedies and claims of the parties hereto in this Indenture contained shall bind and inure to the benefit of their successors and assigns. Section 1208. Captions. The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Indenture. Section 1209. Photocopies and Reproductions. A photocopy or other reproduction of this Indenture may be filed as a financing statement pursuant to the Uniform Commercial Code, although the signatures of the City and the Trustee in such reproduction are not original manual signatures. Section 1210. Bonds Owned by the City. In determining whether Bondholders of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the City shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, • consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Bonds and that the pledgee is not the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] CJ 4838-2657-8944.6 54 C a 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 Lm ATTEST: City Clerk ins'E (SEAL) S'G>ER ;op R9's.,, rte• •c^' ' ; FAYETTEVILLE; SIMMONS FIRST TRUST COMPANY, N.A., as Trustee .sy.K s•J?. •,�� •`,Q AN P5. �� %GroN4IBy:_________________ y: Title: ATTEST: By: 'Ltc>c Title;Aggt V.P. $ Co 0 rp rate Tnut oMeer (SEAL) 4838-2657-8944.6 55 • 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 thisl day of November, 2005. Notary Public • My Commission expires: [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-8944.6 56 • ACKNOWLEDGMENT STATE OF ARKANSAS ) ) ss. COUNTY OF JEFFERSON ) Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named Rita Gronwald and Glenda L. Dean, the Asst. Vice President , Corporate Trust Officer and the Corporate Trust Officer, 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 29th day of November, 2005. r , • Notary Public My Commission expires: a -/1r 4O 7 [ACKNOWLDEGEMENT TO TRUST INDENTURE] 4838-2657-8944.6 • I • EXHIBIT A TO TRUST INDENTURE Form of Series 2005A 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. R05A- UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: _% Maturity Date: December 1, 20_ Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657-8944.6 A-1 "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 "Sales and Use Tax Refunding and Capital Improvement Bond, Series 2005A", is one of a series of bonds aggregating Twenty -Seven Million Dollars ($27,000,000) (the "Series 2005A Bonds"). The Series 2005A Bonds are being issued for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, (ii) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (iii) funding a debt service reserve, (iv) purchasing a policy of municipal bond insurance, and (v) paying the costs of issuance of the Series 2005A Bonds. The Series 2005A Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 15, 2005 (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 2005A Bonds, and the terms upon which the Series 2005A Bonds are issued and secured. • The Series 2005A 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. 4768 of the City adopted October 4, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005A Bonds is made on a parity basis with the pledge of such receipts securing the City's $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the `Bonds"). The pledge of the Tax Receipts presently secures payment of the Bonds only, but such Tax Receipts may additionally be pledged to secure the payment of up to $20,000,000 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 4838-2657-8944.6 A-2 with the Bonds and will 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 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 in the Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at Simmons First Trust Company, N.A., Pine Bluff, Arkansas. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the City to Simmons First Trust Company, N.A., or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of • mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank • Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such 4838-2657-8944.6 A-3 Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the City, or any designee of the City for such purpose. The term owner shall not include the City or any party whose agreement with the City constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. • MBIA INSURANCE CORPORATION The holder of this Series 2005A 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 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 2005A 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. The Series 2005A 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 4838-2657-8944.6 A-4 Receipts" are Tax Receipts in excess of the amount necessary to (i) insure the prompt payment of scheduled debt service on the 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 Bonds and 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds, 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 2005A Bonds, the particular Series 2005A 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 2005A Bonds for redemption prior to maturity, in the case any outstanding Series 2005A Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005A Bond shall be treated as a separate Series 2005A Bond of the denomination of $5,000. In the event any of the Series 2005A 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 2005A 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 2005A Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005A 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 2005A 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, 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 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 2005A 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 2005A Bonds may be exchanged for a like aggregate principal amount of Series 2005A 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 2005A Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005A 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 4838-2657-8944.6 A_5 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 2005A Bonds. This 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 2005A 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 2005A 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 2005A Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. • C 4838-2657-8944.6 A-6 IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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 Mayor ATTEST: City Clerk (SEAL) (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION • This bond is one of the Series 2005A 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 2005A Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Authorized Signature • 4838.2657-8944.6 A-7 (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: C NOTICE: Signature(s) must be guaranteed by an institution satisfactory to the Trustee or other transfer agent. • 4838-2657-8944.6 Li • • EXHIBIT B TO TRUST INDENTURE Form of Series 2005B 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. R05B-_ REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: _% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20_ CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657.8944.6 B-1 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 "Sales and Use Tax Capital Improvement Bond, Series 2005B", is one of a series of bonds aggregating Forty -Five Million Dollars ($45,000,000) (the "Series 2005B Bonds"). The Series 2005B Bonds are being issued for the purpose of (i) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (ii) funding a debt service reserve, (iii) purchasing a policy of municipal bond insurance, and (iv) paying the costs of issuance of the Series 2005B Bonds. The Series 2005B Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 15, 2005 (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 2005B Bonds, and the terms upon which the Series 2005B Bonds are issued and secured. The Series 2005B 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. 2005) §§14-164-301 et seq. (as from time to • time amended, the "Local Government Bond Act"), Ordinance No. 4768 of the City adopted October 4, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005B Bonds is made on a parity basis with the pledge of such receipts securing the City's $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds," and together with the Series 2005B Bonds, the `Bonds"). The pledge of the Tax Receipts presently secures payment of the Bonds only, but such Tax Receipts may additionally be pledged to secure the payment of up to $20,000,000 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 Bonds and will 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). 4838-26573944.6 B-2 The 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 in the Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at Simmons First Trust Company, N.A., Pine Bluff, Arkansas. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the City to Simmons First Trust Company, N.A., or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects • in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the • appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding 4838.2657-8944.6 B-3 related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the City, or any designee of the City for such purpose. The term owner shall not include the City or any party whose agreement with the City constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION The holder of this Series 2005B 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 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 2005B 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. The Series 2005B 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 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 Bonds and any Additional Bonds, and (iv) pay the fees and expenses of the Trustee and any paying agent. Surplus Tax 4838-2657-8944.6 B-4 Receipts shall be applied to the redemption of the Series 2005B Bonds, any Additional Bonds, and any RLF Loan, prior to their application for redemption prior to maturity of the Series 2005A Bonds. The Series 2005B Bonds maturing on December 1, 2015, are subject to mandatory redemption, to be selected by lot in such manner as the Trustee shall detemune, on December I in the years and in the amounts set forth below, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the date of redemption: Date December 1, 2012 December 1, 2013 December 1, 2014 December 1, 2015 (maturity) Principal Amount $8,200,000 8,530,000 8,870,000 3,505,000 Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005B Bonds, the particular Series 2005B 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 2005B Bonds for redemption prior to maturity, in the case any outstanding Series 2005B Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005B Bond shall be treated as a separate Series 2005B Bond of the denomination of $5,000. • In the event any of the Series 2005B 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 2005B 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 2005B Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005B 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 2005B 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, 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 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 2005B 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 2005B Bonds may be exchanged for a like aggregate principal amount of Series 2005B Bonds of other authorized denominations. 4838-2657-8944.6 B-5 No recourse shall be had for the payment of the principal of or premium, if any, or interest on any of the Series 2005B Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005B 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 2005B Bonds. This 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 2005B 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 2005B 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 2005B Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. • 4838-2657-8944.6 B-6 a i CI IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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 Mayor (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005B 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 2005B Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Authorized Signature 4838-2657-8944.6 (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: 40 NOTICE: Signature(s) must be guaranteed by an institution satisfactory to the Trustee or other transfer agent. • 4838-2657-8944.6 B-8 EXHIBIT C TO TRUST INDENTURE COVERAGE CERTIFICATE City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: TO: Simmons First Trust Company, as Trustee This certificate is provided pursuant to the provisions of Section 212 of the Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, in connection with (i) the proposed issuance of Additional Bonds or (ii) a drawdown under an RLF Loan. In connection with such issuance or drawdown, the undersigned certifies as follows: (a) Receipts of Sales and Use Tax by Trustee for preceding twelve (12) months: $ • (b) Average Annual Debt Service on all Outstanding Bonds and RLF Loans, plus (i) the proposed Additional Bonds or (ii) following the drawdown on the RLF Loan: $ (c) (a) divided by (b) = % (which is greater than 125%) The undersigned hereby certifies that he is authorized to deliver this Certificate on behalf of the Issuer. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture. CITY OF FAYETTEVILLE, ARKANSAS Finance and Internal Services Director • 4838-2657-8944.6 C-1 EXHIBIT D TO TRUST INDENTURE REQUISITION City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: Requisition No.: TO: Simmons First Trust Company, N.A., as Trustee Pursuant to the provisions of Section 502 of the Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, you are authorized to make the following described payment directly to the Payee named below from the Project Fund: Name and Address of Payee: Amount of Payment: $ General Classification of the Expenditures: The undersigned hereby certifies that he is authorized to deliver this Requisition on behalf of the Issuer. The amount requested hereunder has not been the basis for any previous Requisition by the Issuer and is justly due and owing to the person(s) named herein as a proper payment or reimbursement of a Project Cost. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. CITY OF FAYETTEVILLE, ARKANSAS • By. Authorized Representative 4838-2657-8944.6 D-1 EXECUTION COPY \J TAX REGULATORY AGREEMENT between CITY OF FAYETTEVILLE, ARKANSAS and SIMMONS FIRST TRUST COMPANY, N.A. as Trustee • Dated as of November 29, 2005 Relating to: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Prepared by: Kutak Rock LLP 425 West Capitol Avenue Suite 1100 • Little Rock, Arkansas 72201 4829-8234-7008.1 TAX REGULATORY AGREEMENT • THIS TAX REGULATORY AGREEMENT (this "Tax Regulatory Agreement) is made and dated as of November 29, 2005, by and between the CITY OF FAYETTEVILLE, ARKANSAS, a city of the first class and political subdivision of the State of Arkansas (the "Issuer"), and SIMMONS FIRST TRUST COMPANY, N.A., a national banking association organized and existing under the laws of the United States of America, not in its individual capacity but solely in its capacity as the trustee (the "Trustee") named under that certain Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the Issuer and the Trustee. WITNESSETH: WHEREAS, pursuant to the Constitution and laws of the State of Arkansas, including particularly Amendment 62 and Arkansas Code Annotated §§ 14-164-301 et seq. (as from time to time amended, the "Authorizing Legislation"), the Issuer has authorized the issuance of $27,000,000 principal amount of its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and $45,000,000 principal amount of its Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and, together with the Series 2005A Bonds, the "Series 2005 Bonds"), pursuant to the Indenture and Ordinance No. 4768, adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), for the purposes of providing the funds (i) to acquire, construct, reconstruct, extend, improve and equip certain wastewater treatment plants, sewerage and related facilities as specified in the •Authorizing Ordinance (the "Project"), (ii) to advance refund the Issuer's $34,225,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (iii) to purchase surety bonds for deposit in a debt service reserve, (iv) to pay premiums for policies of municipal bond insurance, and (v) to pay the costs of issuance of the Series 2005 Bonds; and WHEREAS, the Series 2004 Bonds were originally issued by the Issuer for the purpose of financing a portion of the costs of the acquisition, construction, reconstruction, extension, improvement and equipping of the Project; and WHEREAS, the Issuer has determined that the issuance, sale and delivery of the Series 2005 Bonds is necessary in order to refund the Series 2004 Bonds and to provide a portion of the financing for the Project; and WHEREAS, this Tax Regulatory Agreement has been entered into by the Issuer and the Trustee to provide for compliance with the provisions of the Internal Revenue Code of 1986, as amended, and the Regulations promulgated thereunder; and WHEREAS, this Tax Regulatory Agreement is executed in part for the purpose of setting forth the facts, estimates and expectations of the Issuer on the date hereof as to future events regarding the Series 2005 Bonds; NOW, THEREFORE, in consideration of the premises and the mutual covenants and • agreements herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Issuer and the Trustee hereby agree as follows: 4829-8234-7008.1 2 ARTICLE I • DEFINITIONS Section 1.1. Definitions. The following words and phrases shall have the following meanings. Any capitalized word or term used herein but not defined herein shall have the same meaning given in the Indenture. "Adjusted Fair Market Value" of an investment means the Fair Market Value plus the sum of all adjustments, if any, made to the issue price of such investment under Section 1272 of the Code, since the date the investment became a Nonpurpose Obligation. "Arbitrage Rebate Consultant" means an accounting firm or a firm of attorneys or another person or firm with knowledge of or experience in advising bond trustees with respect to the provisions of Section 148(f) of the Code. "Bond Counsel" means Kutak Rock LLP or an attorney or firm of attorneys recognized as having expertise in matters relating to the issuance of tax-exempt obligations reasonably acceptable to the Trustee. "Bond Year" means the one-year period beginning on the day after expiration of the preceding bond year. The first Bond Year begins on the date of issue of the Series 2005 Bonds and ends December 1, 2005. • "Code" means the Internal Revenue Code of 1986, as amended, and the Regulations thereunder. "Computation Period" means each period from the date of issue through the date on which a determination of the Rebate Amount is made. "Costs of Issuance" means all costs incurred in connection with the borrowing. Examples of costs of issuance include (but are not limited to): (a) underwriter's spread (whether realized directly or derived through purchase of the Series 2005 Bonds at a discount below the price at which a substantial number of Series 2005 Bonds are sold to the public); (b) counsel fees (including bond counsel, underwriter's counsel, issuer's counsel, trustee's counsel and any other specialized counsel fees incurred in connection with the borrowing); (c) financial advisor fees (including the Issuer's financial advisor) incurred in connection with the borrowing; (d) rating agency fees; (e) trustee fees incurred in connection with the borrowing; (f) paying agent and certifying and authenticating agent fees related to • issuance of the Series 2005 Bonds; 4829-8234-7008.1 3 (g) accountant fees related to issuance of the Series 2005 Bonds; • (h) printing costs (for the Series 2005 Bonds and of preliminary and final offering materials); and (i) costs incurred in connection with the required public approval process (e.g., publication costs for public notices generally and costs of any public hearing or voter referendum or election expense). "Escrow Agreement" means the Escrow Deposit Agreement dated November 29, 2005, .between the Issuer and the Escrow Trustee, providing for the defeasance and redemption of the Series 2004 Bonds. "Escrow Fund" means the fund established under the Escrow Agreement for the purpose of depositing moneys and investments in an amount sufficient to accomplish the defeasance of the Series 2004 Bonds. "Escrow Trustee" means Simmons First Trust Company, N.A., in its capacity as escrow trustee under the Escrow Agreement. "Fair Market Value" of an investment means the fair market value, including accrued interest, of such investment at the time it becomes a Nonpurpose Obligation. "Gross Proceeds" means: (a) Sale proceeds (as defined in Section 1.148-1(b) of the Regulations); (b) Investment proceeds (as defined in Section 1.148-1(b) of the Regulations); • (c) Transferred proceeds (as defined in Section 1.148-9 of the Regulations); (d) Any amounts held as a sinking fund for the Series 2005 Bonds; (e) Any amounts held in a pledged fund or reserve fund for the Series 2005 Bonds; and (f) Any other replacement proceeds (as defined in Section 1.148-1(c) of the Regulations). "Net Sale Proceeds" means sale proceeds, less the portion of those sales proceeds invested in a reasonably required reserve or replacement fund under Section 148(d) of the Code. "Nonpurpose Obligation" means any investment property, as defined in Section 148(b) of the Code, in which Gross Proceeds are invested and which is not acquired to carry out the governmental purpose of the issue. "Project" means the various facilities to be financed with proceeds of the Series 2005 Bonds. "Qualified Project Costs" means Project Costs (as defined in the Indenture); provided, however, that (i) Project Costs paid or incurred more than sixty (60) days prior to October 5, 1999 shall not be deemed to be Qualified Project Costs (except for costs under the de minimis • and preliminary expenditure exceptions set forth in Section 1.150-2 of the U.S. Treasury Regulations), (ii) Costs of Issuance shall not be deemed to be Qualified Project Costs, and (iii) 4829-8234-7008.1 4 interest prior to the Completion Date (as defined in the Indenture) of the Project, letter of credit • fees, and municipal bond insurance premiums which represent a transfer of credit risk must be allocated between Qualified Project Costs and other costs and expenses to be paid with Series 2005 Bond proceeds. "Rebate Amount" means, with respect to the Series 2005 Bonds, the amount computed as described in Section 4.13 hereof. "Regulation" or "Regulations" means the temporary, proposed or final Income Tax Regulations promulgated by the Department of the Treasury and applicable to the. Series 2005 Bonds. "Series 2004 Bonds" means the Issuer's $34,225,000 outstanding principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2004. "Series 2005 Bonds" means, collectively, the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the Issuer's $27,000,000 original principal amount of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A. "Series 2005B Bonds" means the Issuer's $45,000,000 outstanding principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2005B. "State" means the State of Arkansas. "Tax Regulatory Agreement" means this Tax Regulatory Agreement. "Trustee" means Simmons First Trust Company, N.A., a national banking association organized and existing under the laws of the United States of America, or any successor trustee under the Indenture. "Underwriter" means Stephens Inc. "Yield" means, with respect to the Series 2005 Bonds, yield computed under Section 1.148-4 of the Regulations, and with respect to an investment, yield computed under Section 1.148-5 of the Regulations. Section 1.2. Reliance on Issuer Information. Bond Counsel and the Trustee shall be permitted to rely upon the contents of this Tax Regulatory Agreement and any certification, document or instructions provided pursuant to this Tax Regulatory Agreement and shall not be responsible or liable in any way for the accuracy of their contents or the failure of the Issuer to deliver any required information. 4829-8234-7008.1 ARTICLE II • REPRESENTATIONS AND COVENANTS BY THE ISSUER Section 2.1. Organization and Authority. The Issuer hereby represents that it (1) is a political subdivision duly organized and existing under the laws of the State of Arkansas, and (2) has lawful power and authority to issue the Series 2005 Bonds for the purposes set forth in the Indenture, to enter into, execute and deliver the Indenture and this Tax Regulatory Agreement, and to carry out its obligations under such documents, and (3) by all necessary action has been duly authorized to execute and deliver the Indenture and this Tax Regulatory Agreement, acting by and through its duly authorized officials. Section 2.2. Use of Bond Proceeds; Ownership of the Project; Use of Series 2004 Bond Proceeds. The Issuer hereby represents and warrants for the benefit of the Bond Counsel, the Trustee and holders of the Series 2005 Bonds that the proceeds of the Series 2005 Bonds will be used (i) to finance or reimburse a portion of the costs of the acquisition, construction, reconstruction, extending, improving and equipping of the Project and (ii) to advance refund the Series 2004 Bonds (except those limited proceeds which are used to purchase surety bonds to fund a debt service reserve, to pay bond insurance premiums and to pay Costs of Issuance) and that all of the Project financed or refinanced with proceeds of the Series 2005 Bonds will be, or will continue to be, owned and operated by the Issuer. The Issuer further represents and warrants that its representation and warranties with respect to the Series 2004 Bonds, the use of the proceeds thereof, and the Project contained in that certain Tax Regulatory Agreement dated • November 16, 2004, remain true and correct as of the date hereof. Section 2.3. Change in Use or Ownership of the Project. The Issuer represents that it intends to own and operate the Project at all times during the term of the Series 2005 Bonds. The Issuer does not know of any reason why the Project will not be so used in the absence of (i) supervening circumstances not now anticipated by it, (ii) adverse circumstances beyond its control, or (iii) obsolescence of such insubstantial parts or portions thereof as may occur as a result of normal wear and tear. The Issuer covenants that it will not change the use, ownership or nature of any portion of the Project so long as any of the Series 2005 Bonds are outstanding unless, in the written opinion of Bond Counsel, such change will not result in the inclusion of interest on the Series 2005 Bonds in the gross income of the recipient thereof for purposes of federal income taxation, except that the Issuer may, without an opinion, sell or otherwise dispose of minor parts or portions of the Project as may be necessary or desirable due to normal wear, tear or obsolescence. Section 2.4. Bonds in Registered Form. The Series 2005 Bonds will be issued in registered form as required by Section 149(a) of the Code. Section 2.5. Information Reporting. The Issuer covenants to file IRS Form 8038-G (Information Return for Tax -Exempt Governmental Obligations) with the Internal Revenue Service in connection with the issuance of the Series 2005 Bonds, as required by §149(e) of the Code. • 4829-8234-7008.1 6 Section 2.6. No Federal Guarantee. The Issuer represents and covenants that it has • not taken and will not take, or permit to be taken, any action that will cause the Series 2005 Bonds to be "federally guaranteed" within the meaning of § 149(b) of the Code. Section 2.7. Series 2005 Bonds Not Hedge Bonds. The Issuer represents that it reasonably expects to expend at least 85 percent of the "spendable proceeds" of the Series 2005 Bonds for the specific purposes for which the Series 2005 Bonds are issued within three years of the date hereof and not more than 50 percent of the proceeds of the Series 2005 Bonds will be invested in Nonpurpose Obligations having substantially guaranteed Yields for four years or more. Section 2.8. Reimbursement. The Issuer acknowledges its understanding that if any proceeds of the Series 2005 Bonds are used to reimburse the Issuer for costs relating to the Project that were paid prior to the date of issuance of the Series 2005 Bonds, such costs shall be deemed Qualified Project Costs eligible for requisition from the Project Fund by the Issuer only if the reimbursement is valid under §1.150-2 of the Regulations. The Issuer further acknowledges its understanding that, in general, a reimbursement is valid only if (A) such costs were paid no sooner than sixty (60) days prior to October 5, 1999, the date the Issuer adopted an ordinance expressing its official intent to issue tax-exempt bonds to finance the Project, and (B) Series 2005 Bond proceeds are allocated to reimburse such costs within eighteen (18) months after the later of the date such expenditures were made or the date the Project is placed in service, but in no event later than three (3) years after the original expenditure was paid. • Series 2.9. No Replacement. No portion of the amounts received from the sale of the Series 2005 Bonds will be used as a substitute for other funds which were otherwise to be used as a source of financing for the Project, and which will be used to acquire, directly or indirectly, investment obligations producing a Yield in excess of the Yield on the Series 2005 Bonds. Section 2.10. No Abusive Arbitrage Device. The Issuer represents that the Series 2005 Bonds are not and will not be part of a transaction or series of transactions that has the effect of (1) enabling the Issuer to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (2) overburdening the tax-exempt bond market. Section 2.11. Single Issue. The Issuer represents that the Series 2005 Bonds constitute a single "issue" under §1.150-1(c) of the Regulations. No other obligations of the Issuer (1) are being sold within fifteen (15) days of the sale of the Series 2005 Bonds, (2) are being sold pursuant to the same plan of financing as the Series 2005 Bonds, and (3) are expected to be paid from substantially the same source of funds (disregarding guaranties from third parties, such as bond insurance) as the Series 2005 Bonds. Section 2.12. Representations as to Limits on the Use of Proceeds. The amount of Series 2005 Bond proceeds to be utilized for the purchase of surety bonds for deposit to the Debt Service Reserve Fund shall not exceed the lesser of (i) 10 percent of the initial stated principal amount of the Series 2005 Bonds, (ii) the maximum annual debt service on the Series 2005 Bonds, or (iii) 125 percent of the average annual debt service on the Series 2005 Bonds. • 4829-8234-7008.1 7 Section 2.13. Reliance on Representations of Issuer; Survival. The Issuer understands • and acknowledges that Bond Counsel is relying on the various representations, warranties and covenants of the Issuer contained in this Tax Regulatory Agreement for purposes of delivering its approving opinion. All representations and certifications of the Issuer contained in this Tax Regulatory Agreement will survive the execution and delivery of this Tax Regulatory Agreement and the issuance, sale and delivery of the Series 2005 Bonds, as representations of facts existing as of the date of the execution and delivery of this Tax Regulatory Agreement. The covenants and warranties of the Issuer contained in this Article II will remain in full force and effect notwithstanding the defeasance of the Series 2005 Bonds and the discharge of the Indenture, until the final maturity date of all Series 2005 Bonds Outstanding and payment of such Series 2005 Bonds. ARTICLE III COVENANTS OF THE TRUSTEE Section 3.1. Covenants of the Trustee. The Trustee covenants to the Issuer that it will comply with all applicable provisions of this Tax Regulatory Agreement and any written letter or opinion of Bond Counsel which sets forth any action necessary by the Trustee to preserve interest on the Series 2005 Bonds from the gross income of the recipients thereof for federal income tax purposes. Such covenant will remain in full force and effect notwithstanding the defeasance of the Series 2005 Bonds and the discharge of the Indenture, until the final maturity date of all Series 2005 Bonds Outstanding and payment of such Series 2005 Bonds. The Trustee • shall keep records of the expenditure of Gross Proceeds of the Series 2005 Bonds for the term of this Tax Regulatory Agreement. Such records, if any, as are maintained by the Trustee may, at the option of the Trustee, be maintained by electronic filing or record keeping systems. ARTICLE IV ARBITRAGE AND REBATE Section 4.1. Purpose. The purpose of this Article IV is to certify, pursuant to §1.148- 2(b) of the Regulations, the reasonable expectations of the Issuer as to the sources, uses and investment of Series 2005 Bond proceeds and other moneys in order to support the Issuer's conclusion that the Series 2005 Bonds will not be deemed to be "arbitrage bonds" within the meaning of § 148 of the Code. The person executing this Tax Regulatory Agreement on behalf of the Issuer is an officer of the Issuer responsible for issuing and delivering the Series 2005 Bonds. The Issuer has not been notified of any listing or proposed listing of the Issuer by the Internal Revenue Service as an issuer that may not certify its bonds. Section 4.2. Reasonable Expectations. The facts, estimates, expectations and representations of the Issuer set forth in this Article IV are based upon the Issuer's understanding of various documents and certificates executed in connection with the issuance of the Series 2005 Bonds, including (1) the Indenture, (2) the Escrow Agreement, (3) this Tax Regulatory Agreement, and (4) a certificate of the Underwriter. To the Issuer's knowledge, the facts, • estimates and expectations set forth in this Tax Regulatory Agreement are reasonable. The 4829-8234-7008.1 8 Issuer has no knowledge that would cause it to believe that the representations, warranties and • certifications described herein are unreasonable or inaccurate or may not be relied upon. Section 4.3. Authority and Purpose for Series 2005 Bonds. The Issuer is issuing and delivering the Series 2005 Bonds simultaneously with the execution of this Tax Regulatory Agreement, pursuant to the Authorizing Legislation, the Indenture and an ordinance adopted by the City Council of the Issuer. The Series 2005 Bonds are being issued for the purposes of providing a portion of the funds needed for (i) acquiring, constructing, reconstructing, extending, improving and equipping the Project, (ii) advance refunding the Series 2004 Bonds, (iii) purchasing surety bonds for deposit in a debt service reserve, (iv) paying the premiums on policies of municipal bond insurance, and (v) paying Costs of Issuance of the Series 2005 Bonds. The proceeds of the Series 2005 Bonds to be used to defease the Series 2004 Bonds and to acquire, construct, reconstruct, extend, improve and equip the Project, together with other available moneys and investment earnings on such moneys and proceeds, do not exceed the amount necessary to provide for such purposes. Section 4.4. Funds and Accounts. (a) The following funds and accounts have been established with the Trustee pursuant to the Indenture in connection with the Series 2005 Bonds: Project Fund; Revenue Fund; Bond Fund; • Redemption Fund; Debt Service Reserve Fund; Costs of Issuance Fund; and Rebate Fund. (b) The following fund has been established with the Escrow Trustee pursuant to the Escrow Agreement in connection with the defeasance of the Series 2004 Bonds. Escrow Fund. Section 4.5. Source and Disbursement of Series 2005 Bond Proceeds. (a) The Series 2005A Bonds will be sold to the public at a purchase price equal to $27,381,190.46 (representing the $27,000,000.00 par amount of the Series 2005A Bonds, plus an original net offering premium of $341,290.95 and $39,899.51 of accrued interest thereon). The Underwriter will retain an underwriting discount of $175,500.00. Accordingly, the net amount of proceeds of the Series 2005A Bonds to be received by the Issuer shall be $27,205,690.46, which amount shall be deposited and expended as follows: (i) $39,899.51, representing the accrued interest on the Series 2005A Bonds, • will be transferred to the Interest Account of the Bond Fund and will be utilized to make a portion of the first interest payment due on the Series 2005A Bonds on June 1, 2006; 4829.8234-7008.1 (ii) $22,000.00 will be utilized to purchase a surety bond from MBIA • Insurance Corporation in an amount equal to the Reserve Requirement (as defined in the Indenture), which surety bond shall be deposited in the Series 2005A Account of the Debt Service Reserve Fund; (iii) $67,000 will be paid to MBIA Insurance Corporation for the premium on a financial guaranty insurance policy; (iv) $23,209,258.25 will be transferred to the Escrow Trustee for deposit in the Escrow Fund, and will be used, together with $11,392,013.87 of legally available moneys of the Issuer also deposited in the Escrow Fund (which legally available moneys are comprised of $9,680,763.87 representing the bond fund for the Series 2004 Bonds and $1,711,250.00 representing the debt service reserve fund for the Series 2004 Bonds) to pay the Series 2004 Bonds at maturity and upon redemption prior to maturity as provided in the Escrow Agreement; (v) $61,843.27 of the proceeds will be deposited into the Cost of Issuance Fund and used to pay Costs of Issuance of the Series 2005A Bonds; and (vi) the remaining $3,805,689.43 of proceeds will be deposited in Series 2005A Account of the Project Fund and will be used to pay Qualified Project Costs. (b) The Series 2005B Bonds will be sold to the public at a purchase price equal to •$45,263,285.06 (representing the $45,000,000.00 paramount of the Series 2005B Bonds, plus an original net offering premium of $193,446.35 and $69,838.71 of accrued interest thereon). The Underwriter will retain an underwriting discount of $292,500.00. Accordingly, the net amount of proceeds of the Series 2005B Bonds to be received by the Issuer shall be $44,970,785.06, which amount shall be deposited and expended as follows: (i) $69,838.71, representing the accrued interest on the Series 2005B Bonds, will be transferred to the Interest Account of the Bond Fund and will be utilized to make a portion of the first interest payment due on the Series 2005B Bonds on June 1, 2006; (ii) $36,000.00 will be utilized to purchase a surety bond from MBIA Insurance Corporation in an amount equal to the Reserve Requirement (as defined in the Indenture), which surety bond shall be deposited in the Series 2005B Account of the Debt Service Reserve Fund; (iii) $130,000 will be paid to MBIA Insurance Corporation for the premium on a financial guaranty insurance policy; (iv) $71,572.11 of the proceeds will be deposited into the Cost of Issuance Fund and used to pay Costs of Issuance of the Series 2005B Bonds; and (v) the remaining $44,663,374.24 of proceeds will be deposited in Series 2005B Account of the Project Fund and will be used to pay Qualified Project Costs. • 4829-8234-7008.1 10 Section 4.6. Costs of Issuance Fund The Indenture creates the Costs of Issuance Fund which will be initially funded with $61,843.27 of Series 2005A proceeds and $71,572.11 of Series 2004B Bond proceeds. Moneys in the Cost of Issuance Fund will be used to pay Costs of Issuance associated with the Series 2005 Bonds. Proceeds of the Series 2005 Bonds deposited in the Costs of Issuance Fund shall be spent within a one-year period beginning on the date of issuance of the Series 2005 Bonds and may be invested until expended in Nonpurpose Obligations that bear a Yield that is materially higher than the Yield on the Series 2005 Bonds. The earnings on such investments will be subject to the rebate requirements described in Section 4.13 of this Tax Regulatory Agreement unless the Issuer qualifies under one of the rebate exemptions described in the Code and the Regulations. Section 4.7. Revenue Fund, Bond Fund and Redemption Fund The Indenture creates the Revenue Fund, the Bond Fund and the Redemption Fund. Moneys will be transferred to the Revenue Fund, and from the Revenue Fund to the Bond Fund as described in the Indenture, to provide for the payment of principal of and interest on the Series 2005 Bonds as due. Moneys will be transferred from the Revenue Fund to the Redemption Fund as described in the Indenture to provide for the payment prior to maturity of the principal of the Series 2005 Bonds. Moneys deposited in the Revenue Fund, the Bond Fund and the Redemption Fund will be spent within a 13 -month period beginning on the date of the original deposit in the Revenue Fund, and any amount received from investment of moneys held in the Revenue Fund, the Bond Fund or the Redemption Fund will be spent within a one-year period beginning on the date of receipt. The Revenue Fund, the Bond Fund and the Redemption Fund will be completely depleted at least once a year. Accordingly, the Revenue Fund, the Bond Fund and the • Redemption Fund constitute "bona fide debt service funds" for the Series 2005 Bonds. Amounts in the Revenue Fund, Bond Fund and Redemption Fund may be invested until expended in Nonpurpose Obligations that bear a Yield that is materially higher than the Yield on the Series 2005 Bonds. The earnings on such investments will be subject to the rebate requirements described in Section 4.13 of this Tax Regulatory Agreement for any year in which the sum of such investment earnings equals or exceeds $100,000 unless the Issuer qualifies under one of the other rebate exemptions described in the Code and the Regulations. Section 4.8. Debt Service Reserve Fund The Indenture creates the Debt Service Reserve Fund into which $58,000 of the proceeds of the Series 2005 Bond proceeds will be deposited for the purchase of the 2005A Surety Bond and the 2005B Surety Bond (as defined in the Indenture). Moneys and investments in the Debt Service Reserve Fund will be expended solely to pay principal of and interest on the Series 2005 Bonds when the same become due, when and if there is a deficiency in the Bond Fund available to make such payments. The Debt Service Reserve Fund will be maintained in an amount equal to the Reserve Requirement (as defined in the Indenture). The Issuer is of the opinion, based on representations of the Underwriter, that the amount deposited in the Debt Service Reserve Fund is reasonably required for the purposes for which such fund is established. Accordingly, the Debt Service Reserve Fund is a "reasonably required reserve fund" for the Series 2005 Bonds within the meaning of the Code and the Regulations. Amounts in the Debt Service Reserve Fund may be invested until expended in Nonpurpose Obligations that bear a Yield that is materially higher than the Yield on the Series 2005 Bonds. The earnings on such investments will be subject to the rebate • requirements described in Section 4.13 of this Tax Regulatory Agreement unless the Issuer qualifies under one of the rebate exemptions described in the Code and the Regulations. 4829.8234-7008.1 11 • Section 4.9. Project Fund and Escrow Fund The Indenture creates the Project Fund which will be initially funded with $3,805,689.43 of Series 2005A Bond proceeds and $44,663,374.24 of Series 2005B Bond proceeds. Moneys in the Project Fund will be used to pay costs associated with the acquisition, construction, reconstruction, extending, improving and equipping of the Project. The Issuer has incurred, or will incur within six (6) months of the date of issuance of the Series 2005 Bonds, a substantial binding obligation to a third party to spend at least 5% of the Net Sale Proceeds on the Project. The completion of the Project and the allocation of Net Sale Proceeds to expenditures will proceed with due diligence. Completion of the portion of the Project to be financed with proceeds of the Series 2005 Bonds is expected to occur on or before November 29, 2008. At least 85% of the Net Sale Proceeds will be allocated to Project expenditures within three (3) years from the date of issuance of the Series 2005 Bonds. Until November 29, 2008, the Net Sale Proceeds of the Series 2005 Bonds deposited in the Project Fund may be invested until expended in Nonpurpose Obligations that bear a Yield that is materially higher than the Yield on the Series 2005 Bonds. The earnings on such investments will be subject to the rebate requirements described in Section 4.13 of this Tax Regulatory Agreement unless the Issuer qualifies under one of the rebate exemptions described in the Code and the Regulations. The Escrow Agreement creates the Escrow Fund. Proceeds of the Series 2005A Bonds and other legally available moneys of the Issuer deposited in the Escrow Fund will be invested in accordance with the terms of the Escrow Agreement. Amounts deposited in the Escrow Fund from proceeds of the Series 2005A Bonds may not be invested at a Yield in excess of the Yield on the Series 2005 Bonds. Amounts deposited in the Escrow Fund from the debt service reserve • fund for the Series 2004 Bonds may not be invested at a Yield in excess of the Yield on the Series 2004 Bonds until such amounts are deemed to become transferred proceeds (as defined in Regulation Section 1.148-9) of the Series 2005 Bonds, at which time they may not be invested at a Yield in excess of the Yield on the Series 2005 Bonds. Section 4.10. Yield on the Series 2005 Bonds. (a) The Underwriter has certified (i) that the initial offering price of the Series 2005 Bonds, as set forth in Section 4.5 of this Tax Regulatory Agreement, represents the maximum initial offering price at which a substantial amount of each maturity of the Series 2005 Bonds were offered for sale and sold to purchasers (exclusive of bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) through a bona fide offering, (ii) that such initial offering prices were established by a bona fide bid without regard to any amounts which would increase the Yield on any maturity of the Series 2005 Bonds above its market yield and (iii) that the description of interest rates and Yields contained in the final Official Statement with respect to the Series 2005 Bonds constitutes a true and correct summary thereof. (b) The Yield on the Series 2005 Bonds has been calculated by the Underwriter to be not less than 3.8899695%. The calculation of Yield has been made on the basis of semiannual compounding using a 360 -day year and upon the assumption that payments are made on the last day of each semiannual interest payment period. For purposes of computing Yield on Nonpurpose Obligations, the purchase price of any such obligation is equal to the Fair Market Value as of the date of a binding contract to acquire such obligation. 4829-8234-7008.1 12 Section 4.11. Arbitrage Representations. Pursuant to the issuance of the Series 2005 • Bonds, the Issuer hereby represents, certifies and warrants as follows: (a) Other than Revenue Fund, the Bond Fund, the Redemption Fund, the Project Fund, the Debt Service Reserve Fund and the Costs of Issuance Fund created under the Indenture, there has not been created or established and the Issuer does not expect that there will be created or established, any sinking fund, pledged fund or similar fund, including, without limitation, any arrangement under which money, securities or obligations are pledged directly or indirectly to secure the Series 2005 Bonds or any contract securing the Series 2005 Bonds or any arrangement providing for compensating balances to be maintained by the Issuer with any holder of the Series 2005 Bonds. (b) All funds established pursuant to the Indenture will be invested pursuant to the Indenture and this Tax Regulatory Agreement. The Escrow Fund will be invested pursuant to the Escrow Agreement. (c) The Issuer will instruct the Trustee with respect to investment of the various funds held under the Indenture. (i) The Issuer will not instruct the Trustee to invest in any Nonpurpose Obligation unless at Fair Market Value. The Fair Market Value of a Nonpurpose Obligation shall be the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's -length transaction • determined as of the date on which the contract to buy or sell the investment is entered into. (ii) If a Nonpurpose Obligation is acquired or sold or disposed of in an arm's length transaction without regard to any amount paid to reduce the Yield on the Nonpurpose Obligation, or any reduction in sale or disposition price to reduce the Rebate Amount, the Fair Market Value of the Nonpurpose Obligation shall be the amount paid for, or the amount realized upon the sale or disposition of, the Nonpurpose Obligation. (iii) If a United States Treasury obligation is acquired directly from or sold or disposed of directly to the United States Treasury, such acquisition or sale or disposition shall be treated as establishing a market for the obligation and as establishing the Fair Market Value of the obligation. (iv) The purchase or sale of a certificate of deposit issued by a commercial bank will be at Fair Market Value if the Yield at which it is purchased is not less than (i) the Yield of comparable United States Treasury Obligations and (ii) the highest Yield posted by such provider on comparable deposits to the public. (v) The Trustee, on behalf of the Issuer, may not purchase or sell Nonpurpose Obligations pursuant to any investment contract or repurchase • agreement unless (i) it receives at least three bids from persons other than those with an interest in the Series 2005 Bonds, (ii) a certification is provided by the 4829-8234-7008.1 13 • person whose bid is accepted stating the administrative costs that are reasonably expected to be paid to third parties in connection with the investment contract, (iii) a certification is provided by the person whose bid is accepted stating that the Yield of the investment contract is not less than the Yield of comparable investment contracts to other persons who do not utilize proceeds of tax-exempt bonds to purchase such contracts, (iv) the Yield on the investment contract is at least equal to the Yield offered under the highest bid received from a noninterested party, (v) the bidding for the investment contract takes into account as a significant factor the expected drawdown schedule of the Series 2005 Bond proceeds, and (vi) any collateral security requirements of the investment contract are reasonable. Section 4.12. Arbitrage Compliance. The Issuer acknowledges that the continued exclusion of interest on the Series 2005 Bonds from gross income of the recipients for purposes of federal income taxation depends, in part, upon compliance with the arbitrage limitations imposed by Section 148 of the Code, including the rebate requirement described in Sections 4.13, 4.14 and 4.15 below. The Issuer hereby agrees and covenants that it shall not permit at any time or times any of the proceeds of the Series 2005 Bonds or other funds of the Issuer to be used, directly or indirectly, to acquire any asset or obligation, the acquisition of which would cause the Series 2005 Bonds to be "arbitrage bonds" for purposes of Section 148 of the Code. The Issuer further agrees and covenants that it shall do and perform all acts and things necessary in order to ensure that the requirements of Section 148 of the Code are met. To that end, the Issuer hereby agrees to take the actions described in Sections 4.13 through 4.15 below with • respect to the investment of Gross Proceeds on deposit in the funds and accounts established under the Indenture and the Escrow Agreement and to direct the Trustee to make the required transfers and dispositions described in Sections 4.13, 4.14 and 4.15, below. Section 4.13. Rebate Fund; Calculation of Rebate Amount. Section 148(f) of the Code requires the payment to the United States of the excess of the amount earned on the investment of Gross Proceeds in Nonpurpose Obligations over the amount that would have been earned on such investments had the amount so invested been invested at a rate equal to the Yield on the Series 2005 Bonds, together with any income attributable to such excess. The Cost of Issuance Fund, the Project Fund, the Revenue Fund, the Bond Fund, the Redemption Fund, the Debt Service Reserve Fund and the Rebate Fund (defined below) are subject to this rebate requirement. In accordance with the requirements set out in the Code, the Rebate Fund (the "Rebate Fund") has been created in the Indenture with respect to the Series 2005 Bonds to be held by the Trustee and used as provided in this Section 4.13. The Rebate Fund shall be held and disbursed in accordance with the following: (a) All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, except as may otherwise be directed in writing by the Issuer, for payment to the federal government of the United States of America. All amounts deposited into or on deposit in the Rebate Fund shall be governed by this Tax Regulatory Agreement. The Trustee shall be deemed conclusively to have complied with this Tax Regulatory • Agreement if it follows the directions of the Issuer or an Arbitrage Rebate Consultant 4929-8234-7008.1 14 • engaged by the Issuer, and shall have no liability or responsibility to enforce compliance by the Issuer with the terms of this Tax Regulatory Agreement. (b) (i) Any funds remaining in the Rebate Fund after redemption and payment of all the Series 2005 Bonds and the final payment to the United States of America described in Section 4.14 below, or provision made therefor including accrued interest and payment of any applicable fees and expenses to the Trustee and any Arbitrage Rebate Consultant and satisfaction of the payment of the Rebate Amount in accordance with directions from the Issuer, shall be withdrawn by the Trustee upon written instructions from the Issuer and remitted to the Issuer. (ii) Notwithstanding anything to the contrary in this Tax Regulatory Agreement, any amount received from the investments of amounts held in the Rebate Fund which represents an amount earned shall be credited to and retained in the Rebate Fund upon the receipt thereof (iii) In the event that on the first day of any Bond Year the amount on deposit in the Rebate Fund exceeds the aggregate Rebate Amount as certified by an Arbitrage Rebate Consultant engaged by or on behalf of the Issuer, the Trustee, upon written instructions from the Issuer, shall withdraw the excess from the Rebate Fund, pay any amounts then due and payable under the Indenture and pay any remaining excess to the Issuer. • (iv) For purposes of crediting amounts to the Rebate Fund or withdrawing amounts from the Rebate Fund, Nonpurpose Obligations shall be valued in the manner provided in this Tax Regulatory Agreement. (c) On or before 30 days following the end of the fifth Bond Year, upon the Issuer's written direction, an amount shall be deposited to the Rebate Fund by the Trustee from deposits made by the Issuer, if and to the extent required, so that the balance of the Rebate Fund shall equal the aggregate Rebate Amount required as of the end of such fifth Bond Year. (d) In order to meet the Issuer's obligations in complying with the rebate requirement of Section 148(f) of the Code, the Trustee and the Issuer agree and covenant to take the following actions: (i) For each investment of amounts held with respect to the Series 2005 Bonds (other than investments in obligations described in Section 103(a) of the Code, including amounts so treated) in the (I) Costs of Issuance Fund, (II) Project Fund, (III) Revenue Fund, (IV) Bond Fund, (V) Redemption Fund, (VI) Debt Service Reserve Fund, and (VII) Rebate Fund, the Trustee shall record the purchase date of such investment, its purchase price, the accrued interest due on its purchase date, its face amount, its coupon rate, the frequency of its interest payment, and if disposed of, its disposition price, accrued interest due on its disposition date and its disposition date. If so engaged by the Issuer, an Arbitrage • Rebate Consultant shall calculate the Fair Market Value for such investments and the Yield thereon. The Yield for an investment shall be calculated by using as its 4829-8234-7008.1 15 purchase price its Fair Market Value on the purchase date of such investment or • on the date on which it becomes a Nonpurpose Obligation, whichever is later. (ii) Any Arbitrage Rebate Consultant shall determine the amount of earnings received on all investments described in paragraph (i) above, other than investments in obligations described in Section 103(a) of the Code (including amounts so treated) which are not defined by the Code as "investment property" or amounts in the Revenue Fund, Bond Fund and Redemption Fund if the earnings on the Revenue Fund, Bond Fund and Redemption Fund do not, in the aggregate, exceed $100,000 for any Bond Year, during the Computation Periods ending with the following determination dates: (I) the last day of the first Bond Year and each succeeding last day of each Bond Year; (II) the maturity date of the Series 2005 Bonds; and (III) if all outstanding Series 2005 Bonds are redeemed prior to the maturity date of the Series 2005 Bonds, the date on which all Series 2005 Bonds are redeemed. In addition, where Nonpurpose Obligations are retained by the Trustee after retirement of the Series 2005 Bonds, any unrealized gains or losses as of the date of retirement of the Series 2005 Bonds must be taken into account in calculating the earnings on such Nonpurpose Obligations with each such obligation treated as sold for its Fair Market Value. In calculating the earnings described above, earnings received in a Bond Year shall include amounts which would be treated as income under Section 1272 of the Code regarding the accrual of original issue discount. In addition, earnings received in any Bond Year within the Computation Period shall include the gain or loss on the sale of • any investment determined by subtracting the Adjusted Fair Market Value of the investment from the disposition price of the investment. For purposes of assisting the Issuer or an Arbitrage Rebate Consultant engaged by or on behalf of the Issuer in making such determinations, the Trustee shall provide to the Issuer or Arbitrage Rebate Consultant all information requested by the Issuer or Arbitrage Rebate Consultant in the possession of the Trustee. (iii) For each Computation Period specified in paragraph (ii) above, the Issuer or an Arbitrage Rebate Consultant engaged by the Issuer shall determine the amount of earnings on all investments held in the Rebate Fund during the Computation Period. In calculating the earnings, earnings within the Computation Period shall include amounts which would be treated as income under Section 1272 of the Code regarding the accrual of original issue discount. In addition, earnings in any Bond Year within the Computation Period shall include the gain or loss on the sale of any investment determined by subtracting the Adjusted Fair Market Value of the investment from the disposition price of the investment. (iv) For each Computation Period specified in paragraph (ii) above, the Issuer or an Arbitrage Rebate Consultant engaged by the Issuer shall calculate the Rebate Amount by any appropriate method described in the Code and Regulations applicable or which become applicable to the Series 2005 Bonds. • 4829-8234-7008.1 16 (v) For each Computation Period specified in paragraph (ii) above and • within 30 days of the end of each such Computation Period, the Issuer or an Arbitrage Rebate Consultant engaged by the Issuer shall calculate the Rebate Amount and notify the Issuer (if the calculation is made by an Arbitrage Rebate Consultant) and the Trustee in writing of the Rebate Amount. If the Rebate Amount (less amounts previously rebated to the United States) exceeds the amount on deposit in the Rebate Fund, the Issuer shall immediately pay such amount to the Trustee for deposit into the Rebate Fund. If the Issuer does not pay such amount within 20 days of notice of the Rebate Amount to the Trustee, the Trustee shall withdraw and transfer such amount, first, from amounts on deposit in the funds and accounts under the Indenture (and the Trustee, without direction from the Issuer, and without making demand on, but with notice to, the Issuer, shall immediately withdraw such amount from such funds and accounts) and, if such amounts are insufficient, second, from any other source. Section 4.14. Payment to United States. (a) Within 45 days after the end of the fifth Bond Year and after every fifth Bond Year thereafter, the Issuer shall direct the Trustee to pay to the United States, not later than 45 days after the end of the fifth Bond Year, and not later than five years after each preceding payment was due or would have been due if a Rebate Amount existed at that time, an amount equal to not less than the excess of (i) 90% of the sum of the balance, if any, in the Rebate Fund at such time plus all previous payments made to the United States, over (ii) all previous payments made to the United States. The Issuer shall direct the Trustee and the Trustee, in accordance with such directions, shall pay to the United States, not • later than 60 days after the last outstanding Series 2005 Bonds are paid or redeemed, 100% of the Rebate Amount as of the end of the final Computation Period less all previous payments made to the United States. (b) Each payment of Rebate Amount shall be mailed by the Trustee to the Internal Revenue Service Center, Ogden, Utah 84201. Each payment shall be accompanied by a copy of the Form 8038-T and the statement summarizing the determination of the Rebate Amount. (c) If during any Computation Period, the aggregate amount earned on Nonpurpose Obligations in which the Gross Proceeds of the Series 2005 Bonds are invested is less than the amount that would have been earned if the obligations had been invested at a rate equal to the Yield on the Series 2005 Bonds, such deficit may at the request of the Issuer be withdrawn from the Rebate Fund and paid to the Issuer. The Issuer may direct that any overpayment of rebate may be recovered from any Rebate Amount previously paid to the United States under any procedure that may, after the date of this Tax Regulatory Agreement, be permitted by the Code or the Regulations. (d) The Issuer shall provide to the Trustee all information and calculations necessary for the Trustee to fulfill its obligations under this Section 4.14. Section 4.15. Recordkeeping. In connection with the rebate requirement, the Trustee and the Issuer shall maintain the following records: • 4829-8234-7008.1 17 • (a) The Trustee and the Issuer shall record all amounts paid to the United States pursuant to Section 4.14. (b) The Trustee and the Issuer shall retain records of any rebate calculations until six years after the retirement of the last obligation of the issue. Section 4.16. Payment to Arbitrage Rebate Consultant The Issuer shall pay the fees and expenses of any Arbitrage Rebate Consultant. If at any time when the Issuer has retained and is required to pay an Arbitrage Rebate Consultant and the Issuer does not make sufficient payment, the Trustee, 20 days after receiving from the Arbitrage Rebate Consultant a demand for such payment, shall withdraw from the funds and accounts established under the Indenture (except for the Rebate Fund) such amount as may be needed to pay the fees and expenses of the Arbitrage Rebate Consultant. ARTICLE V TERM OF TAX REGULATORY AGREEMENT Section 5.1. Term. Including all representations, warranties and covenants herein, this Tax Regulatory Agreement shall be effective from the date of issuance of the Series 2005 Bonds through the date that is six years after the last Series 2005 Bond is redeemed, paid or deemed paid pursuant to the Indenture. • ARTICLE VI AMENDMENTS Section 6.1. Amendments. Notwithstanding any other provision hereof, any provision of this Tax Regulatory Agreement may be deleted or modified at any time at the option of the Issuer if the Issuer has provided to the Trustee an opinion of Bond Counsel, in form and substance satisfactory to the Trustee, that such deletion or modification will not adversely affect the exclusion of interest on the Series 2005 Bonds from the gross income of the recipients for purposes of federal income taxation. ARTICLE VII EVENTS OF DEFAULT; REMEDIES Section 7.1. Events of Default. The failure of either party to this Tax Regulatory Agreement to perform any of its required duties under any provision hereof shall constitute an Event of Default under this Tax Regulatory Agreement. Section 7.2. Remedies for an Event of Default. Upon an occurrence of an Event of Default under Section 7.1 hereof, the Issuer or the Trustee may, in their discretion, proceed to protect and enforce their rights and the rights of the holders of the Series 2005 Bonds by pursuing any available remedy, including a suit at law or in equity. C 4829.8234-7008.1 18 • ARTICLE VIII PROTECTION OF TRUSTEE Section 8.1. Protection of Trustee. (a) It is hereby recognized and agreed that the Trustee is entering into this Tax Regulatory Agreement in its respective capacity as Trustee under the Indenture, and the Trustee shall, with respect to this Tax Regulatory Agreement, be entitled to all of the same rights, protections and immunities hereunder as are afforded to the Trustee under the Indenture. (b) The parties hereto acknowledge that the Trustee has no liabilities with respect to compliance with the Code except to take administrative actions as directed by the Issuer pursuant to this Tax Regulatory Agreement. (c) The Issuer hereby agrees to indemnify and hold the Trustee harmless for, from and against any and all claims, losses, damages, judgments, costs and expenses incurred by the Trustee relating to this Tax Regulatory Agreement except for claims caused by the negligence, breach of trust or willful misconduct of the Trustee. i [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] • 4829-8234-7008.1 19 • IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Tax Regulatory Agreement to be executed in their respective names and by their proper officers thereunto duly authorized, all as of the day and year first written above. CITY OF FAYETTEVILLE, ARKANSAS By: SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Title: Co orate Trust lcer [SIGNATURE PAGE TO TAX REGULATORY AGREEMENT] • 4829-8234-7008.1 EXECUTION COPY CONTINUING DISCLOSURE AGREEMENT • This Continuing Disclosure Agreement dated as of November 29, 2005 (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 (i) the City's $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) the City's $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the `Bonds"). The Bonds are being issued pursuant to the terms and provisions of Ordinance No. 4768 duly adopted by the City Council of the City on October 4, 2005 (the "Authorizing Ordinance"), and a Trust Indenture dated as of November 15, 2005 (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 15B(b)(1) of the 1934 Act. 4848-7096-0896.3 "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, hot later than August 1 of each year, commencing • August 1, 2006, 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: • 4848-7096-0896.3 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; • (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 4848-7096-0896.3 rd • 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 • 4848-7096-0896.3 5 S BOND PURCHASE AGREEMENT November 3, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 EXECUTION COPY $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A 1?Tl $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. 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 (i) $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $27,165,790.95 (equal to the par amount of the Series 2005A Bonds plus a net reoffering premium of $341,290.95 and less underwriter's discount of $175,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date (hereinafter defined), and (ii) $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase Price," and together with the 2005A Purchase Price, the "Purchase Price") of $44,900,946.35 (equal to the par amount of the Series 2005B Bonds plus a net reoffering premium of $193,446.35 and less underwriter's •discount of $292,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date. 4843-9700-4288.2 The Series 2005 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. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by MBIA Insurance Corporation contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. 4768 of the City which was adopted by the City Council on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). • The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), (iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds, and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, (ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds, and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the "Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Series 2004 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 Series 2005 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 4843-9700-4288.2 2 •(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 2005 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 2005 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 27, 2005, relating to the Series 2005 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 "Rule"). 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 November 3, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. • 4843-9700-4288.2 3 •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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) 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 2005 Bonds, and (viii) 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 • 2005 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. (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 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 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 Series 2005 • 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 4843.9700-0288.2 El 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, • the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843-9700-4288.2 (j) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (1) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 Bonds to be includable in gross income for federal income tax purposes. City's Covenants. The City covenants with the Underwriter as follows: (a) The City will cooperate with the Underwriter in qualifying the Series 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. • 4843-9700-4288.2 (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 29, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 Bonds shall be delivered to The Depository Trust Company in New York, New York, and the activities relating to the fmal execution and delivery of the Authorizing Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 2005 Bonds; or 4843-9700-4288.2 7 • (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-9700-42882 • 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 2005 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 Series 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall • have occurred, nor shall any development involving a prospective and material adverse 4843-9700-4288.2 9 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by MBIA Insurance Corporation ("MBIA"), together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of "AA-", which ratings shall be in effect as of the Closing Date; (9) The surety bond for deposit in the Series 2005A Account of the • Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for deposit in the Series 2005B Account of the Debt Service Reserve Fund (the 4843-9700-4288.2 10 • "2005B Surety Bond"), each issued by MBIA, together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in • any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 Bonds as provided in this Bond Purchase Agreement, and to carry out and consummate all other transactions contemplated by this Bond Purchase 4843-97004288.2 11 • Agreement, the Authorizing Ordinance, the Election 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; (x) to the best of his knowledge, no event affecting 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; (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, • the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory 4843-9700-4288.2 12 • 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 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 Series 2005 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. • 4843-9700-4288.2 13 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees 4843-9700-4288.2 14 • charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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 2005 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. Authorize Representative Accepted and agreed to as of 3:o p.m. on the date first above written: CITY OFXAYETTEVILLE, ARKANSAS • By` Title: 4843-9700-4288.2 15 • EXHIBIT A MATURITY SCHEDULE $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $4,415,000 3.500% 3.150% 100.343% 2006 1,975,000 3.150% 3.150% 100.000% 2007 5,940,000 4.000% 3.250% 101.444% 2007 800,000 3.250% 3.250% 100.000% 2008 6,110,000 4.000% 3.350% 101.843% 2008 900,000 3.350% 3.350% 100.000% 2009 6,260,000 4.000% 3.450% 102.041% 2009 600,000 3.450% 3.450% 100.000% $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2009 $ 430,000 4.000% 3.450% 102.041% 2010 6,655,000 4.000% 3.650% 101.587% 2010 925,000 3.650% 3.650% 100.000% 2011 7,430,000 4.000% 3.800% 101.064% 2011 455,000 3.800% 3.800% 100.000% 2012* 8,200,000 4.000% 4.000% 100.000% 2013* 8,530,000 4.000% 4.000% 100.000% 2014* 8,870,000 4.000% 4.000% 100.000% 2015 3,505,000 4.000% 4.000% 100.000% (with accrued interest on all Bonds from November 15, 2005) • * Mandatory sinking fund redemption. 4843-9700-4288.2 A-1 S 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 ___, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§14-164-301 et seq. (as from time to time amended, the • "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4843-9700-4288.2 B-1 • 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:4.4 Title: Mayor SIMMONS FIRST TRUST -COMPANY, N.A., as Trustee By: P Qo Title: Co porate TrustOfficer 4848-7096-0896.3 6 • EXHIBIT A NOTICE TO REPOSITORIES REGARDING FINANCIAL INFORMATION NAME OF ISSUER: City of Fayetteville, Arkansas NAME OF BOND ISSUES: $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B DATE OF ISSUANCE: November 29, 2005 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 29, 2005, between the City and Simmons First Trust Company, N.A., as trustee. [The City anticipates that the Annual Financial Information will be filed by .] Dated: SIMMONS FIRST TRUST COMPANY, N.A., as Trustee • • cc: City of Fayetteville Stephens Inc. 4848-7096-0896.3 A-1 EXL IBIT 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.eov/info/municinal/nrmsir.htm. Bloomberg Municipal Repository 100 Business Park Drive Skillman, NJ 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 http://www.bloomberg.com/markets/rates/municontacts.html E-mail: Munis@Bloomberg.com DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 •Phone: (201) 346-0701 Fax: (201) 947-0107 http://www.dpedata.com E-mail: nrmsir@dpcdata.com FT Interactive Data Attn: NRMSIR 100 William Street, 15'h Floor New York, NY 10038 Phone: (212) 771-6999; 800-689-8466 Fax: (212) 771-7390 http://www.ftid.com Email: NRMSIRQinteractivedata.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 www.jjkenny.com/jjkenny/pser_descripjlatarep.htrnl Email: nrmsir repository@sandp.com • • • Kc� EXECUTION COPY ESCROW DEPOSIT AGREEMENT • THIS ESCROW DEPOSIT AGREEMENT (this "Agreement") dated November 29, 2005, by and between the City of Fayetteville, Arkansas, a political subdivision of the State of Arkansas (the "City"), and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, a national banking association organized and existing by virtue of the laws of the United States of America, as escrow trustee for the hereinafter defined Prior Bonds (the "Escrow Trustee"). WITNESSETH: WHEREAS, the City has heretofore issued its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of November 1, 2004, of which $34,225,000 aggregate principal amount remain outstanding and are stated to mature on December 1, 2005 to December 1, 2009, inclusive (the "Prior Bonds"); and WHEREAS, the terms of and the security for the Prior Bonds are prescribed by that certain Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., as trustee (the "Prior Trustee"); and WHEREAS, Article VII of the Prior Indenture provides under certain circumstances that the Prior Bonds shall be deemed paid within the meaning of the Prior Indenture if there shall be on deposit with the Prior Trustee moneys or certain types of investment obligations described • therein maturing on or prior to the maturity or redemption dates of the Prior Bonds and sufficient to pay when due the principal of, premium, if any, and interest on the Prior Bonds to the maturity date or redemption date, as the case may be; and WHEREAS, the City, pursuant to an ordinance adopted by its City Council on October 4, 2005, and the Constitution and laws of the State of Arkansas, has authorized the issuance of $27,000,000 aggregate principal amount of its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Refunding Bonds"), a portion of the proceeds of which are to be used, together with other available funds, to refund all of the Prior Bonds; and WHEREAS, the City has made arrangements for deposit with the Escrow Trustee of moneys and investment obligations derived from and purchased with (a) a portion of the proceeds derived from the sale of the Refunding Bonds, (b) amounts released from the Bond Fund for the Prior Bonds, and (c) amounts released from the Debt Service Reserve Fund for the Prior Bonds, which in the aggregate will provide sufficient immediately available funds to enable the Escrow Trustee to pay the principal of and interest on the Prior Bonds upon maturity and upon redemption prior to maturity, all as set forth on Schedule 1 hereto; and WHEREAS, the City has entered into this Agreement with the Escrow Trustee in order to ensure that the procedures required for discharging the Prior Bonds will be followed; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth, and in order to provide for the redemption of the Prior Bonds and to set • forth the obligations of the parties hereto, the parties hereto agree as follows: 4848-20694784.4 Section 1. Establishment of Escrow Fund. There is hereby created and established • with the Escrow Trustee a special, segregated and irrevocable escrow account designated "City of Fayetteville, Arkansas - 2004 Refunding Escrow Fund" (the "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 Prior Bonds, separate and apart from other funds of the City and the Escrow Trustee. Section 2. Deposit to Escrow Fund; Application of Moneys. Simultaneously with the execution of this Agreement, the City has sold and delivered the Refunding Bonds. From the proceeds of the sale of the Refunding Bonds, the City has delivered to the Escrow Trustee for deposit in the Escrow Fund immediately available moneys in the amount of $23,209,258.25. The Escrow Trustee, in its role as Prior Trustee, is hereby directed to liquidate all investments in the Bond Fund and Debt Service Reserve Fund established under the Prior Indenture and applicable to the Prior Bonds, and to transfer such moneys (viz., the sum of $11,392,013.87) to the Escrow Fund. The Escrow Trustee has purchased, from and as an investment of moneys in the Escrow Fund, at the prices indicated, the direct noncallable obligations of the United States of America identified in Schedule 2 attached hereto (the "Government Obligations"). Accordingly, the Escrow Trustee now holds (or has the right to receive principal and interest on) the Governmental Obligations and $8,688,751.12 in uninvested cash. Section 3. Deposit to Escrow Fund Irrevocable. The deposit of the moneys and Governmental Obligations in the Escrow Fund shall constitute an irrevocable deposit of said moneys and Governmental Obligations exclusively for the benefit of the owners of the Prior Bonds, and such moneys and Governmental Obligations shall be held in escrow and shall be • applied solely to the payment of the principal of and interest on the Prior Bonds through and including the redemption and maturity dates shown on Schedule 1. Subject to the requirements set forth herein for the use of the Escrow Fund and the moneys therein, the City covenants and agrees that the Escrow Trustee shall have full and complete control and authority over and with respect to the Escrow Fund and the moneys and Governmental Obligations deposited therein. Section 4. Use of Moneys. The Escrow Trustee shall apply the moneys and Governmental Obligations deposited in the Escrow Fund, together with any interest or income earned thereon, in accordance with the provisions hereof. The Escrow Trustee shall withdraw from the Escrow Fund immediately available funds for application to the payment of the principal of and interest on the Prior Bonds in the amounts and at the times necessary in accordance with Schedule 1 attached hereto. Schedule 3 attached hereto shows the availability and application of moneys in the Escrow Fund necessary to meet the requirements set forth in Section 1. The Escrow Trustee shall not sell, transfer, otherwise dispose of or cause to be redeemed prior to maturity, any Government Obligations, except as authorized by Section 5 hereof. The Escrow Trustee shall make no further investment or reinvestment except as expressly authorized by Section 5. The liability of the Escrow Trustee for the payment of the amounts to be paid hereunder shall be limited to the moneys available for such purposes in the Escrow Fund. Subject to the provisions of Section 5 hereof, any amounts held as cash in the Escrow Fund shall be held in cash without any investment thereof, not as a deposit with any bank or other • depository. The Escrow Trustee shall not have any duty with respect to calculating or verifying 4848-2069-4784.4 2 the mathematical sufficiency of the moneys in the Escrow Fund to be utilized to pay the principal • of and interest on the Prior Bonds as the same shall become due and payable. Section 5. Investment of Escrow Fund Moneys. (a) The Escrow Trustee may from time to time sell, cause the redemption of, or otherwise dispose of any Government Obligations in the Escrow Fund upon the substitution of other direct or fully guaranteed and noncallable obligations of the United States of America, provided: (1) The Escrow Trustee shall have previously obtained an opinion of an independent certified public accountant that the substitution will not adversely affect the availability of moneys in the Escrow Fund at times and in amounts sufficient to meet the required payments on the Prior Bonds provided in Schedule 1 attached hereto; and (2) The Escrow Trustee shall receive an unqualified opinion of recognized attorneys in the field of tax-exempt municipal bonds to the effect that, if such substitution had been reasonably expected on the date of issuance of the Prior Bonds, such substitution would not have caused any of the Prior Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations of the U.S. Treasury thereunder proposed or in effect at the time of such substitution and applicable to obligations issued on the date of issuance of the Prior Bonds, so as to adversely affect the exemption from Federal income taxation of the interest on the Prior Bonds or the Refunding Bonds; and • 11 (3) The City shall have given the Escrow Trustee its written consent to the substitution. All substituted obligations shall become a part of the Escrow Fund and shall be "Government Obligations" for all purposes of this Agreement. (b) Notwithstanding any other provision of this Agreement, the City and the Escrow Trustee hereby covenant that no part of the proceeds of the moneys in the Escrow Fund shall be used, at any time, directly or indirectly, in such a manner which, if such use had been reasonably anticipated on the date of issuance of the Refunding Bonds, would have caused any of the Refunding Bonds to be an "arbitrage bond" under Section 148 of the Code and the regulations of the U.S. Treasury thereunder proposed or in effect at the time of such use and applicable to obligations issued on the date of issuance of the Refunding Bonds. Section 6. Redemption and Defeasance. (a) The City hereby calls a portion of the Prior Bonds for redemption prior to maturity on December 1, 2006 and December 1, 2007, as follows: Redemption Date 12-1-06 12-1-07 12-1-07 Maturity Date of Bonds Redeemed 12-1-09 12-1-09 12-1-08 Principal Amount of Bonds Redeemed $3,150,000 865,000 2,375,000 4848-20694784.4 The instructions to the Escrow Trustee to redeem portions of the Prior Bonds on December 1, • 2006 and December 1, 2007 are hereby declared to be irrevocable. Except as set forth above, the Prior Bonds will be redeemed at their respective maturity dates. (b) The Escrow Trustee is hereby irrevocably instructed to give notice of the call for redemption to the registered owners of those Prior Bonds to be redeemed prior to maturity. Such notice shall be given by first class mail, postage prepaid, in the form attached hereto as Exhibit A, at least thirty (30) days prior to each applicable redemption date. (c) As soon as practicable after receipt of these instructions, the Escrow Trustee shall mail by first class mail, postage prepaid, to all of the registered owners of the Prior Bonds and to nationally recognized municipal securities repositories, a notice of defeasance in the form attached hereto as Exhibit B. Section 7. Remaining Moneys in Escrow Fund. Upon the retirement of the Prior Bonds, any amounts remaining in the Escrow Fund shall be deposited in the bond fund for the Refunding Bonds, free and clear of the trust created by the Prior Indenture and this Agreement. Section 8. Rights of Owners of Prior Bonds. The escrow created hereby shall be irrevocable and the owners of the Prior Bonds shall have a beneficial interest and a first, prior and paramount lien and claim on all moneys in the Escrow Fund until paid out, used and applied in accordance with this Agreement. Section 9. Fees of Escrow Trustee. In consideration of all services to be rendered by • the Escrow Trustee under this Agreement and under the Prior Indenture, the Escrow Trustee has received $13,000.00 from the City in payment of its reasonable fees and expenses, and the Escrow Trustee hereby acknowledges that it shall have no lien whatsoever upon any moneys in the Escrow Fund for payment of such fees and expenses. The Escrow Trustee agrees to remain in office until all of the Prior Bonds have been redeemed. Except to the extent arising from their gross negligence or willful misconduct, the Escrow Trustee and its respective successors, assigns, agents and servants shall not be held to any liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys and Governmental Obligations deposited therein, or by reason of any act, omission or error of the Escrow Trustee made in good faith in the conduct of its duties. The Escrow Trustee makes no representations or warranties as to whether the Escrow Fund is adequate or sufficient to defease or redeem the Prior Bonds and shall not be responsible or liable for any inadequacy or insufficiency. The Escrow Trustee shall be entitled to the immunities, powers, privileges and protections set forth in the Prior Indenture for the benefit of the Trustee as if set forth herein in their entirety. Section 10. Enforcement. The City and the owners of the Prior Bonds shall have the • right to take all actions available under law or equity to enforce this Agreement or the terms hereof. 4848-2069-0784.4 4 • Section 11. Rebate Calculation. The City agrees to calculate any arbitrage rebate due to the United States Treasury under Section 148(f) of the Code with respect to the Prior Bonds and to make such payment, if any, on or before January 25, 2006. Section 12. Successors Bound. All covenants, promises and agreements in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the City, the Escrow Trustee and the owners of the Prior Bonds, whether so expressed or not. Section 13. Arkansas Law Governing. This Agreement shall be governed by the applicable laws of the State of Arkansas. Section 14. Termination. This Agreement shall terminate when all of the Prior Bonds have been paid as aforesaid and any remaining moneys have been transferred as provided in Section 7 hereof. Section 15. Severability. 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 covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Section 16. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be one and the same instrument. Section 17. No Recourse Against City Officers and Employees. No recourse shall be had for the payment of the principal of or interest on any of the Prior Bonds or for any claim based thereon or upon any obligation, covenant or agreement in this Agreement contained against any past, present or future officer, member, alderman or employee of the City or of 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 officers, members, aldermen or employees, as such, is hereby expressly waived and released as a condition of and consideration for the execution of this Agreement. Section 18. Notices. Unless otherwise provided, any notice, demand, direction, request or other instrument authorized or required by this Agreement to be given to or filed with the City or the Escrow Trustee shall be in writing and shall be addressed as follows: To the City: City of Fayetteville, Arkansas 113 West Mountain Fayetteville, Arkansas 72701 Attention: Finance & Internal Services Director To the Escrow Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 • Attention: Glenda L. Dean, Corporate Trust 4848-20694784.4 5 • IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers as of the date first above written. CITY OF FAYETTEVILLE, ARKANSAS By: _ Title: SIMMONS FIRST TRUST C�bMPA\NY, N.A. By: (2 Title: Corporate Trust Of icer • [SIGNATURE PAGE TO ESCROW AGREEMENT] • SCHEDULEI REQUIREMENTS TO PAY AND REDEEM THE PRIOR BONDS Principal Redemption Payment Date Principal Due Redeemed Premium Interest Due Total Due 12-1-05 $ 6,955,000.00 $1,135,000.00 $ -- $ 598,650.00 $ 8,688,650.00 6-1-06 - - - 443,943.75 443,943.75 12-1-06 7,335,000.00 3,150,000.00 - 443,943.75 10,928,943.75 6-1-07 - - - 253,931.25 253,931.25 12-1-07 7,630,000.00 3,240,000.00 - 253,931.25 11,123,931.25 6-1-08 - -- - 59,750.00 59,750.00 12-1-08 4.780.000.00 - - 59.750.00 4.839.750.00 $26.700.000.00 $7.525.000.00 $ -0 $2.113.900.00 $36338.900.00 I S-1 4848-20694784.4 SCHEDULE2 • DESCRIPTION OF GOVERNMENT OBLIGATIONS Type Maturity Date Principal Amount Coupon Rate U.S. Treasury Securities — SLGS (CI) 6-1-06 $ 13,775.00 0.000% U.S. Treasury Securities—SLGS (NT) 12-1-06 700,470.00 0.000% U.S. Treasury Securities — SLGS (NT) 12-1-06 9,794,143.00 1.985% U.S. Treasury Securities — SLGS (NT) 6-1-07 1,499.00 0.000% U.S. Treasury Securities — SLGS (NT) 12-1-07 713,237.00 2.334% U.S. Treasury Securities—SLGS (Ni) 12-1-07 9,997,738.00 4.410% U.S. TreasurySecurities — SLGS (NT) 12-1-08 307,197.00 4.430% U.S. Treasury Securities — SLGS (NT) 12-1-08 4,384,462.00 4.430% • • S-2 4848-20694784.4 SCHEDULE3 • SCHEDULE OF AVAILABILITY AND APPLICATION OF ESCROW FUND Cash Balance at Receipts from Debt Service Requirement Cash Balance at Period Ending Beginning of Period Government Obligations to Retire Prior Bonds End of Period 11-29-05 $ - $ -- $ -- $8,688.751.12 12-1-05 8,688,751.12 - 8,688.650.00 101.12 6-1-06 101.12 448,374.05 443,943.75 4,531.42 12-1-06 4,531.42 10,924,513.69 10,928,943.75 101.36 6-1-07 101.36 334,192.83 253,931.25 80,362.94 12-1-07 80,362.94 11,043,668.83 11,123,931.25 100.52 6-1-08 100.52 103,920.24 59,750.00 44,270.76 12-1-08 44,270.76 4,795,579.24 4,839,750.00 100.00 • • S-3 4848-2069-4784.4 EXHIBIT A • NOTICE OF REDEMPTION City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN by Simmons First Trust Company, N.A., Pine Bluff, Arkansas, the trustee (the "Trustee") for the Sales and Use Tax Capital Improvement Bonds, Series 2004, of the City of Fayetteville, Arkansas (the "City"), dated November 1, 2004 (the `Bonds"), that $ principal amount of the outstanding Bonds maturing on December 1, 20 [and December 1, 201 are hereby called for redemption and prepayment on December 1, 20_. The outstanding Bonds called for redemption mature, bear interest and have been assigned CUSIP numbers as follows: Maturity Date (December 1) Principal Amount Interest Rate CUSIP No representation is made as to the accuracy of the CUSIP numbers set forth above, and the redemption of the Bonds shall not be affected by any defect in or omission of such numbers. • Each of the Bonds so called for redemption and prepayment shall be redeemed and prepaid at a redemption price of 100.0% of the principal amount thereof plus accrued interest to the date of redemption. The Bonds shall cease to bear interest as of December 1, 20 The Bonds so called for redemption shall be payable at the corporate trust office of the Trustee and shall be presented as follows: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: Corporate Trust 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 , 200_. SIMMONS FIRST TRUST COMPANY, N.A. as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be • redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails no later than November 1, 20 A-1 4848-2069-4784.4 EXHIBIT B • NOTICE OF DEFEASANCE City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN THAT, pursuant to the provisions 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 (the "Indenture"), under which the bonds referenced above (the "Bonds") were issued and secured, there has been deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as Trustee for the Bonds, moneys and direct noncallable obligations of the United States of America, sufficient in amount to pay at maturity and upon redemption, all of the outstanding Bonds. The Bonds maturing on December 1, 2009, and a portion of the Bonds maturing on December 1, 2008, will be redeemed prior to maturity, as follows: Redemption Date December 1, 2006 • December 1, 2007 December 1, 2007 Maturity Date of Bonds Redeemed December 1, 2009 December 1, 2009 December 1, 2008 Principal Amount of Bonds Redeemed $3,150,000 865,000 2,375,000 The Bonds called for redemption shall be redeemed at a price of 100% of the principal amount thereof, together with accrued interest to the date of redemption. On and after the applicable redemption dates, interest on the Bonds so called for redemption shall cease to accrue. As a result of the deposit with the Trustee of the moneys and direct noncallable obligations of the United States of America described above, the Bonds are deemed to have been paid in accordance with Article VII of the Indenture. For further inquiries, contact Simmons First Trust Company, N.A., 501 Main Street, Pine Bluff, Arkansas 71601, Attn: Glenda Dean, phone (870) 541-1424. Date of mailing: December 2005 SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be • redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails as soon as possible after December 1, 2005. B-1 4848.20694784.4 COPY 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 REGISTERED No. R05A-1 $4,415,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 3.50% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2006 CUSIP: 312673 CV6 Principal Amount: FOUR MILLION FOUR HUNDRED FIFTEEN THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4832-4023.1168.1 COPY 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. R05A-2 REGISTERED $1,975,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 3.15% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2006 CUSIP: 312673 CW4 • Principal Amount: ONE MILLION NINE HUNDRED SEVENTY-FIVE THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. • 4832-4023-1168.1 Copy 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. R05A-3 REGISTERED $5,940,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 4.00% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2007 CUSIP: 312673 CX2 Principal Amount: FIVE MILLION NINE HUNDRED FORTY THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. • 4832-4023.1168.1 COPY 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. R05A-4 REGISTERED $800,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 3.25% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2007 •Principal Amount: EIGHT HUNDRED THOUSAND DOLLARS KNOW ALL MEN BY THESE PRESENTS: CUSIP: 312673 CYO 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 1 and December 1 of each year, commencing June 1, 2006, 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. • 4832-0023.1168.1 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. R05A-5 REGISTERED $6,110,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 4.00% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2008 CUSIP: 312673 CZ7 •Principal Amount: SIX MILLION ONE HUNDRED TEN THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4832-0023.1168.1 COPY 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. R05A-6 UNITED STATES OF AMERICA $900,000 STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 3.35% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2008 •Principal Amount: NINE HUNDRED THOUSAND DOLLARS KNOW ALL MEN BY THESE PRESENTS: CUSIP: 312673 DAl 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 1 and December 1 of each year, commencing June 1, 2006, 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. 4832-4023-1168.1 COPY • 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. R05A-7 REGISTERED $6,260,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 4.00% Maturity Date: December 1, 2009 Date of Bond: November 15, 2005 CUSIP: 312673 DB9 Registered Owner: CEDE & CO. • Principal Amount: SIX MILLION TWO HUNDRED SIXTY THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4832-4023-1168.! 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. R05A-8 REGISTERED $600,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: 3.45% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2009 CUSIP: 312673 DC7 •Principal Amount: SIX HUNDRED THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4832-4023-1168.1 Copy This bond, designated "Sales and Use Tax Refunding and Capital Improvement Bond, • Series 2005A", is one of a series of bonds aggregating Twenty -Seven Million Dollars ($27,000,000) (the "Series 2005A Bonds"). The Series 2005A Bonds are being issued for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, (ii) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (iii) funding a debt service reserve, (iv) purchasing a policy of municipal bond insurance, and (v) paying the costs of issuance of the Series 2005A Bonds. The Series 2005A Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 15, 2005 (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 2005A Bonds, and the terms upon which the Series 2005A Bonds are issued and secured. The Series 2005A 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. 4768 of the City adopted • October 4, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005A Bonds is made on a parity basis with the pledge of such receipts securing the City's $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the `Bonds"). The pledge of the Tax Receipts presently secures payment of the Bonds only, but such Tax Receipts may additionally be pledged to secure the payment of up to $20,000,000 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 Bonds and will 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 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 in the 4832-4023-1168.1 2 COPY Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning • of any constitutional or statutory limitation. STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at Simmons First Trust Company, N.A., Pine Bluff, Arkansas. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the City to Simmons First Trust Company, N.A., or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any • owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding • related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall 48324023-1168.1 3 COPY disburse to such owners or the Paying Agent payment of the Insured Amounts due on such • Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the City, or any designee of the City for such purpose. The term owner shall not include the City or any party whose agreement with the City constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION The holder of this Series 2005A 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 • 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 2005A 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. The Series 2005A 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 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 Bonds and 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 2005B Bonds prior to their application for • 4832-4023-1168.1 4 COPY redemption prior to maturity of the Series 2005A Bonds, 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 2005A Bonds, the particular Series 2005A 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 2005A Bonds for redemption prior to maturity, in the case any outstanding Series 2005A Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005A Bond shall be treated as a separate Series 2005A Bond of the denomination of $5,000. In the event any of the Series 2005A 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 2005A 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 2005A Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005A 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 2005A 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, 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 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 2005A 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 2005A Bonds may be exchanged for a like aggregate principal amount of Series 2005A 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 2005A Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005A 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 2005A Bonds. This Bond is issued with the intent that the laws of the State of Arkansas will govern its construction. • 4832-4023-1168.1 COPY 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 2005A 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 2005A 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 2005A Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. ED • 4832-4023-1168.1 6 J rt� Iii. } .4,COiFf' IN WITNESS WHEREOF, the City of Falyettevillo�l,l'Arkansas has caused this''tB"o'nd tlo 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 �,jjl',I,IIIII III CITY O�FIt`F T''.1 TEVIP'I IE, ARKANSAS flIIIG'dul llYY II.I, Mayor r r' ATTEST: • S F G' p kYBV:'N°alp O+ti D.i c—i� 1nn&i 1U•• •,p��_ _ `' City Clerk E : FAYETTEVILLE; t• p :�= X'll Y'NIMJrip Iry'YIMIIIIp Ills , ,d'I = i� • �, r P� ��' (SEAL) ill � kll cl , a^. -;'➢ •. NS.oJ�'. - ' „VGTON G,.. I IY. - JJu,nuI (Form of Trustee's Certificate) I i t ll„ ' TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005A Bonds of the issue described in and issued under,"II",I ,, III the provisions of the within mentioned lnddhtu le''IJ�'II, III,IiII IlII'I I IIIiIq'II . Y�I,I,."lii„ 4g!'' ill tll. 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 2005A Bonds. :,r1 Y. r,4.. . M, ,YIP• SIMMONS FIRST TRUST COMPANY, N.A., as Trustee N . �� : i' _ )ti4'• By4Aut R r J� I li rized Signatu a ;II iplrylf *' r! tr I,t`.I7 t, ln y plpy� j, u. I I�Ill11h �,• � �f If ZJ � 4 IIi�V" '�.Ir's1Xl , 4 2Alm _i I COPY • FOR VALUE RECEIVED, transfers unto 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. (Form of Assignment) ASSIGNMENT , hereby sells, assigns, and the within Bond and all rights thereunder, and DATE: 20 Transferor • NOTICE: Signature(s) must be guaranteed by an institution satisfactory to the Trustee or other transfer agent. 4832-4023-1168.1 0 COPY 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. R05B-1 REGISTERED $430,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: 4.00% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2009 CUSIP: 312673 DDS Principal Amount: FOUR HUNDRED THIRTY THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. • 4814-9546-6240.1 COPY 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. R05B-2 REGISTERED $6,655,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: 4.00% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2010 CUSIP: 312673 DE3 •Principal Amount: SIX MILLION SIX HUNDRED FIFTY-FIVE THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. • 4814-9546-6240.1 COPY 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. R05B-3 REGISTERED $925,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: 3.65% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2010 CUSIP: 312673 DF0 • Principal Amount: NINE HUNDRED TWENTY-FIVE THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4814-9546-6240.1 COPY • 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. R05B-4 REGISTERED $7,430,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: 4.00% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2011 CUSIP: 312673 DG8 • Principal Amount: SEVEN MILLION FOUR HUNDRED THIRTY THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4814-9546-6240.1 COPY 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. R05B-5 REGISTERED $455,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: 3.80% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2011 CUSIP: 312673 DH6 •Principal Amount: FOUR HUNDRED FIFTY-FIVE THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4814-9546-6240.1 COPY 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. R05B-6 REGISTERED $29,105,000 UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: 4.00% Date of Bond: November 15, 2005 Registered Owner: CEDE & CO. Maturity Date: December 1, 2015 CUSIP: 312673 DJ2 • Principal Amount: TWENTY-NINE MILLION ONE HUNDRED FIVE THOUSAND 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 June 1 and December 1 of each year, commencing June 1, 2006, 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. 4814-9546-6240.1 • This bond, designated "Sales and Use Tax Capital Improvement Bond, Series 2005B", is one of a series of bonds aggregating Forty -Five Million Dollars ($45,000,000) (the "Series 2005B Bonds"). The Series 2005B Bonds are being issued for the purpose of (i) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (ii) funding a debt service reserve, (iii) purchasing a policy of municipal bond insurance, and (iv) paying the costs of issuance of the Series 2005B Bonds. The Series 2005B Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 15, 2005 (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 2005B Bonds, and the terms upon which the Series 2005B Bonds are issued and secured. The Series 2005B 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. 4768 of the City adopted October 4, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005B Bonds is made on a parity basis with the pledge of such receipts securing the City's $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds," and together with the Series 2005B Bonds, the `Bonds"). The pledge of the Tax Receipts presently secures payment of the Bonds only, but such Tax Receipts may additionally be pledged to secure the payment of up to $20,000,000 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 Bonds and will 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 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 in the 4814-9546-6240.1 2 COPY • Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at Simmons First Trust Company, N.A., Pine Bluff, Arkansas. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the City to Simmons First Trust Company, N.A., or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any • owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding • related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall 4814-9546-6240.1 3 COPY • disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the City, or any designee of the City for such purpose. The term owner shall not include the City or any party whose agreement with the City constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION The holder of this Series 2005B 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 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 2005B 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. The Series 2005B 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 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 Bonds and 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 2005B Bonds, any Additional Bonds, and 4814-9546-6240.1 4 any RLF Loan, prior to their application for redemption prior to maturity of the Series 2005A Bonds. The Series 2005B Bonds maturing on December 1, 2015, are subject to mandatory redemption, to be selected by lot in such manner as the Trustee shall determine, on December I in the years and in the amounts set forth below, at a redemption price equal to 100% of the principal amount being redeemed, plus accrued interest to the date of redemption: Date December 1, 2012 December 1, 2013 December 1, 2014 December 1, 2015 (maturity) Principal Amount $8,200,000 8,530,000 8,870,000 3,505,000 Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005B Bonds, the particular Series 2005B 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 2005B Bonds for redemption prior to maturity, in the case any outstanding Series 2005B Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005B Bond shall be treated as a separate Series 2005B Bond of the denomination of $5,000. • In the event any of the Series 2005B 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 2005B 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 2005B Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005B 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 2005B 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, 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 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 2005B 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 2005B Bonds may be exchanged for a • like aggregate principal amount of Series 2005B Bonds of other authorized denominations. 4814-9546-6240.1 COPY No recourse shall be had for the payment of the principal of or premium, if any, or interest on any of the Series 2005B Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005B 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 2005B Bonds. This 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 2005B 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 2005B 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 2005B Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. • 4614-9546-6240.1 6 l • COPjj IN \V'IINESS WHEREOF, the City of Fayetteville,Arkansas has caused this)Bond to be executed by its Mayor and City Clerk, therhto duly authorized (hy their manual or facsimile si"n:{lures). and its corporate sea] to be affixed or imprinted hereon, all as of the date hereof shuvvn ahovc' ;'I , CITY OF FA}' -I T'I'FVI1,L1:, ARKANSAS H. u IIII r: A Mayor \T I' I _ST: fl City C'Icrk (SEAL) I! \\\Illllllllp,/ �� T A,.t\of ;FAYETTEVILLE; .a, ',;c ro N �° /„lists l Uil\\' (Form of Trustee's Certificate) r TRUSTEE'S CERTIFICATE OF AUI'IIENTICA1 ION t, r {Situ \• 6. this bond is one of the Series 2005E Bonds of the issue described in and Issued underlhe piov ISIons of the within mentioned Indenture. y,II `IIII 'III Ill lu ppr, Attached hereto is the complete text of the opinion of Kutak Rock LIP, a signed original of which is on file with the undersigned, delivered and dated the date of the original delivery of and paAlncnt for the Series 2005B Bonds.� IIII SIMMONS FIRST TRUST COMPANY, N.A., as Trustec III+IIIY " iI Y I Y � l I IP I ? (IIII I) �� • ,I By �4{�� Aut rizcd Signatur I Iry ,'L) -q '4'_ 2G 11 7 COPY (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. • 4814.9546-6240.1 S y S • BOND PURCHASE AGREEMENT EXECUTION COPY November 3, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. 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 (i) $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $27,165,790.95 (equal to the par amount of the Series 2005A Bonds plus a net reoffering premium of $341,290.95 and less underwriter's discount of $175,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date (hereinafter defined), and (ii) $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase Price," and together with the 2005A Purchase Price, the "Purchase Price") of $44,900,946.35 (equal to the par amount of the Series 2005B Bonds plus a net reoffering premium of $193,446.35 and less underwriter's •discount of $292,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date. 4843-9700-4288.2 • The Series 2005 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 Rep!. & Supp. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by MBIA Insurance Corporation contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. 4768 of the City which was adopted by the City Council on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). • ! The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds'), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), (iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds, and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, (ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds; and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the `Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Series 2004 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 Series 2005 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 4843-9700-4288.2 2 • (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 2005 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 2005 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 27, 2005, relating to the Series 2005 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 "Rule"). 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 November 3, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. • 4843-9700-4288,2 3 • 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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) 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 2005 Bonds, and (viii) 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 • 2005 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. (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 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 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 Series 2005 • 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 4843-9700-4288.2 4 • 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843-9700-0288.2 5 • (j) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (1) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 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 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. • 4843-9700-4288.2 6 • (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 29, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 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 Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 2005 Bonds; or 4843-9700-4288.2 7 • (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-9700-4288.2 • 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 2005 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 Series 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall have occurred, nor shall any development involving a prospective and material adverse 4843-9700-4288.2 9 • 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by MBIA Insurance Corporation ("MBIA"), together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of "AA-", which ratings shall be in effect as of the Closing Date; (9) The surety bond for deposit in the Series 2005A Account of the Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for deposit in the Series 2005B Account of the Debt Service Reserve Fund (the 4843-9700-4288.2 10 . "2005B Surety Bond"), each issued by MBIA, together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, • threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 Bonds as provided in this Bond Purchase Agreement, and to carry out and consummate all other transactions contemplated by this Bond Purchase 4843-9700-4288.2 11 . Agreement, the Authorizing Ordinance, the Election 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; (x) to the best of his knowledge, no event affecting 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; (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the • Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory 4843-9700-4288.2 12 • 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 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 Series 2005 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. 4843-9700-4288.2 13 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees 4843-9700-4288.2 14 • charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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 2005 Bonds, shall acquire or have any right • hereunder or by virtue hereof. 15. Applicable Law. This Bond Purchase Agreement shall be gr 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: l Authorize I Representative Accepted and agreed to as of 3=c'o p.m. on the date first above written: CITY OFXAYETTEVILLE, ARKANSAS By:_ Title: 4843.9700-0288.2 15 EXHIBIT A MATURITY SCHEDULE $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $4,415,000 3.500% 3.150% 100.343% 2006 1,975,000 3.150% 3.150% 100.000% 2007 5,940,000 4.000% 3.250% 101.444% 2007 800,000 3.250% 3.250% 100.000% 2008 6,110,000 4.000% 3.350% 101.843% 2008 900,000 3.350% 3.350% 100.000% 2009 6,260,000 4.000% 3.450% 102.041% 2009 600,000 3.450% 3.450% 100.000% 0 1 $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2009 $ 430,000 4.000% 3.450% 102.041% 2010 6,655,000 4.000% 3.650% 101.587% 2010 925,000 3.650% 3.650% 100.000% 2011 7,430,000 4.000% 3.800% 101.064% 2011 455,000 3.800% 3.800% 100.000% 2012* 8,200,000 4.000% 4.000% 100.000% 2013* 8,530,000 4.000% 4.000% 100.000% 2014* 8,870,000 4.000% 4.000% 100.000% 2015 3,505,000 4.000% 4.000% 100.000% (with accrued interest on all Bonds from November 15, 2005) . * Mandatory sinking fund redemption. 4843-9700-0288.2 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 __, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§14-164-301 et seq. (as from time to time amended, the • "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4843.97004288.2 B-1 • 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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) • Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 4843.9700-0288.2 B-2 • 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 Series 2005 Bonds is excluded from gross income for federal income tax purposes and is not a specific preference item for purposes of the fdderal 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 Series 2005 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 Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds. and the enforceability of the Series 2005 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, 0 4843-9700-4288.2 B-3 • EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November _, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas • Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: • 4843.97004288.2 C-1 • (a) An executed counterpart of the Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); , (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and (e) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "SOURCES AND USES OF FUNDS," "THE SALES AND USE TAX," "DEFINITIONS OF CERTAIN TERMS," "SUMMARY OF THE INDENTURE " "SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT," 47AX MATTERS," 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: 1. 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 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 4843-9700x1288.2 C-2 • 5. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 6. The issuance of the Series 2005 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 2004 (the "Series 2004 Bonds"), and will not cause the Series 2004 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 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, I1 U 4843-9700-4288.2 C-3 I LZ • U T U E u PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER 27, 2005 NEW ISSUE *RATINGS: S&P "AAA" (Underlying "AA -") .`o BOOK -ENTRY ONLY (MBIA Insured) MaIn the opinion of Kutak Rock LIP, 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 2005 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 tat Under existing laws, regulations, rulings and judicial decisions, Bond Counsel is of the opinion that the Series 2005 Bonds and the interest thereon are exemptfrom allstate, county and municipal taxes in the State $ $ ofArkansas. Fora more complete description, see the caption "TAX MA TTERS" herein. E o r $27,000,000** o` CITY OF FAYETTEVILLE, ARKANSAS o SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS ,e 8 SERIES 2005A M V $65,000,000** CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS E o'8 SERIES 20O5B Dated: November 1, 2005 Due: December 1, as shown on inside front cover Nm The Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and the Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), are being issued by € g the City of Fayetteville, Arkansas (the "City") for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement g N Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, •�= C W sewerage and related facilities, (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, c o „ and(v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF e 9 :a FUNDS," "REFUNDING PROGRAM" and 'THE PROJECT' herein. . The Series 2005 Bonds are issuable only as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The U Depository Trust Company ("DTC"), New York, New York, to which principal, premium, if any, and interest payments on the Series 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book-cntry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. c ti''j The Series 2005 Bonds shall bear interest from their dated date, payable on June I and December I of each year, commencing June 1, 2006. All such c interest payments shall be payable to the persons in whose name such Series 2005 Bonds are registered on the bond registration books maintained by Simmons !+ IE *a First Trust Company, N.A., Pine Bluff, Arkansas as trustee (the 'Trustee"), as of the fifteenth day of the calendar month preceding the calendar month in E O �' which the applicable interest payment date falls. Principal of and premium, if any, on the Series 2005 Bonds shall be payable at the principal corporate trust 8 ' office of the Trustee. So long as DTC or its nominee is the registered owner of the Series 2005 Bonds, disbursement of such payments to DTC Participants is S . 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. „ a � Pursuant to a Trust Indenture dated as of November 1, 2005 (the "Indenture"), between the City and the Trustee, the payment of the principal of, S g premium, if any, and interest on the Series 2005 Bonds is secured by a pledge of the receipts from a three-quarters of one percent (0.75%) city-wide sales and e o use tax (the "Sales and Use Tax"). See the caption "SECURITY FOR THE SERIES 2005 BONDS" herein. The Series 2005 Bonds are subject to mandatory rsa c. redemption prior to maturity as more fully described herein under the caption "THE SERIES 2005 BONDS - Redemption." - Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by separate financial guaranty insurance policies, one for � each series, to be issued by MBIA Insurance Corporation simultaneously with the delivery of the Series 2005 Bonds. 8 o �QV' The Series 2005 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2005 . o 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 2005 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any o appropriation for the payment of the Series 2005 Bonds, except as described herein with respect to the Sales and Use Tax. 9 '� The Series 2005 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 2005 S c 6 Bonds will be available for delivery in New York, New York, on or about November 29, 2005. tn V O Stephens Inc. v « The date of this Official Statement is November, 2005. • See the caption "RATINGS" herein. E e " Preliminary; subject to change. • MATURITY SCHEDULE*• Series 2005A Bonds Maturity Principal Interest Maturity Principal Interest (December 11 Amount Rate Yield (December 1) Amount Rate Yield 2006 $5,260,000 % % 2009 56,095,000 2007 5,635,000 2010 4,150,000 2008 5,860,000 Series 2005B Bonds Maturity Principal Interest Maturity Principal Interest member 1) Amount Rate Yield (December 1) Amount Rate Yield 2010 $2,185,000 % % 2013 $7,130,000 V. 2011 6,590,000 2014 7,415,000 2012 6,855,000 2015 7,690,000 $27,135,000 % Term Bonds due December 1,2019 —Yield: " (Plus accrued interest) CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook • Bobby Ferrell Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoads Brenda Thiel Stephen Davis, Finance and Internal Services Director David Jurgens, Water and 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 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 2005 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 2005 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 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 2005 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 • • Introductory Statement ......................................... The Series 2005 Bonds ......................................... Security for the Series 2005 Bonds ....................... Bond Insurance..................................................... Book -Entry Only System ...................................... TheProject............................................................. Refunding Program ............................................... Historical Sales and Use Tax Collections ............. Estimated Sources and Uses of Funds ................... Estimated Debt Service Requirements ................... Estimated Debt Service Coverage ......................... Projected Mandatory Redemptions ........................ TheCity................................................................. The Sales and Use Tax ........................................... Definitions of Certain Terms ................................. Summary of the Indenture ..................................... Summary of the Continuing Disclosure Agreement Underwriting.......................................................... TaxMatters............................................................ Ratings.................................................................... Legal Matters ...................................................................................................................... Miscellaneous..................................................................................................................... Accuracy and Completeness of Official Statement............................................................ APPENDIX A - Form of Bond Counsel Opinion............................................................... APPENDIX B - Specimen of Bond Insurance Policy........................................................ ...................................................4........ .................................0........4................. .............44..........0.0.0....................00.0...... ..............................................4.4.4......... ............................................................ ............................................................ ............................................................ ....................................4.................0..... Page 1 4 5 8 10 10 11 11 12 13 13 14 17 23 28 32 34 35 36 36 37 37 A-1 B -I 9 • [THIS PAGE LEFT BLANK INTENTIONALLY] • PRELIMINARY OFFICIAL STATEMENT • $27,000,000* CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $65,000,000* CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B 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 by the City of Fayetteville, Arkansas (the "City") of (i) Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in the principal amount of $27,000,000* (the "Series 2005A Bonds"), and (ii) Sales and Use Tax Capital Improvement Bonds, Series 2005B, in the principal amount of $65,000,000* (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). 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. & 2005 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 2005 Bonds are to be issued by the City pursuant to Amendment 62, the Act and Ordinance No. 4768, adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities (the "Project"), (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and "THE PROJECT" herein. The Series 2005 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"). Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by separate financial guaranty insurance policies (the "2005A Policy" and the "2005B Policy") to be issued by MBIA Insurance Corporation ("MBIA") simultaneously with the delivery of the Series 2005 Bonds. A specimen financial guaranty insurance policy is attached hereto as Appendix B. It is expected that, based on the commitment of MBIA to insure the Series 2005 Bonds, Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc. ("S&P"), will assign a rating of "AAA" to the Series 2005 Bonds. However, there is no guarantee that such rating will be received. See the captions "SECURITY FOR THE SERIES 2005 BONDS," "HISTORICAL SALES AND USE TAX COLLECTIONS," "BOND INSURANCE" and "RATINGS" herein. • The faith and credit of the City are not pledged to the payment of the Series 2005 Bonds, and the Series 2005 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 2005 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 2005 Bonds, except as described herein with respect to the Sales and Use Tax. * Preliminary; subject to change. The Series 2005 Bonds are subject to redemption from excess moneys in the Project Fund following completion of the Project and from Surplus Tax Receipts. So long as the Series 2005B Bonds are Outstanding, all • Surplus Tax Receipts shall be applied to the early redemption of the Series 2005B Bonds prior to their application to early redemption of the Series 2005A Bonds. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS." Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2005 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 2005 Bonds, the Sales and Use Tax, the Continuing Disclosure Agreement, and the Trust Indenture dated as of November 1, 2005 (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 2005 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 2005 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the forms of Series 2005A Bond and Series 2005B 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 2005 BONDS • Description. The Series 2005 Bonds will be initially dated as of November 1, 2005, and will bear interest payable semiannually on June 1 and December I of each year, commencing June 1, 2006, at the rates set forth on the cover page hereof. The Series 2005 Bonds will mature on December 1 in the years and in the principal amounts set forth on the cover page hereof. The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2005 Bonds shall be payable to the persons in whose name such Series 2005 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 2005 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 2005 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 2005 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. (a) The Series 2005A Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005A 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 Series 2005 Bonds, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. (b) The Series 2005B Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005B 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 Series 2005 Bonds, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts • shall be applied to the redemption of the Series 2005B Bonds prior to maturity. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. In the case of any defeasance of the Series 2005B Bonds, the dates of redemption, the principal amounts and the maturities of the Series 2005B Bonds to be redeemed will be determined by taking into consideration the mandatory redemption requirements set forth above and the Sales and Use Tax receipts for the most recent twelve months. (iii) The Series 2005B Bonds maturing on December 1, 2019, are subject to mandatory sinking fund redemption prior to maturity in part, selected by lot by the Trustee in such manner as it may determine, on December I in the years and amounts set forth below at a redemption price equal to the principal amount thereof plus accrued interest to the date of redemption, without premium. Year Principal Amount• 2016 $7,980,000 2017 $8,300,000 2018 $8,630,000 2019 (maturity) $2,225,000 At its option, to be exercised on or before the 45ih day next preceding any mandatory sinking fund redemption date for any Series 2005B Bonds maturing December 1, 2019 (the "Series 2005B Term Bonds"), the City may deliver to the Trustee for cancellation Series 2005B Term Bonds, or portions thereof ($5,000 or any integral multiple thereof), in any aggregate principal amount desired. Each such Series 2005B Term Bond, or portion thereof, so delivered or previously redeemed (otherwise than through mandatory sinking fund redemption) and canceled by the Trustee shall be credited by the Trustee at 100% of the principal amount thereof on the obligation of the City on such mandatory sinking fund redemption date, and any excess over such amount shall be credited on future mandatory sinking fund redemption obligations with respect to the Series 2005B Term Bonds in chronological order, and the principal amount of such Series 2005B Tenn • Bonds so to be redeemed shall be accordingly reduced. •Preliminary, subject to change. Partial Redemption of a Series 2005 Bond. If less than all of the Series 2005 Bonds of a series and maturity are called for redemption, the particular Series 2005 Bonds or portions of Series 2005 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 2005 Bonds, the procedures established by DTC shall control with respect to the selection of the particular Series 2005 Bonds to be redeemed. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2005 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 2005 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2005 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 2005 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. Transfer or Exchange. The Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds shall be without charge to the Holders of such Series 2005 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 Series 2005 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 Series 2005 Bond during the period from and including a Record Date to the next succeeding interest payment date of such Series 2005 Bond nor to transfer or exchange any Series 2005 Bond after the mailing of notice calling such Series 2005 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 2005 Bonds, transfers of beneficial interests in the Series 2005 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 SERIES 2005 BONDS General. The Series 2005 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 2005 Bonds pursuant to Ordinance No. 4768, duly adopted by the City Council of the City on October 4, 2005 (the "Authorizing Ordinance"). 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 Series 2005 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 2005 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 2005 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 the Series 2005 Bonds, there shall be • deposited into the appropriate Account within the Debt Service Reserve Fund an amount sufficient to cause the amounts on deposit therein to be equal to 5% of the aggregate principal amount of such series (the "Reserve Requirement"). Amounts on deposit in Accounts within the Debt Service Reserve Fund shall be used solely to pay the principal of and interest on the related series of Outstanding Series 2005 Bonds as due for which there are no available funds in the corresponding Account of the Bond Fund to make such payments. The Reserve Requirement may be satisfied by cash or by Investment Securities, including surety bonds. If the amount in an Account of 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 such Account of 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 Accounts and Principal Accounts of the Bond Fund, as provided in the Indenture). If a surplus shall exist in an Account of the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the corresponding Interest Account of the Bond Fund. Application has been made to MBIA Insurance Corporation ("MBIA") for the issuance of surety bonds for the purpose of funding the required portion of the Debt Service Reserve Fund for the Series 2005A Bonds (the "2005A Surety Bond") and for the Series 2005B Bonds (the "2005B Surety Bond," and together with the 2005A Surety Bond, the "Surety Bonds" ). The Series 2005 Bonds will only be delivered upon the issuance of the Surety Bonds. The premiums on the Surety Bonds are to be fully paid from the proceeds of the Series 2005 Bonds upon their issuance and delivery. The Surety Bonds provide that on the later of (i) three (3) days after receipt by MBIA of a demand for payment presented by the Trustee certifying that provision for the payment of principal of or interest on the Series 2005 Bonds when due has not been made or (ii) the payment date specified in the Demand for Payment submitted to MBIA, MBIA will promptly deposit funds sufficient to enable the Trustee to make such payments due on the Series 2005 Bonds, but in no event exceeding the applicable Surety Bond Coverage, as defined in the Surety Bonds. Pursuant to the terms of the each of the Surety Bonds, the applicable Surety Bond Coverage is automatically reduced to the extent of each payment made by MBIA under the terms of such Surety Bond, and the City is required to reimburse MBIA for any draws under such Surety Bond with interest at a market rate, subject to Arkansas usury limits. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the applicable Surety Bond Coverage. The reimbursement obligation of the City is subordinate to the City's obligations under the Indenture with respect to the Series 2005 Bonds. • In the event the amount on deposit in, or credited to, an Account of the Debt Service Reserve Fund exceeds the amount of the applicable Surety Bond, any draw on that Surety Bond shall be made only after all of the funds in such Account have been expended. The Surety Bonds do not insure against nonpayment caused by the insolvency or negligence of the Trustee or any Paying Agent. For information on MBIA, see the caption "BOND INSURANCE" herein. BOND INSURANCE The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix B for a specimen of MBIA's policy (the "MBIA Policy"). MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading "BOND INSURANCE". Additionally, MBIA makes no representation regarding the Series 2005 Bonds or the advisability of investing in the Series 2005 Bonds. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the City to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Series 2005 Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory • sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Series 2005 Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). • MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Series 2005 Bonds. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Series 2005 Bonds upon tender by an Owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the Series 2005 Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Series 2005 Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any Owner of a Series 2005 Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Series 2005 Bonds or presentment of such other proof of ownership of the Series 2005 Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Series 2005 Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such Owners of the Series 2005 Bonds in any legal proceeding related to payment of insured amounts on the Series 2005 Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such Owners or the Paying Agent payment of the insured amounts due on such Series 2005 Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims • against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's • current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Series 2005 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal • of any of the above ratings may have an adverse effect on the market price of the Series 2005 Bonds. MBIA does not guaranty the market price of the Series 2005 Bonds nor does it guaranty that the ratings on the Series 2005 Bonds will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005, MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory fmancial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the • "SEC") are incorporated by reference into this Official Statement: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Series 2005 Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's Quarterly Reports on Form 10- Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's web site at http://www.see.gov (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices. • BOOK -ENTRY ONLY SYSTEM • The Series 2005 Bonds will be issued only as one fully registered Series 2005 Bond for each maturity of each series, 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 2005 Bonds. The fully registered Series 2005 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 2005 Bonds. Owners of any book entry interests in the Series 2005 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2005 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 2005 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 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2005 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 2005 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 2005 Bonds, except in the event that use of the Book -Entry System for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 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 2005 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 2005 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005 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 2005 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 2005 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 2005 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 2005 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 2005 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 2005 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 2005 Bonds made to DTC or its nominee as the registered owner of the Series 2005 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 2005 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. • 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 12.6 million gallon per day advanced wastewater treatment plant and 33 wastewater pumping stations. These facilities serve an estimated population equivalent of 75,000 and transport an average daily flow of approximately 11 million gallons. Growth of the service area population and excess wet weather flows have consumed the available wastewater system capacity and have 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 new wastewater treatment plant with a capacity of 10 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 30 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 11.2 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 presently expected to be approximately $178 million. This cost estimate has been developed by the various design firms involved in the Project and includes allowances for inflation. Within the $178 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 construction schedule for the new wastewater treatment plant component of the Project anticipates commencement in the first quarter of 2006 and completion in the third quarter of 2008. Approximately $59 million of Project costs have previously been financed with proceeds of the City's $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002, and $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004. The remaining costs of the Project are expected to be financed by a combination of the Series 2005 Bonds and other bonds to be secured by City sales and use taxes (subject to approval by the voters of the City) and/or bonds to be secured by revenues of the City's water and sewer system. REFUNDING PROGRAM A portion of the proceeds of the Series 2005A Bonds and other available moneys will be used to accomplish an advance refunding of $34,225,000 outstanding principal amount of the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of December 1, 2004 (the "Series 2004 Bonds"). The Series 2004 Bonds were issued to finance a portion of the Project. Upon delivery of the Series 2005A Bonds, certain proceeds thereof will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an irrevocable Escrow Deposit Agreement (the "Escrow Agreement") between the City and the Escrow Trustee, and will be utilized, together with available bond fund and debt service reserve fund moneys, to defease the entire outstanding principal amount of the Series 2004 Bonds. The proceeds of the Series 2005A Bonds and other available moneys to be deposited with the Escrow Trustee will be held in trust for the owners of the Series 2004 Bonds and will be utilized to purchase United States Treasury obligations or held as cash, and will be sufficient, together with the investment earnings on such obligations, to pay the principal and interest due on the Series 2004 Bonds on their respective • maturity or redemption dates. After such deposit, the Series 2004 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. 10 The accuracy of (a) the arithmetical computations of the adequacy of the maturing principal amounts of the • United States Treasury obligations and uninvested cash on hand in the Series 2004 escrow account under the Escrow Agreement to pay, when due, the principal of and interest on the Series 2004 Bonds, and (b) the mathematical computations supporting the conclusion that the Series 2005A Bonds are not "arbitrage bonds" under Section 148 of the Code, will be verified by BKD, LLP, Fort Smith, Arkansas, independent certified public accountants. Such verification of mathematical accuracy and mathematical computations will be based upon the mathematical computations provided by the Underwriter. HISTORICAL SALES AND USE TAX COLLECTIONS Collection of the Sales and Use Tax commenced April 1, 2002. Set forth below is a table showing City sales and use tax receipts over the last eight years and for the ten-month period from January 1, 2005 to October 31, 2005. Sales and Use Tax receipts for the most recent twelve-month period (November 1, 2004 to October 31, 2005) were $11,334,802, an 8.7% increase from the previous twelve-month period (November 1, 2003 to October31, 2004). Historical Collections Year (0.75%) Growth Percentage 1997 $ 7,201,068['1 n/a 1998 7,833,820('1 8.78% 1999 8,238,781('1 5.17% 2000 8,685,643('1 5.42% 2001 8,951,902(�1 3.07% 2002 9,338,322('1 4.32% 2003 9,721,700(2) 4.11% 2004 10,637,825(2) 9.42% 2005 9,589,522('1 n/a • (1) Reflects 75% of the collections of the City's 1%general sales and use tax. (2) Reflects actual collections of the Sales and Use Tax. (3) Reflects actual collections of the Sales and Use Tax for the ten-month period from January 1, 2005 to October 31, 2005. ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series 2005A Bonds are expected to be used as follows: Sources of Funds(') Par Amount of Series 2005A Bonds $27,000,000 Net Reoffering Premium 516,159 Series 2004 Bond Fund and Debt Service Reserve Fund 11.350.676 Total Sources: $38.866.835 Uses of Funds(') Deposit to 2004 Escrow Fund $34,576,107 2005A Surety Bond Premium 21,600 2005A Bond Insurance Premium 67,687 Deposit to Project Fund 3,989,256 Costs of Issuance and Underwriter's Discount 212.185 Total Uses: $38.866.835 • Preliminary, subject to change. 11 The proceeds of the Series 2005B Bonds are expected to be used as follows: Sources of Funds(') Par Amount of Series 2005B Bonds $65,000,000 Net Reoffering Premium 81.945 Total Sources: $65.081.945 Uses of Funds(') Deposit to Project Fund $64,317,645 2005B Surety Bond Premium 52,000 2005B Bond Insurance Premium 201,485 Costs of Issuance and Underwriter's Discount 510.815 Total Uses: $65.081.945 Preliminary; subject to change. ESTIMATED DEBT SERVICE REQUIREMENTS As of the date of closing, the Series 2005 Bonds will constitute the only debt obligations secured by receipts of the Sales and Use Tax. The following table sets forth estimates of the amounts required to pay scheduled principal of and interest on the Series 2005 Bonds during each year: Series 2005A Series 2005A Series 2005B Series 2005B Total Debt Year Principal Interest(') Principal(2) Interest(') Service 2006 $5,260,000 $1,128,000 $ $ 2,676,115 $ 9,064,115 2007 • 5,635,000 869,600 - 2,562,238 9,066,838 2008 5,860,000 644,200 — 2,562,237 9,066,437 2009 6,095,000 409,800 — 2,562,238 9,067,038 2010 4,150,000 166,000 2,185,000 2,562,237 9,063,237 2011 — — 6,590,000 2,474,838 9,064,838 2012 — — 6,855,000 2,211,237 9,066,237 2013 — — 7,130,000 1,937,038 9,067,038 2014 — — 7,415,000 1,651,837 9,066,837 2015 — — 7,690,000 1,373,775 9,063,775 2016 — — 7,980,000 1,085,400 9,065,400 2017 — — 8,300,000 766,200 9,066,200 2018 — — 8,630,000 434,200 9,064,200 2019 2,225,000 89.000 2,314,000 Totals: $27.000.000 $3.217.600 $65.000.000 $24.948.590 S120.166.190 Preliminary; subject to change. Assuming for purposes of this Preliminary Official State, an average coupon rate on the Series 2005A Bonds of 4.000% per annum and an average coupon rate on the Series 2005B Bonds of 3.943%. per annum. (2) Includes mandatory sinking fund redemption. • 12 ESTIMATED DEBT SERVICE COVERAGE • The following table shows estimated maximum annual debt service coverage with respect to the Series 2005 Bonds utilizing the most recent twelve months of Sales and Use Tax receipts. Historical Sales and Use Tax Receipts(') $11,334,802 Maximum Annual Debt Service Requirement on Series 2005 Bondstrl $ 9,067,038 Maximum Annual Debt Service Coverage 1.25X 0J Sales and Use Tax receipts for the twclve-month period from November 1, 2004 to October 31, 2005. (2) Preliminary; subject to change. 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 SERIES 2005 BONDS WILL APPROXIMATE SUCH HISTORICAL RESULTS. PROJECTED MANDATORY REDEMPTIONS The table under the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" does not reflect possible mandatory redemptions of the Series 2005 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 Series 2005 Bonds, (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(t) of the Code, and (iv) to pay Trustee and Paying Agent fees and expenses. So long as any of the Series 2005B Bonds are Outstanding, all Surplus Tax Receipts are required to be used to redeem Series 2005B Bonds prior to maturity. Upon final • maturity or redemption in whole of the Series 2005B Bonds and for so long as any of the Series 2005A Bonds are Outstanding, Surplus Tax Receipts are required to be used to redeem Series 2005A Bonds prior to maturity. IT IS NOT EXPECTED THAT ANY OF THE SERIES 2005A BONDS WILL BE REDEEMED PRIOR TO MATURITY FROM SURPLUS TAX RECEIPTS. 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. Series 2005A and Series 2005A Bonds Series 2005B Bonds Total Series 2005A and Year Ending Series 2005B Redeemed Prior to Redeemed Prior to Series 2005B December 1 q Principal Due Maturity:> Maturity(2R3) Principal Retired 2006 $ 5,260,000 $ -0- $ 1,460,000 $6,720,000 2007 5,635,000 -0- 2,325,000 7,960,000 2008 5,860,000 -0- 2,420,000 8,280,000 2009 6,095,000 -0- 2,515,000 8,610,000 2010 6,335,000 -0- 2,620,000 8,955,000 2011 6,590,000 -0- 2,725,000 9,315,000 2012 6,855,000 -0- 2,830,000 9,685,000 2013 7,130,000 -0- 2,945,000 10,075,000 2014 7,415,000 -0- 3,060,000 10,475,000 2015 7,690,000 -0- 3,190,000 10,880,000 2016 1.045.000 -0- -0- 1.045.000 t ttI ttz1IWIXII,I, III III rrr Series 2005 Bonds are subject to mandatory redemption from Surplus Tax Receipts on each June I and December 1. See the caption "THE SERIES 2005 BONDS — Redemption" herein. • R) Assuming Sales and Use Tax receipts of S 11,334,802 for each of the twelve month periods ending December 31, 2006 through 2016. P) Projected mandatory redemptions related to Series 2005B Term Bonds maturing December 1, 2019. 13 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 comer 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. The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Coody Mayor 12/31/08 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/08 Kyle Cook Alderman 12/31/06 Lioneld Jordan Alderman 12/31/08 Don Marr Alderman 12/31/08 Robert Reynolds Alderman 12/31/06 Shirley Lucas Alderman 12/31/06 Brenda Thiel • Alderman 12/31/08 Robert Rhoads Alderman 12/31/06 Bobby Ferrell Alderman 12/31/08 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 30,729 127,846 1,923,322 1980 36,608 178,609 2,286,435 1990 42,099 210,908 2,350,624 2000 58,047 311,121 2,673,400 • 14 Economic Data. Per capita personal income figures for the MSA and the State of Arkansas are as follows: Stateof Year • MSA Arkansas 1992 $18,260 $16,425 1993 18,765 16,995 1994 19,590 17,750 1995 20,193 18,546 1996 20,870 19,442 1997 21,586 20,228 1998 22,893 21,256 1999 24,213 22,223 2000 23,316 21,995 2001 24,585 22,750 2002 24,788 23,556 2003 25,359 24,384 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 $1,880,105,000 $16,997,721,000 11.06% 1994 2,217,229,000 19,090,516,000 11.61 1995 2,486,425,000 20,998,923,000 11.84 1996 2,692,554,000 22,053,022,000 12.21 1997 • 2,845,968,000 22,872,236,000 12.44 1998 3,018,896,000 23,944,647,000 12.61 1999' n/a n/a n/a 2000 3,526,791,000 28,488,033,000 12.38 2001 3,806,422,000 29,652,693,000 12.84 2002 3,841,326,000 29,269,775,000 13.12 2003 3,968,812,000 29,920,716,000 13.26 2004 4,610,051,000 31,463,983,000 14.65 Methodology changed to calendar year basis. No reliable information is available for 1999.. Source: Sales and Marketing Management Survey of Buying Power. I 15 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 340,593,452 101,274,620 441,868,072 1996 359,369,202 113,157,365 472,526,567 1997 382,798,143 120,064,627 502,862,770 1998 401,001,338 127,575,096 528,576,434 1999 413,648,415 137,404,499 551,052,914 2000 432,951,171 145,147,891 578,099,062 2001 486,853,822 155,794,579 642,648,401 2002 541,004,690 158,688,783 699.693,473 2003 565,846,525 167,638,657 733,485,182 2004 649,361,820 183,102,702 832,464,522 Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the City' are shown below for the years indicated: 2001 2002 2003(�) 2004 Residential Building 339 328 735 755 Permits Commercial Building 38 35 31 29 Permits Value of All Building Permits $85,262,302 $100,809,486 $179,007,987 $164,695,359 • (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. 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 3.6 5.7 2005* 2.9 4.8 * August, 2005 only, preliminary. 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 2005 of approximately 17,821. For the 2005-06 fiscal year ending June 30, 2006, the University has an operating budget in excess of $228 million, which does not include the agricultural • experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately 3,600 faculty, administrative, secretarial, clerical and maintenance personnel in both full-time and part-time positions, making the University the largest employer in the City. 16 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 Corporation Frozen Dinners 1,000-2,499 Superior Industries Cast Aluminum Wheels 1,000-2,499 Washington Regional Medical Medical 1,000-2,499 Center Fayetteville School Disstrict Education 500-999 Tyson Foods, Inc. 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 & Hot Mix 300-499 Veterans Admin. Med. Ctr. Medical 300-499 Wal-Mart Supercenter Retail 300-499 Washington County Gov't. Government 300-499 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 2005 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; provided, however, sales taxes are not levied on services purchased by radio or television providers for use in providing their 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; 17 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 firs; service of providing indoor tanning at a tanning salon; wrecker and towing services; service of collecting and disposing of solid waste; parking lot and gutter cleaning services; dry cleaning and laundry services; industrial laundry services; mini warehouse and self storage rental services; body piercing, tattooing and electrolysis services; pest control services; security and alarm monitoring services; boat storage and docking fees; furnishing campground spaces or trailer spaces at public or privately owned campgrounds, except for federal campgrounds, on less than a month -to -month basis; locksmith services; pet grooming and kennel services; and the new installation and replacement labor for hardwood, vinyl, ceramic tile or other types of flooring; and (vi) Initial installation services relating to motor vehicles, aircraft, farm machinery and implements, motors of all kinds, tires and batteries, boats, electrical appliances and devices, furniture, rugs, flooring, upholstery, household appliances, television and radio, 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; provided, however, if the item being installed is specifically exempted from the imposition of the sales tax, the service of installation will also be exempt; • (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; (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; (h) Orders by telegraph, telephone or other ,means of communication transmitted by florists; (i) Sales of beer, wine, liquor or any intoxicating beverages; (j) Proceeds derived from the operation or use of coin -operated pinball machines, coin -operated music machines, coin -operated mechanical games, and similar devices; (k) Contracts, including service contracts, maintenance agreements and extended warranties, which in whole or in part provide for the future performance of or payment for services which are subject to the sales tax; (l) Receipts derived from the retail sale of any device used in playing bingo and any charge for admittance to facilities or for the right to play bingo or other games of chance regardless of whether such activity might otherwise be permitted by law; and (m) The first $50,000 of the purchase price from the sale of machinery or equipment and related • attachments that are sold to or used by a person engaged primarily in the harvesting of timber. 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 certain set dollar amounts; (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; (f) 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 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, to the Arkansas Future Farmers of America Foundation and the Arkansas Future Farmers of America Association, to qualified museums and to the Arkansas Symphony Orchestra, Inc.; (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; (j) 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 19 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; (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; (jj) Feedstuffs used in the commercial production of livestock or poultry; (kk) New and used mobile homes and custom manufactured homes; (II) 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 and wall and floor tile manufacturers; (oo) Electricity used for the production of chlorine and other chemicals using a chlor-alkali manufacturing process; 20 (pp) Tangible personal property lawfully purchased with food stamps, food coupons, food instruments or vouchers in connection with certain Federal programs; (qq) Publications sold through regular subscriptions; (rr) 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; (ss) Prescriptive durable medical equipment, mobility enhancing equipment and prescriptive disposable medical equipment; (tt) Insulin and test strips for testing blood sugar levels in humans; (uu) Telephone instruments sent into the State for refurbishing or repair and then shipped back to the state of origin; (w) Industrial metal rollers sent into the State for repair or remanufacture and then shipped back to the state of origin; (ww) 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; (xx) 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; (yy) Parts or other tangible personal property incorporated into or which become a part of commercial jet aircraft component or subcomponent; (zz) Transfer of fill material by a business engaged in transporting or delivering fill material; • (aaa) Long-term leases, thirty days or more, of commercial trucks used for interstate transportation of goods under certain conditions; (bbb) Foodstuffs to nonprofit agencies; (ccc) 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; (ddd) Natural gas used as a fuel in the process of manufacturing glass; (eee) Sales to Fort Smith Clearinghouse; (fff) Substitute fuel used in producing, manufacturing, fabrication, assembling, processing, finishing or packaging of articles at manufacturing facilities or processing plants in the State; (ggg) Railroad rolling stock used in transporting persons or property in interstate commerce; (hhh) 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; (iii) 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; (ijj) Gas produced from biomass and sold for the purpose of generating energy to be sold to the gas producer; (kick) Parts or other tangible personal property incorporated into or which become part of commercial jet aircraft components or subcomponents; • (111) Catalysts, chemicals, reagents and solutions which are consumed or used in producing, manufacturing, processing or finishing articles of commerce at manufacturing or processing plants in the State; 21 (mmm) Fuel packaging materials sold to persons engaged in the business of processing hazardous and non -hazardous waste materials into fuel products; • (nnn) Instructional materials used in public schools; and (000) Livestock reproduction equipment and substances used in livestock reproduction. 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 fuel) 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; • (0 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; (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; (f) Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, • processing, finishing 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, 22 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) Modular 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; (j) 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 $2,500; 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 Revenues of the State (the "Commissioner") 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 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 Series 2005 Bonds. DEFINITIONS OF CERTAIN TERMS The following are definitions of certain teens 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 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "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 Series 2005 Bonds, 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 the Series 2005 Bonds or from sources other than Sales and Use Tax receipts. 23 "Authorized Representative" means either the Mayor or the Finance and Internal Services Director of the City and such additional persons as from time to time maybe 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. 4768, adopted by the City on October 4, 2005, which authorized the issuance of the Series 2005 Bonds pursuant to the Indenture. "Beneficial Owner" means any Person who acquires beneficial ownership interest in a Series 2005 Bond held by the Securities Depository. In determining the Beneficial Owner of any Series 2005 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 Series 2005 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. "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. "Closing Date" means the date upon which there is an exchange of the Series 2005 Bonds for the proceeds representing the purchase price thereof 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 the Continuing Disclosure Agreement between the City and the Trustee, dated the date of issuance and delivery of the Series 2005 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 Series 2005 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 Series 2005 Bonds, costs of execution, transportation and safekeeping of the Series 2005 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 Series 2005 Bonds, 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 Series 2005 Bonds, 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 Series 2005 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 Cif 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 Series 2005 Bonds" means the registered owner of any Series 2005 Bond. "Indenture" means the Trust Indenture dated as of November 1, 2005, between the City and the Trustee, pursuant to which the Series 2005 Bonds are issued, and any 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 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; and (f) other forms of investments approved in writing by MBIA, including the 2005A Surety Bond and the 2005B Surety Bond. "Mayor" means the person holding the office and performing the duties of the Mayor of the City. "MBIA" means MBIA Insurance Corporation, the issuer of the 2005A Policy, the 2005B Policy, the 2005A Surety Bond and the 2005B Surety Bond. "Original Purchaser" means the first purchaser(s) of a series of the Series 2005 Bonds from the City. "Outstanding" means, as of any date of computation, Series 2005 Bonds theretofore or thereupon being delivered under the Indenture, except: (a) Series 2005 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) Series 2005 Bonds deemed to be paid in accordance with Article VII of the Indenture; and • (c) Series 2005 Bonds in lieu of or in exchange or substitution for which other Series 2005 Bonds shall have been authenticated and delivered pursuant to the Indenture. 25 "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 Series 2005 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. "2005A Policy" means the financial guaranty insurance policy to be issued by MBIA with respect to the Series 2005A Bonds. "2005B Policy" means the financial guaranty insurance policy to be issued by MBIA with respect to the Series 2005B Bonds. "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 Series 2005 Bonds prior to and during construction of the Project, including all amounts required by the Indenture to be paid from the proceeds of the Series 2005 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; (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. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 Series 2005 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: FM (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, with respect to each series of Series 2005 Bonds, an amount equal to 5% of the original principal amount of such series of Series 2005 Bonds. For all purposes of the Indenture, the Reserve Requirement may be satisfied by the deposit of cash or by the deposit of Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. "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 Series 2005 Bonds. "Securities Depository" means The Depository Trust Company, New York, New York, or its nominee, and its successors and assigns, or any other depository institution appointed by the City or the Trustee to act as depository for the Series 2005 Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. • "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued in the original aggregate principal amount of $27,000,000*. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued in the original aggregate principal amount of $65,000,000*. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture. "2005A Surety Bond" means the surety bond issued by MBIA guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "2005B Surety Bond" means the surety bond issued by MBIA guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "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 that Tax Regulatory Agreement of the City relating to maintenance of the excludability of interest on the Series 2005 Bonds from gross income for federal income tax purposes, delivered in connection with the issuance of the Series 2005 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. • ________ * Preliminary; subject to change. 27 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 Administrative 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 Series 2005 Bonds. The following Funds and Accounts have been established with the Trustee in connection with the Series 2005 Bonds: Bond Fund, and a 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein 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 Series 2005 Bonds, 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 Series 2005 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, commencing no later than December 31, 2005, there shall be transferred from the Revenue Fund (i) into the Series 2005A Interest Account and the Series 2005B Interest Account of the Bond Fund, an amount equal to 1/6 of the interest on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next interest payment date, and (ii) into the Series 2005A Principal Account and the Series 2005B Principal Account of the Bond Fund, an amount equal to 1/12 of the principal on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next principal payment date. Moneys in the Bond Fund shall be used solely for the purpose of paying Annual Debt Service on the Series 2005 Bonds or for redemption of the Series 2005 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 Series 2005 Bonds then Outstanding in accordance with the Indenture, together with the required fees and expenses to be paid or 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 SERIES 2005 BONDS — Debt Service Reserve" herein. (d) 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 Series 2005 Bonds. 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 Series 2005 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 Series 2005 Bond is redeemed, shall be transferred to the Revenue Fund. (e) 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 appropriate Principal Account(s) of the Bond Fund at such times as may be necessary to effectuate redemptions of the Series 2005 Bonds on the first available redemption date. All Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS" herein. (t) Project Fund. A portion of the proceeds of the Series 2005 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. Moneys in the Series 2005A Account of the Project Fund shall be fully disbursed prior to any disbursements from the Series 2005B Account of the Project Fund. Within ninety (90) days following completion of the portion of the Project being financed with the Series 2005 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 Accounts within the Project Fund (save and except moneys needed to satisfy unpaid Project Costs) to the Redemption Fund for application to the retirement of the corresponding series of Series 2005 Bonds by redemption or purchase. See the caption "THE SERIES 2005 BONDS — Redemption" herein. (g) Cost of Issuance Fund. A portion of the proceeds of the Series 2005 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 the • Series 2005 Bonds, any remaining moneys in the Cost of Issuance Fund shall be transferred to the Interest Accounts of the Bond 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. 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. 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 ofFurther 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. 29 Tax Covenants. The City shall not use or permit the use of any Series 2005 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 Series 2005 Bond from gross income for federal income tax purposes. No part of the proceeds of the Series 2005 Bonds shall at any time be used, directly or indirectly, to acquire securities or obligations the acquisition of which would cause any of such Series 2005 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 Series 2005 Bonds remain Outstanding, it will comply with the provisions of the Tax Regulatory Agreement. Defeasance. Any Series 2005 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 Series 2005 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 Series 2005 Bonds or cause any of the Series 2005 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 Series 2005 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. In the case of any defeasance of Series 2005 Bonds, the dates of redemption of such Series 2005 Bonds and the principal amounts and maturities of Series 2005 Bonds to be redeemed on such dates will be determined by taking into consideration the applicable redemption requirements with respect to the Series 2005 Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. 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 Series 2005 Bond; • (b) Default in the due and punctual payment of the principal of or premium, if any, on any Series 2005 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 Series 2005 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 Series 2005 Bonds then Outstanding, unless the Trustee, or the Trustee and Holders of an aggregate principal amount of Series 2005 Bonds not less than the aggregate principal amount of Series 2005 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; (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 Series 2005 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 Series 2005 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 Series 2005 Bonds Outstanding shall, by notice in writing delivered to the City, declare the principal of all Series 2005 Bonds then Outstanding, together with any 30 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 Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds issued under the Indenture to the respective Holders thereof at the time and place in said Series 2005 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; 31 (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 make such additions, deletions or modifications as may be necessary to assure compliance with Section 148(1) 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 Series 2005 Bonds; or (g) 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) or (e) above and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Supplemental Indentures Requiring Consent ofBondholders. 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 Series 2005 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 Series 2005 Bond issued thereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Series 2005 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 Series 2005 Bond or Bonds over any other Series 2005 Bond or Bonds, or (e) a reduction in the aggregate principal amount of the Series 2005 Bonds required for consent to such Supplemental Indenture, or (f) depriving the • Holder of any Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 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 2005 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, 2006, provide to each • Repository and the Trustee its Annual Financial Information consistent with the requirements of subsection (d) below. 32 (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 ("GASH") 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 2005 Bonds; (vii) Modifications to rights of Bondowners; (viii) Series 2005 Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2005 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 2005 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2005 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 person" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2005 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. 33 "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 2005 Bonds, including Persons holding Series 2005 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 2005 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 2005 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2005 Bonds. • UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), (i) the Series 2005A Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005A Bonds plus a net reoffering premium of $ and less an underwriting discount of $) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005A Bonds, and (ii) the Series 2005B Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005B Bonds plus a net reoffering premium of $ and less an underwriting discount of $) ) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005B Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2005 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2005 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 2005 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 2005 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 2005 Bonds to the public, and may offer the Series 2005 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 2005 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 and to exclude from the scope of the agreement any financial advisory services relating to the Series 2005 • Bonds. 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 third preceding paragraph. 34 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 2005 Bonds is excluded from the 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 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. Notwithstanding Bond Counsel's opinion that interest on the Series 2005 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 their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Series 2005 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2005 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 2005 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 2005 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 2005 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 2005 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 2005 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. Original Issue Discount. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Discount Bonds") are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as described above. The amount of original issue discount which is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of any particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual • compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. 35 Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Original Issue Premium. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Premium Bonds") are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser's yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser's basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. State Taxes. Bond Counsel is of the opinion that, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2005 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 2005 Bonds the rating of "AAA" based on the delivery of the 2005A Policy and the 2005B Policy by MBIA and has assigned an underlying rating of "AA-" to the Series 2005 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 2005 Bonds. Neither the City nor the Underwriter has undertaken any responsibility subsequent to the issuance of the Series 2005 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 2005 Bonds. LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2005 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 2005 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 2005 Bonds or questioning or affecting the legality of the Series 2005 Bonds or the proceedings and authority under which the Series 2005 Bonds are to be issued, or questioning the right of the City to issue the Series 2005 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 Sales and Use Tax or the City's ability to pay debt service with respect to the Series 2005 Bonds. • 36 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 2005 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. • 37 The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, Arkansas. 0 CITY OF FAYETTEVILLE, ARKANSAS Mayor • • 38 APPENDIX A Proposed Form of Bond Counsel Opinion Upon delivery of the Series 2005 Bonds in definitive form, Kutak Rock LLP, Little Rock, Arkansas, proposes to deliver its approving opinion in substantially the following form: November_, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000* City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds • Series 2005A and $65,000,000* City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000* Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000* Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§ 14-164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 1, 2005 (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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 Bonds are issued and secured. • 'Preliminary; subject to change. 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: I. 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. A-2 It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the • enforceability of the Series 2005 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, • • A-3 APPENDIX B FINANCIAL GUARANTY INSURANCE POLICY 41 MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] I• VI • III III I I. I • •III I Ii : I I I':I I I VIr I I ¶lnclE. 1\I I II• IIY.• • ::, I .'I II• 1:,Y I:I II _a riJILl1 I•• I:I. illI'. I•- Jf%. w I I I'4 V ••:- I1- • _1 I .I 1 :• 1 I-ILl r 'It' ❑. I ' I .Ir :I .0 I • ..I •' r I .I . I.I 'M I \I • 1 tib f .I 1 : I 1 1. V ll 1:II' I I:4I:\II• I' I \:I' I. 1 I •I.II•II I.I✓• I IJ •JI •I .0,1,,':I: III I•• i.11 :, 11.11 I'Y I II J nI •i 1 .1 I • rik I . 1 \ • I I: 1 IC 4 • K . .:• "• I'st• V I . I . V I :, 1: : 14 I• I III •1 I •.• :I ..1 1•: I• 1 V .\. 1 I I i, 1' I 4 IIrGIIII I< rILi•:1 .1 II 1 1 .\\' :.II 1?th1 II • •iV I.:•V:•I :I I ItwW II.. JJ :II 11 I•I'•: IIYII I.IV Ii •IIII:,. I1YfIV•1 J1• ✓• .rn 4 • 1..:, 1 1 I I H:1 .•" :1 1 1 I :•1 1 I:• • • 1 4 �• 1pI J. tJ [_ ARl [LEGAL NAME OF IISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured ounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the tam "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street Armonk, New York 10504 and such service of process stall be valid and binding This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR]. MBIA Insurance Corporation N e • Attest Assistant Secretary STD -R-7 01105 B -I KUTAK ROCK LLP DRAFT 11/11/05 OFFICIAL STATEMENT NEW ISSUE BOOK -ENTRY ONLY "RATINGS: S&P "AAA" (Underlying "AA-") (MBIA Insured) In the opinion of Kutak Rock 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 2005 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. Under existing laws, regulations, rulings and judicial decisions, Bond Counsel is of the opinion that the Series 2005 Bonds and the interest thereon are exempt from all state, county and municipal taxes in the State ofArkansas. For a more complete description, see the caption "TAXMA TTERS"herein. $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B Dated: November 15, 2005 Due: December 1, as shown on inside front cover The Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and the Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), are being issued by the City of Fayetteville, Arkansas (the "City") for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities, (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and "THE PROJECT"' herein. The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. The Series 2005 Bonds shall bear interest from their dated date, payable on June I and December I of each year, commencing June 1, 2006. All such interest payments shall be payable to the persons in whose name such Series 2005 Bonds are registered on the bond registration books maintained by Simmons First Trust Company, N.A., Pine Bluff, Arkansas as trustee (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 2005 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 2005 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 November 15, 2005 (the "Indenture"), between the City and the Trustee, the payment of the principal of, premium, if any, and interest on the Series 2005 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"). See the caption "SECURITY FOR THE BONDS" herein. Assuming the satisfaction of certain coverage tests, the City has reserved the right to incur up to $20,000,000 of additional indebtedness to be secured on a parity basis with the Series 2005 Bonds. See the caption "THE SERIES 2005 BONDS — Additional Bonds and RLF Loans" herein. The Series 2005 Bonds are subject to mandatory redemption prior to maturity as more fully described herein under the caption "THE SERIES 2005 BONDS - Redemption." Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by separate financial guaranty insurance policies, one for each series, to be issued by MBIA Insurance Corporation simultaneously with the delivery of the Series 2005 Bonds. M01f The Series 2005 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2005 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 2005 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 2005 Bonds, except as described herein with respect to the Sales and Use Tax, The Series 2005 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 2005 Bonds will be available for delivery in New York, New York, on or about November 29, 2005. Stephens Inc. The date of this Official Statement is November 3, 2005. See the caption "RATINGS" herein. MATURITY SCHEDULE Series 2005A Bonds Maturity Principal Interest Maturity Principal Interest (December I Amount Rate Yield (December I1 Amount Rate Yield 2006 $4,415,000 3.500% 3.150% 2008 $6,110,000 4.000% 3.350% 2006 1,975,000 3.150% 3.150% 2008 900,000 3.350% 3.350% 2007 5,940,000 4.000% 3.250% 2009 6,260,000 4.000% 3.450% 2007 800,000 3.250% 3.250% 2009 600,000 3.450% 3.450% Series 2005B Bonds Maturity Principal Interest Maturity Principal Interest (December I) Amount Rate Yield (December I) Amount Rate Yield 2009 $ 430,000 4.000% 3.450% 2011 $7,430,000 4.000% 3.800% 2010 6,655,000 4.000% 3.650% 2011 455,000 3.800% 3.800% 2010 925,000 3.650% 3.650% $29,105,000 4.000%Term Bonds due December 1, 2015 — Yield: 4.000% (Plus accrued interest) CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bobby Ferrell Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoads Brenda Thiel Stephen Davis, Finance and Internal Services Director David Jurgens, Water and 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 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 2005 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 2005 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 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 2005 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 Refunding Program........................................................................ Historical Sales and Use Tax Collections ....................................... Sources and Uses of Funds............................................................. Debt Service Requirements............................................................ Pctimntprl tlnht SPNira r'nvnrnnn -.�b�. ...........................................................4.44444.46..........................4.4.4.4............................4444............. Miscellaneous.......4........................4.444.4444444.4..............................4.444...........................6.6..666................. Accuracy and Completeness of Official Statement...................................4.444.4................................... APPENDIX A - Form of Bond Counsel Opinion ...... APPENDIX B - Specimen of Bond Insurance Policy ................ 36 .........6.46666 36 ................ 37 ...........666666.66.......................6666............... A-1 ..........6666................................66.........4.4.4 B-1 [THIS PAGE LEFT BLANK INTENTIONALLY] OFFICIAL STATEMENT $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B 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 by the City of Fayetteville, Arkansas (the "City") of (i) Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in the principal amount of $27,000,000 (the "Series 2005A Bonds"), and (ii) Sales and Use Tax Capital Improvement Bonds, Series 2005B, in the principal amount of $45,000,000 (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). 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. & 2005 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 2005 Bonds are to be issued by the City pursuant to Amendment 62, the Act and Ordinance No. 4768, adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities (the "Project"), (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and "THE PROJECT" herein. The Series 2005 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"). Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by separate financial guaranty insurance policies (the "2005A Policy" and the "2005B Policy") to be issued by MBIA Insurance Corporation ("MBIA") simultaneously with the delivery of the Series 2005 Bonds. A specimen financial guaranty insurance policy is attached hereto as Appendix B. It is expected that, based on the commitment of MBIA to insure the Series 2005 Bonds, Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc. ("S&P"), will assign a rating of "AAA" to the Series 2005 Bonds. However, there is no guarantee that such rating will be received. See the captions "SECURITY FOR THE BONDS," "HISTORICAL SALES AND USE TAX COLLECTIONS," "BOND INSURANCE" and "RATINGS" herein. The faith and credit of the City are not pledged to the payment of the Series 2005 Bonds, and the Series 2005 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 2005 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 2005 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 2005 Bonds under certain circumstances set forth in the Indenture (hereinafter defined). The Series 2005 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 Additional Bonds and RLF Loans that may be issued or incurred is limited to $20,000,000. See the caption "THE SERIES 2005 BONDS — Additional Bonds and RLF Loans" herein. The Series 2005 Bonds are subject to redemption from excess moneys in the Project Fund following completion of the Project and from Surplus Tax Receipts. So long as the Series 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the early redemption of the Series 2005B Bonds. Following payment in full of the Series 2005B Bonds, Surplus Tax Receipts shall be applied in the following order of priority: first, to redemption of Additional Bonds, if any; second, to prepayment of any RLF Loans; and third, to redemption of the Series 2005A Bonds. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS." Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2005 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 2005 Bonds, the Sales and Use Tax, the Continuing Disclosure Agreement, and the Trust Indenture dated as of November 15, 2005 (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 2005 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 2005 Bonds are qualified in their entirety by reference to the defmitive forms thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the forms of Series 2005A Bond and Series 2005B 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 2005 BONDS Description. The Series 2005 Bonds will be initially dated as of November 15, 2005, and will bear interest payable semiannually on June 1 and December 1 of each year, commencing June 1, 2006, at the rates set forth on the cover page hereof. The Series 2005 Bonds will mature on December 1 in the years and in the principal amounts set forth on the cover page hereof. The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2005 Bonds shall be payable to the persons in whose name such Series 2005 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 2005 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 2005 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 2005 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. (a) The Series 2005A Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005A 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 Series 2005 Bonds, (ii) maintain the Debt Service Reserve Fund in an amount equal to the Reserve Requirement, (iii) pay any arbitrage rebate due under Section 148(O 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. (b) The Series 2005B Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005B 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 Series 2005 Bonds, (ii) maintain the Debt Service Reserve Fund in an amount equal to the Reserve Requirement, (iii) pay any arbitrage rebate due under Section 148(O 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. In the case of any defeasance of the Series 2005B Bonds, the dates of redemption, the principal amounts and the maturities of the Series 2005B Bonds to be redeemed will be determined by taking into consideration the mandatory redemption requirements set forth above and the Sales and Use Tax receipts for the most recent twelve months. (iii) The Series 2005B Bonds maturing on December 1, 2015, are subject to mandatory sinking fund redemption prior to maturity in part, selected by lot by the Trustee in such manner as it may determine, on December 1 in the years and amounts set forth below at a redemption price equal to the principal amount thereof plus accrued interest to the date of redemption, without premium. Year Principal Amount 2012 $8,200,000 2013 $8,530,000 2014 $8,870,000 2015 (maturity) $3,505,000 At its option, to be exercised on or before the 45'" day next preceding any mandatory sinking fund redemption date for any Series 2005B Bonds maturing December 1, 2015 (the "Series 2005B Term Bonds"), the City may deliver to the Trustee for cancellation Series 2005B Term Bonds, or portions thereof ($5,000 or any integral multiple thereof), in any aggregate principal amount desired. Each such Series 2005B Term Bond, or portion thereof, so delivered or previously redeemed (otherwise than through mandatory sinking fund redemption) and canceled by the Trustee shall be credited by the Trustee at 100% of the principal amount thereof on the obligation of the City on such mandatory sinking fund redemption date, and any excess over such amount shall be credited on future mandatory sinking fund redemption obligations with respect to the Series 2005B Term Bonds in chronological order, and the principal amount of such Series 2005B Term Bonds so to be redeemed shall be accordingly reduced. Partial Redemption of a Series 2005 Bond. If less than all of the Series 2005 Bonds of a series and maturity are called for redemption, the particular Series 2005 Bonds or portions of Series 2005 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 2005 Bonds, the procedures established by DTC shall control with respect to the selection of the particular Series 2005 Bonds to be redeemed. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2005 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 2005 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2005 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 2005 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 2005 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 2005 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 average 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 average Annual Debt Service on all the Outstanding Bonds and any RLF Loan theretofore incurred, plus the average 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 $20 million in order to obtain a portion of the additional funds needed to complete the acquisition, construction and equipping of the Project. The RLF Loan may, but need not, be structured in the form of an Additional Bond or Bonds. Pursuant to the Indenture, the maximum principal amount of Additional Bonds and RLF Loans that may be issued or incurred is limited to $20,000,000. 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 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 2005 Bonds, transfers of beneficial interests in the Series 2005 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 2005 Bonds pursuant to Ordinance No. 4768, duly adopted by the City Council of the City on October 4, 2005 (the "Authorizing Ordinance"). 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 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 Sales and Use Tax. Debt Service Reserve. From the proceeds of sale of each series of the Series 2005 Bonds, there shall be deposited into the appropriate Account within the Debt Service Reserve Fund an amount sufficient to cause the amounts on deposit therein to be equal to 5% of the aggregate principal amount of such series (the "Reserve Requirement"). Amounts on deposit in Accounts within the Debt Service Reserve Fund shall be used solely to pay the principal of and interest on the related series of Outstanding Series 2005 Bonds as due for which there are no available funds in the corresponding Account of the Bond Fund to make such payments. The Reserve Requirement may be satisfied by cash or by Investment Securities, including surety bonds. If the amount in an Account of 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 such Account of 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 Accounts and Principal Accounts of the Bond Fund, as provided in the Indenture). If a surplus shall exist in an Account of the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the Interest Account of the Bond Fund. Application has been made to MBIA Insurance Corporation ("MBIA") for the issuance of surety bonds for the purpose of funding the required portion of the Debt Service Reserve Fund for the Series 2005A Bonds (the "2005A Surety Bond") and for the Series 2005B Bonds (the "2005B Surety Bond," and together with the 2005A Surety Bond, the "Surety Bonds" ). The Series 2005 Bonds will only be delivered upon the issuance of the Surety Bonds. The premiums on the Surety Bonds are to be fully paid from the proceeds of the Series 2005 Bonds upon their issuance and delivery. The Surety Bonds will provide that upon notice from the Trustee to MBIA to the effect that insufficient amounts are on deposit in the Bond Fund to pay the principal (at maturity or pursuant to mandatory redemption requirements) and interest on the Series 2005 Bonds, MBIA will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the Series 2005 Bonds or the available amount of the applicable Surety Bond, whichever is less. Upon the later of (i) three (3) days after receipt by MBIA of a Demand for Payment presented by the Trustee certifying that provision for the payment of principal of or interest on the Series 2005 Bonds when due has not been made or (ii) the payment date specified in the Demand for Payment submitted to MBIA, MBIA will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient to enable the Trustee to make such payments due on the Series 2005 Bonds, but in no event exceeding the applicable Surety Bond Coverage, as defined in the Surety Bonds. The available amount of each Surety Bond is the initial face amount of such Surety Bond less the amount of any previous deposits by MBIA with the Trustee which have not been reimbursed by the City. The City and MBIA have entered into a Financial Guaranty Agreement, dated of the date of delivery of the Series 2005 Bonds, with respect to each Surety Bond (the "Agreements"). Pursuant to each Agreement, the City is required to reimburse MBIA, within one year of any deposit, the amount of such deposit made by MBIA with the Trustee under the applicable Surety Bond. Such reimbursement shall be made only after all required deposits to the Bond Fund have been made. Under the terms of each Agreement, the Trustee is required to reimburse MBIA, with interest, until the face amount of the applicable Surety Bond is reinstated before any deposit of Sales and Use Tax receipts to the Redemption Fund. No redemption from Surplus Tax Receipts may be made until the Surety Bond is reinstated. Surety Bonds will be held by the Trustee in the Debt Service Reserve Fund and are provided as an alternative to the City depositing funds equal to the Reserve Requirement therein. The Surety Bonds will be issued in a face amount equal to the Reserve Requirement for each series of the Series 2005 Bonds. The Surety Bonds do not insure against nonpayment caused by the insolvency or negligence of the Trustee or any Paying Agent. For information on MBIA, see the caption "BOND INSURANCE" herein. BOND INSURANCE The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix B for a specimen of MBIA's policy (the "MBIA Policy"). MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading "BOND INSURANCE". Additionally, MBIA makes no representation regarding the Series 2005 Bonds or the advisability of investing in the Series 2005 Bonds. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the City to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Series 2005 Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Series 2005 Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Series 2005 Bonds. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Series 2005 Bonds upon tender by an Owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the Series 2005 Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Series 2005 Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any Owner of a Series 2005 Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Series 2005 Bonds or presentment of such other proof of ownership of the Series 2005 Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Series 2005 Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such Owners of the Series 2005 Bonds in any legal proceeding related to payment of insured amounts on the Series 2005 Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such Owners or the Paying Agent payment of the insured amounts due on such Series 2005 Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Series 2005 Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Series 2005 Bonds. MBIA does not guaranty the market price of the Series 2005 Bonds nor does it guaranty that the ratings on the Series 2005 Bonds will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005, MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the Series 2005 Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's Quarterly Reports on Form 10- Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's web site at htto://www.sec.gov (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices. BOOK -ENTRY ONLY SYSTEM The Series 2005 Bonds will be issued only as one fully registered Series 2005 Bond for each maturity of each series, 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 2005 Bonds. The fully registered Series 2005 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 2005 Bonds. Owners of any book entry interests in the Series 2005 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2005 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 2005 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, (3SCC, 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 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2005 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 2005 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 2005 Bonds, except in the event that use of the Book -Entry System for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 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 2005 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 2005 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005 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 2005 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 2005 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 2005 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 2005 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 2005 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 2005 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 2005 Bonds made to DTC or its nominee as the registered owner of the Series 2005 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 2005 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. 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 12.6 million gallon per day advanced wastewater treatment plant and 33 wastewater pumping stations. These facilities serve an estimated population equivalent of 75,000 and transport an average daily flow of approximately II million gallons. Growth of the service area population and excess wet weather flows have consumed the available wastewater system capacity and have 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 new wastewater treatment plant with a capacity of 10 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 30 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 11.2 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 presently expected to be approximately $178 million. This cost estimate has been developed by the various design firms involved in the Project and includes allowances for inflation. Within the 10 $178 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 construction schedule for the new wastewater treatment plant component of the Project anticipates commencement in the first quarter of 2006 and completion in the third quarter of 2008. Approximately $59 million of Project costs have previously been financed with proceeds of the City's $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002, and $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004. The remaining costs of the Project are expected to be financed by a combination of (i) the Series 2005B Bonds, (ii) Additional Bonds and /or RLF Loans, (iii) other bonds to be secured by City sales and use taxes (subject to approval by the voters of the City), and/or (iv) bonds to be secured by revenues of the City's water and sewer system. REFUNDING PROGRAM A portion of the proceeds of the Series 2005A Bonds and other available moneys will be used to accomplish an advance refunding of $34,225,000 outstanding principal amount of the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of December 1, 2004 (the "Series 2004 Bonds"). The Series 2004 Bonds were issued to finance a portion of the Project. Upon delivery of the Series 2005A Bonds, certain proceeds thereof will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an irrevocable Escrow Deposit Agreement (the "Escrow Agreement") between the City and the Escrow Trustee, and will be utilized, together with available bond fund and debt service reserve fund moneys, to defease the entire outstanding principal amount of the Series 2004 Bonds. The proceeds of the Series 2005A Bonds and other available moneys to be deposited with the Escrow Trustee will be held in trust for the owners of the Series 2004 Bonds and will be utilized to purchase United States Treasury obligations or held as cash, and will be sufficient, together with the investment earnings on such obligations, to pay the principal and interest due on the Series 2004 Bonds on their respective maturity or redemption dates. After such deposit, the Series 2004 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 "SOURCES AND USES OF FUNDS" herein. The accuracy of (a) the arithmetical computations of the adequacy of the maturing principal amounts of the United States Treasury obligations and uninvested cash on hand in the Series 2004 escrow account under the Escrow Agreement to pay, when due, the principal of and interest on the Series 2004 Bonds, and (b) the mathematical computations supporting the conclusion that the Series 2005A Bonds are not "arbitrage bonds" under Section 148 of the Code, will be verified by BKD, LLP, Fort Smith, Arkansas, independent certified public accountants. Such verification of mathematical accuracy and mathematical computations will be based upon the mathematical computations provided by the Underwriter. HISTORICAL SALES AND USE TAX COLLECTIONS Collection of the Sales and Use Tax commenced April 1, 2002. Set forth below is a table showing City sales and use tax receipts over the last eight years and for the ten-month period from January 1, 2005 to October 31, 2005. Sales and Use Tax receipts for the most recent twelve-month period (November 1, 2004 to October 31, 2005) were $11,334,802, an 8.7% increase from the previous twelve-month period (November 1, 2003 to October31, 2004). Historical Collections Year (0.75%) Growth Percentage 1997 $ 7,201,068(1) n/a 1998 7,833,820(1) 8.78% 1999 8,238,781() 5.17% 2000 8,685,643() 5.42% 2001 8,951,902() 3.07% 2002 9,338,322() 4.32% 2003 9,721,700(2) 4.11% 2004 10,637,825(2) 9.42% 2005 9,589,522(3) n/a (1) Reflects 75% of the collections of the City's 1%general sales and use tax. (2) Reflects actual collections of the Sales and Use Tax. (3) Reflects actual collections of the Sales and Use Tax for the ten-month period from January I, 2005 to October 31, 2005. 11 SOURCES AND USES OF FUNDS The proceeds of the Series 2005A Bonds will be used as follows: Sources of Funds Par Amount of Series 2005A Bonds $27,000,000 Net Reoffering Premium 341,291 Series 2004 Bond Fund and Debt Service Reserve Fund 11.350.676 Total Sources: $38.691.967 Uses of Funds Deposit to 2004 Escrow Fund $34,601,272 2005A Surety Bond Premium 21,600 2005A Bond Insurance Premium 66,593 Deposit to Project Fund 3,780,127 Costs of Issuance and Underwriter's Discount 222,375 Total Uses: $38.691.20 The proceeds of the Series 2005B Bonds will be used as follows: Sources of Funds Par Amount of Series 2005B Bonds $45,000,000 Net Reoffering Premium 193.446 Total Sources: $45.193.446 Uses of Funds Deposit to Project Fund $44,656,414 2005B Surety Bond Premium 36,000 2005B Bond Insurance Premium 130,407 Costs of Issuance and Underwriter's Discount 370.625 Total Uses: $4j9,446 DEBT SERVICE REQUIREMENTS As of the date of closing, the Series 2005 Bonds will constitute the only debt obligations secured by receipts of the Sales and Use Tax. The following table sets forth the amounts required to pay scheduled principal of and interest on the Series 2005 Bonds during each year: Series 2005A Series 2005A Series 2005B Series 2005B Total Debt Year Principal Interest Principalttl Interest Service 2006 $6,390,000 $1,071,587 $ — $ 1,875,668 $ 9,337,255 2007 6,740,000 809,250 — 1,795,853 9,345,103 2008 7,010,000 545,650 — 1,795,852 9,351,502 2 9oi cc0 2009 6,860,000 271,100 430,000 1,795,853 9,356,953— ,?, 92 2010 — — 7,580,000 1,778,652 9,358,652 2011 — — 7,885,000 1,478,690 9,363,690 2012 — — 8,200,000 1,164,200 9,364,200 2013 — — 8,530,000 836,200 9,366,200 2014 — — 8,870,000 495,000 9,365,000 2015 — — 3,505,000 140.200 3.645.200 Totals: $27.000.000 $2.697.587 $45.000.000 $13.156.168 $87.853.755 Includes mandatory sinking fund redemption. 12 ESTIMATED DEBT SERVICE COVERAGE The following table shows estimated maximum annual debt service coverage with respect to the Series 2005 Bonds utilizing the most recent twelve months of Sales and Use Tax receipts. Historical Sales and Use Tax Receipts(') $11,334,802 Maximum Annual Debt Service Requirement on Series 2005 Bonds(�1 $ 9,366,200 Maximum Annual Debt Service Coverage 1.21X "l Sales and Use Tax receipts for the twelve-month period from November 1, 2004 to October 31, 2005. (2) Preliminary; subject to change. See the caption "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 SERIES 2005 BONDS WILL APPROXIMATE SUCH HISTORICAL RESULTS. PROJECTED MANDATORY REDEMPTIONS The table under the caption "DEBT SERVICE REQUIREMENTS" does not reflect possible mandatory redemptions of the Series 2005 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 RLF Loans, (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 2005B Bonds are Outstanding, all Surplus Tax Receipts are required to be used to redeem Series 2005B Bonds prior to maturity. Upon final maturity or redemption in whole of the Series 2005B Bonds, Surplus Tax Receipts are required to be applied in the following order of priority: first, to redemption of Additional Bonds, if any; second, to prepayment of RLF Loans, if any; and third, to redemption of the Series 2005A Bonds, IT IS NOT EXPECTED THAT ANY OF THE SERIES 2005A BONDS WILL BE REDEEMED PRIOR TO MATURITY FROM SURPLUS TAX RECEIPTS. 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. Set forth below are tables projecting mandatory redemptions from Surplus Tax Receipts assuming annual Tax Receipts equal to actual receipts for the twelve-month period from November 1, 2004 to October 31, 2005, and projecting 0% annual growth (Table 1) and 4.5% annual growth (Table 2). The tables also assume that no Additional Bonds are issued and no RLF Loans are incurred by the City. Table I Series 2005A and Series 2005A Bonds Series 2005B Bonds Total Series 2005A and Year Ending Series 2005B Redeemed Prior to Redeemed Prior to Series 2005B December lt'1 Principal Due Maturitv(2) Mamri (2)(3) Principal Retired 2006 $ 6,390,000 $ -0- $ 1,155,000 $ 7,545,000 2007 6,740,000 -0- 2,035,000 8,775,000 2008 7,010,000 -0- 2,110,000 9,120,000 2009 7,290,000 -0- 2,190,000 9,480,000 2010 7,580,000 -0- 2,275,000 9,855,000 2011 7,885,000 -0- 2,365,000 10,250,000 2012 8,200,000 -0- 2,455,000 10,655,000 2013 6,320.000 -0- -0- 6,320.000 Totals: $57.415.000 -0- $14.585.000 $72.4O0.004 (t) Series 2005 Bonds are subject to mandatory redemption from Surplus Tax Receipts on each June I and December 1. See the caption "THE SERIES 2005 BONDS — Redemption" herein. (2) Assuming Sales and Use Tax receipts of $11,334,802 for each of the twelve month periods ending December 31, 2006 through 2013. Also assuming that the City issues no Additional Bonds and incurs no RLF Loans secured by receipts of the Sales and Use Tax. See the caption "THE SERIES 2005 BONDS —Additional Bonds and RLF Loans" for a description of the City's rights to issue Additional Bonds and to incur RLF Loans. (3) Projected mandatory redemptions related to the Series 20058 Term Bonds maturing December 1, 2015. 13 Table 2 Year Ending December Itt) 2006 2007 2008 2009 2010 2011 2012 Totals: Series 2005A and Series 2005B Principal Due $ 6,390,000 6,740,000 7,010,000 7,290,000 7,580,000 7,885,000 8.200.000 $51 95 QQO Series 2005A Bonds Redeemed Prior to Maturitv(2) $ -0- -0- -0- -0- -0- -0- -0- Series 20058 Bonds Redeemed Prior to MaturltV(2) (3) $ 1,155,000 2,545,000 3,175,000 3,855,000 4,585,000 5,375,000 2 15 000 $20,995,OjJ Total Series 2005A and Series 2005B Principal Retired $ 7,545,000 9,285,000 10,185,000 11,145,000 12,165,000 13,230,000 8,415,000 $72M00.000 (1) Series 2005 Bonds are subject to mandatory redemption from Surplus Tax Receipts on each June 1 and November I. See the caption "THE SERIES 2005 BONDS — Redemption" herein. (2) Assuming Sales and Use Tax receipts of $11,334,802 for the twelve month period ending December 31, 2006, and a 4.5% annual growth rate thereafter. Also assuming that the City issues no Additional Bonds and incurs no RLF Loans secured by receipts of the Sales and Use Tax. See the caption "THE SERIES 2005 BONDS —Additional Bonds and RLF Loans" for a description of the City's rights to issue Additional Bonds and to incur RLF Loans. (3) Projected mandatory redemptions related to the Series 2005B Term Bonds maturing December 1, 2015. 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. The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Coody Mayor 12/31/08 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/08 Kyle Cook Alderman 12/31/06 Lioneld Jordan Alderman 12/31/08 Don Marr Alderman 12/31/08 Robert Reynolds Alderman 12/31/06 Shirley Lucas Alderman 12/31/06 Brenda Thiel Alderman 12/31/08 Robert Rhoads Alderman 12/31/06 Bobby Ferrell Alderman 12/31/08 14 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 30,729 127,846 1,923,322 1980 36,608 178,609 2,286,435 1990 42,099 210,908 2,350,624 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 19,590 17,750 1995 20,193 18,546 1996 20,870 19,442 1997 21,586 20,228 1998 22,893 21,256 1999 24,213 22,223 2000 23,316 21,995 2001 24,585 22,750 2002 24,788 23,556 2003 25,359 24,384 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 $1,880,105,000 $16,997,721,000 11.06% 1994 2,217,229,000 19,090,516,000 11.61 1995 2,486,425,000 20,998,923,000 11.84 1996 2,692,554,000 22,053,022,000 12.21 1997 2,845,968,000 22,872,236,000 12.44 1998 3,018,896,000 23,944,647,000 12.61 1999* n/a n/a n/a 2000 3,526,791,000 28,488,033,000 12.38 2001 3,806,422,000 29,652,693,000 12.84 2002 3,841,326,000 29,269,775,000 13.12 2003 3,968,812,000 29,920,716,000 13.26 2004 4,610,051,000 31,463,983,000 14.65 * Methodology changed to calendar year basis. No reliable information is available for 1999. Source: Sales and Marketing Management Survey of Buying Power. 15 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 340,593,452 101,274,620 441,868,072 1996 359,369,202 113,157,365 472,526,567 1997 382,798,143 120,064,627 502,862,770 1998 401,001,338 127,575,096 528,576,434 1999 413,648,415 137,404,499 551,052,914 2000 432,951,171 145,147,891 578,099,062 2001 486,853,822 155,794,579 642,648,401 2002 541,004,690 158,688,783 699.693,473 2003 565,846,525 167,638,657 733,485,182 2004 649,361,820 183,102,702 832,464,522 Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the City" are shown below for the years indicated: 2001 2002 2003(1) 2004 Residential Building 339 328 735 755 Permits Commercial Building 38 35 31 29 Permits Value of All Building Permits $85,262,302 $100,809,486 $179,007,987 $164,695,359 (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. 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 3.6 5.7 2005• 2.9 4.8 August, 2005 only, preliminary. 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 2005 of approximately 17,821. For the 2005-06 fiscal year ending June 30, 2006, the University has an operating budget in excess of $228 million, which does not include the agricultural experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately 3,600 faculty, administrative, secretarial, clerical and maintenance personnel in both full-time and part-time positions, making the University the largest employer in the City. 16 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 Corporation Frozen Dinners 1,000-2,499 Superior Industries Cast Aluminum Wheels 1,000-2,499 Washington Regional Medical Medical 1,000-2,499 Center Fayetteville School District Education 500-999 Tyson Foods, Inc. 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 & Hot Mix 300-499 Veterans Admin. Med. Ctr. Medical 300-499 Wal-Mart Supercenter Retail 300-499 Washington County Gov't. Government 300-499 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 2005 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; provided, however, sales taxes are not levied on services purchased by radio or television providers for use in providing their 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; 17 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 remanufacmred 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; service of providing indoor tanning at a tanning salon; wrecker and towing services; service of collecting and disposing of solid waste; parking lot and gutter cleaning services; dry cleaning and laundry services; industrial laundry services; mini warehouse and self storage rental services; body piercing, tattooing and electrolysis services; pest control services; security and alarm monitoring services; boat storage and docking fees; furnishing campground spaces or trailer spaces at public or privately owned campgrounds, except for federal campgrounds, on less than a month -to -month basis; locksmith services; pet grooming and kennel services; and the new installation and replacement labor for hardwood, vinyl, ceramic tile or other types of flooring; and (vi) Initial installation services relating to motor vehicles, aircraft, farm machinery and implements, motors of all kinds, tires and batteries, boats, electrical appliances and devices, furniture, rugs, flooring, upholstery, household appliances, television and radio, 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; provided, however, if the item being installed is specifically exempted from the imposition of the sales tax, the service of installation will also be exempt; (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; (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; (h) Orders by telegraph, telephone or other ,means of communication transmitted by florists; (i) Sales of beer, wine, liquor or any intoxicating beverages; (j) Proceeds derived from the operation or use of coin -operated pinball machines, coin -operated music machines, coin -operated mechanical games, and similar devices; (k) Contracts, including service contracts, maintenance agreements and extended warranties, which in whole or in part provide for the future performance of or payment for services which are subject to the sales tax; (1) Receipts derived from the retail sale of any device used in playing bingo and any charge for admittance to facilities or for the right to play bingo or other games of chance regardless of whether such activity might otherwise be permitted by law; and (m) The first $50,000 of the purchase price from the sale of machinery or equipment and related attachments that are sold to or used by a person engaged primarily in the harvesting of timber. I:3 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 certain set dollar amounts; (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 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, to the Arkansas Future Farmers of America Foundation and the Arkansas Future Farmers of America Association, to qualified museums and to the Arkansas Symphony Orchestra, Inc.; (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 19 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; (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; (jj) Feedstuffs used in the commercial production of livestock or poultry; (kk) New and used mobile homes and custom manufactured homes; (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 and wall and floor tile manufacturers; (oo) Electricity used for the production of chlorine and other chemicals using a chlor-alkali manufacturing process; 20 (pp) Tangible personal property lawfully purchased with food stamps, food coupons, food instruments or vouchers in connection with certain Federal programs; (qq) Publications sold through regular subscriptions; (rr) 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; (ss) Prescriptive durable medical equipment, mobility enhancing equipment and prescriptive disposable medical equipment; (if) Insulin and test strips for testing blood sugar levels in humans; (uu) Telephone instruments sent into the State for refurbishing or repair and then shipped back to the state of origin; (vv) Industrial metal rollers sent into the State for repair or remanufacture and then shipped back to the state of origin; (ww) 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 Servicesprograms for the aging, disabled, mentally ill, and children and family services; (xx) 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; (yy) Parts or other tangible personal property incorporated into or which become a part of commercial jet aircraft component or subcomponent; (zz) Transfer of fill material by a business engaged in transporting or delivering fill material; (aaa) Long-term leases, thirty days or more, of commercial trucks used for interstate transportation of goods under certain conditions; (bbb) Foodstuffs to nonprofit agencies; (ccc) 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; (ddd) Natural gas used as a fuel in the process of manufacturing glass; (eee) Sales to Fort Smith Clearinghouse; (fff) Substitute fuel used in producing, manufacturing, fabrication, assembling, processing, finishing or packaging of articles at manufacturing facilities or processing plants in the State; (ggg) Railroad rolling stock used in transporting persons or property in interstate commerce; (hhh) 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; (iii) 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; (ijj) Gas produced from biomass and sold for the purpose of generating energy to be sold to the gas producer; (kick) Parts or other tangible personal property incorporated into or which become part of commercial jet aircraft components or subcomponents; (ill) Catalysts, chemicals, reagents and solutions which are consumed or used in producing, manufacturing, processing or finishing articles of commerce at manufacturing or processing plants in the State; 21 (mmm) Fuel packaging materials sold to persons engaged in the business of processing hazardous and non -hazardous waste materials into fuel products; (nnn) Instructional materials used in public schools; and (000) Livestock reproduction equipment and substances used in livestock reproduction. 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 fuel) 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; (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, finishing 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, 22 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) Modular 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; (j) 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; (I) All new and used motor vehicles, trailers or semi -trailers that are purchased for a total consideration of less than $2,500; 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 Revenues of the State (the "Commissioner") 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 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 Series 2005 Bonds. DEFINITIONS OF CERTAIN TERMS The following are definitions of certain terms 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 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "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 the Bonds or which is drawn under any RLF Loan or from sources other than Sales and Use Tax receipts. 23 "Authorized Representative" means either the Mayor or the 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. 4768, adopted by the City on October 4, 2005, which authorized the issuance of the Series 2005 Bonds pursuant to the Indenture. "Beneficial Owner" means any Person who acquires beneficial ownership interest in a Series 2005 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" means the Series 2005 Bonds and all Additional Bonds issued by the City pursuant to the Indenture. "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. "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 thereof 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 the Continuing Disclosure Agreement between the City and the Trustee, dated the date of issuance and delivery of the Series 2005 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 or 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 Series 2005 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. 24 "Fund" means a fund established by the Indenture. "Government Securities" means direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "Holder" or "Bondholder" or "owner of the Bonds" means the registered owner of any Bond. "Indenture" means the Trust Indenture dated as of November 15, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any 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, debentures, notes or other evidence of indebtedness issued or generated by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): (1) U.S. Export -Import Bank (Eximbank) — direct obligations or fully guaranteed certificates of beneficial ownership; (2) Farmers Home Administration (FmHA) — certificates of beneficial ownership; (3) Federal Financing Bank; (4) Federal Housing Administration Debentures (FHA); (5) General Services Administration — participation certificates; (6) Government National Mortgage Association (GNMA or "Ginnie Mae") — (a) GNMA — guaranteed mortgage -backed bonds (b) GNMA — guaranteed pass -through obligations; (7) U.S. Maritime Administration — guaranteed Title XI financing; and (8) U.S. Department of Housing and Urban Development (HUD) — Project Notes; Local Authority Bonds; New Communities Debentures — U.S. government guaranteed debentures; U.S. Public Housing Notes and Bonds — U.S. government guaranteed public housing notes and bonds; (c) bonds, debentures, notes or other evidences of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): (1) Federal Home Loan Bank System— senior debt obligations; (2) Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac" participation certificates and senior debt obligations; (3) Federal National Mortgage Association (FNMA or "Fannie Mae") — mortgage - backed securities and senior debt obligations; (4) Student Loan Marketing Association (SLMA or "Sallie Mae") — senior debt obligations; (5) Resolution Funding Corp. (REFCOPR) obligations; and (6) Farm Credit System— consolidated systemwide bonds and notes; (d) money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G, AAA -m or AA -m, and if rated by Moody's rated Aaa, Aa1 or Aa2; 25 (e) certificates of deposit secured at all times by collateral described in (a) and/or (b) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral; (f) certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF; (g) bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies; and (h) other forms of investments approved in writing by the 2005 Insurer, including the 2005A Surety Bond and the 2005B Surety Bond. "Mayor" means the person holding the office and performing the duties of the Mayor of the City. "MBIA" means MBIA Insurance Corporation, the issuer of the 2005A Policy, the 2005B Policy, the 2005A Surety Bond and the 2005B Surety Bond. "Original Purchaser" means the first purchaser(s) of a series of the 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 VII 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. "2005 Policy" means, collectively, the 2005A Policy and the 2005B Policy. "2005A Policy" means the financial guaranty insurance policy to be issued by MBIA with respect to the Series 2005A Bonds. "2005B Policy" means the financial guaranty insurance policy to be issued by MBIA with respect to the Series 2005B Bonds. "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, Q 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; (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. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of the Indenture, the Reserve Requirement may be satisfied by the deposit of cash or by the deposit of Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. "Revenue Fund" means the fund by that name created and established in the Indenture. "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. "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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. 27 "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued in the original aggregate principal amount of $27,000,000. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued in the original aggregate principal amount of $45,000,000. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture. "Surety Bonds" means, collectively, the 2005A Surety Bond and the 2005B Surety Bond. "2005A Surety Bond" means the surety bond issued by MBIA guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "2005B Surety Bond" means the surety bond issued by MBIA guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "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 that Tax Regulatory Agreement of the City relating to maintenance of the excludability of interest on the Series 2005 Bonds from gross income for federal income tax purposes, delivered in connection with the issuance of the Series 2005 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 an Interest Account and a Principal Account therein; Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein; Redemption Fund; Project Fund; Cost of Issuance Fund; and 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 28 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 and any RLF Loans, 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, commencing no later than December 31, 2005, 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 or prepayment of RLF Loans, 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 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) 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 Loans. 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. (e) 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. All Surplus Tax Receipts shall be applied to the redemption of the Bonds and to the prepayment of any RLF Loan in the following order of priority: first, to the redemption of the Series 2005B Bonds; second, to the redemption of any Additional Bonds; third, to the prepayment of any RLF Loan; and fourth, to the redemption of the Series 2005A Bonds. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS" herein. (f) Project Fund. A portion of the proceeds of the Series 2005 Bonds shall be deposited in the Project Fund. See the caption "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. Moneys in the Series 2005A Account of the Project Fund shall be fully disbursed prior to any disbursements from the Series 2005B Account of the Project Fund. Within ninety (90) days following completion of the portion of the Project being financed with the Series 2005 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 Accounts within the Project Fund (save and except moneys needed to satisfy unpaid Project Costs) to the Redemption Fund for application to the retirement of the corresponding series of Series 2005 Bonds by redemption or purchase. See the caption "THE SERIES 2005 BONDS - Redemption" herein. wt (g) Cost of Issuance Fund. A portion of the proceeds of the Series 2005 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 the Series 2005 Bonds, any remaining moneys in the Cost of Issuance Fund shall be transferred to the Interest Accounts of the Bond 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. Moneys in separate Funds or Accounts may be commingled for the purpose of investment. Except with respect to the Surety Bonds, investments in the Debt Service Reserve Fund shall not have maturities exceeding five years. 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. 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 Series 2005 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 Series 2005 Bond from gross income for federal income tax purposes. No part of the proceeds of the Series 2005 Bonds shall at any time be used, directly or indirectly, to acquire securities or obligations the acquisition of which would cause any of such Series 2005 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 Series 2005 Bonds remain Outstanding, it will comply with the provisions of the Tax Regulatory Agreement. 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. In the case of any defeasance of Bonds, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. Events of Default. Each of the following events shall constitute and is referred to in the Indenture as an "Event of Default": 30 (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 thirty (30) 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; (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. So long as the 2005A Policy or the 2005B Policy are effective, any such acceleration shall be subject to MBIA's prior written consent. 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 ojBondholders. 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 31 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. So long as the 2005A Policy or the 2005B Policy are effective, MBIA shall have the right to direct all remedies upon the occurrence of an Event of Default. 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; (0 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(0 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 (0 above 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 32 Supplemental Indenture, or (I) 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. So long as either the 2005A Policy or the 2005B Policy are effective, Supplemental Indentures of the type described in the preceding paragraph shall require the written consent of MBIA. 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 2005 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, 2006, 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; 33 (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 2005 Bonds; (vii) Modifications to rights of Bondowners; (viii) Series 2005 Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2005 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 2005 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2005 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 person" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2005 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 2005 Bonds, including Persons holding Series 2005 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 2005 Bonds listed in subsection (e) above. (1) 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 2005 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2005 Bonds. 34 UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), (i) the Series 2005A Bonds are being purchased at a purchase price of $27,165,790.95 (representing the stated principal amount of the Series 2005A Bonds plus a net reoffering premium of $341,290.95 and less an underwriting discount of $175,500.00) plus accrued interest from November 15, 2005 to the date of delivery of the Series 2005A Bonds, and (ii) the Series 2005B Bonds are being purchased at a purchase price of $44,900,946.35 (representing the stated principal amount of the Series 2005B Bonds plus a net reoffering premium of $193,446.35 and less an underwriting discount of $292,500.00) plus accrued interest from November 15, 2005 to the date of delivery of the Series 2005B Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2005 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2005 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 2005 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 2005 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 2005 Bonds to the public, and may offer the Series 2005 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 2005 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 and to exclude from the scope of the agreement any financial advisory services relating to the Series 2005 Bonds. 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 third preceding paragraph. 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 2005 Bonds is excluded from the 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 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. Notwithstanding Bond Counsel's opinion that interest on the Series 2005 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 their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Series 2005 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2005 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 2005 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 2005 Bonds. 35 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 2005 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 2005 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 2005 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. Original Issue Premium. A portion of the Series 2005A Bonds maturing in 2006, 2007, 2008 and 2009 and the Series 2005B Bonds maturing in 2009 and a portion of the Series 2005B Bonds maturing in 2010 and 2011 (collectively, the "Premium Bonds") are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser's yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser's basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. State Taxes. Bond Counsel is of the opinion that, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2005 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 2005 Bonds the rating of "AAA" based on the delivery of the 2005A Policy and the 2005B Policy by MBIA and has assigned an underlying rating of "AA-" to the Series 2005 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 2005 Bonds. Neither the City nor the Underwriter has undertaken any responsibility subsequent to the issuance of the Series 2005 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 2005 Bonds. LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2005 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 2005 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 2005 Bonds or questioning or affecting the legality of the Series 2005 Bonds or the proceedings and authority under which the Series 2005 Bonds are to be issued, or questioning the right of the City to issue the Series 2005 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 Sales and Use Tax or the City's ability to pay debt service with respect to the Series 2005 Bonds. 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 2005 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. 37 The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, Arkansas. CITY OF FAYETTEVILLE, ARKANSAS By: /s/ Dan Coody Mayor W APPENDIX A Proposed Form of Bond Counsel Opinion Upon delivery of the Series 2005 Bonds in definitive foray Kutak Rock LLP, Little Rock, Arkansas, proposes to deliver its approving opinion in substantially the following form: November __, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A miitl $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§ 14-164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (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 Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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 A -I 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: 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 Series 2005 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 Series 2005 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 Series 2005 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 any Additional Bonds and any RLF Loans (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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. A-2 It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, A-3 [THIS PAGE LEFT BLANK INTENTIONALLY] APPENDIX B FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the tears of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/I'RUSTEE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that terra is defined below) as such payments shall become due but shaft not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of congxtentjurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [PAR] [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Amnnk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR]. • '. Assistant Secretazy STD -R-7 01/05 K TAK ROCK LLP DRAFT 11/11/05 RRF,6lt%TIN'ARY-OFFICIAL STATEMENT DATED OCT013ER-23- 2905 NEW ISSUE •RATINGS: S&P "AAA" (Underlying "AA-") BOOK -ENTRY ONLY (MBIA Insured) In the opinion of Kutak Rock 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 2005 Bonds is excluded from gross income for federal income lax purposes and is not a spec fc preference item for purposes of the federal alternative minimum tax. Under existing laws, regulations, rulings and judicial decisions, Bond Counsel is of the opinion that the Series 2005 Bonds and the interest thereon are exempt from all slate, county and municipal taxes in the State ofArkansas. For a more complete description, see the caption "TAXMA TIERS" herein. $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A 56.5s000t000tn $45.000.000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B Dated: November -.L 2005 Due: December 1, as shown on inside front cover The Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and the Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 20058 Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), are being issued by the City of Fayetteville, Arkansas (the "City") for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities, (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and "THE PROJECT' herein. The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. The Series 2005 Bonds shall bear interest from their dated date, payable on June I and December I of each year, commencing June 1, 2006. All such interest payments shall be payable to the persons in whose name such Series 2005 Bonds are registered on the bond registration books maintained by Simmons First Trust Company, N.A., Pine Bluff, Arkansas as trustee (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 2005 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 2005 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 November T:J 5, 2005 (the "Indenture"), between the City and the Trustee, the payment of the principal of, premium, if any, and interest on the Series 2005 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"). See the caption "SECURITY FOR THE µRFhs-2045-BONDSBONDS" herein. Assumine the satisfaction of certain ➢et:_}ne_caRllen-LD t:......r.Z17L02415LY IJ.o01SrQaal Bun(IS alld RI.Y LOang" herein. the Series 2005 Bonds are subject to mandatory redemption prior to maturity as more fully described herein under the caption "THE SERIES 2005 BONDS - Redemption." Payment of the principal of and interest on the Series 2005 Bonds when due will be insured by separate financial guaranty insurance policies, one for each series, to be issued by MBIA Insurance Corporation simultaneously with the delivery of the Series 2005 Bonds. The Series 2005 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2005 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 2005 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 2005 Bonds, except as described herein with respect to the Sales and Use Tax. The Series 2005 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 2005 Bonds will be available for delivery in New York, New York, on or about November 29, 2005. Stephens Inc. The date of this Official Statement is November .3. 2005. See the caption "RATINGS" herein. MATURITY SCHEDULEAS Series 2005A Bonds Maturity Principal Interest Maturity Principal Interest (December I) Amount Rate Yield (December I) Amount Rate Yield 2006 $a ?60-:Pfk}1 L. 3S% 15 % x009200$ $649&000¢ 4.000% 11511% .119,044 2446 Jiln2ni £QQQ i ^ _3,150 2114;3. �t14.444 °' min 2007 3463F:0(10S,244,QQ4 4:000'% _3.220% 201F124Q9 4.13031006, 4,0041_ _3.450% 2514,444 20082402 3.25Q% -,2591u 2092 640.444 3.4541x _345.% 533(A{%H1,yQ�Q QQ 00 Series 2005B Bonds Maturity Principal Interest Maturity Principal Interest (December I) Amount Rate Yield (December Il Amount Rate Yield 21!42 $ 4aQ,4QQ 4 O11Qikn .145J% 2(l11 SZ.4,14.41s2 3342°s 1,H441a 2010 S2:FS&.)0) 44071% .3650% 201-321-32QIJ. 57-130:000 3$49% 6,655-000 422.Q4s 201+ -1;590:0110 2014 '.I 5,1100 20122414 % 0_n 241-5 X90;000 6&S&000925,Q 00 $27.135000-29.105.00(1 4QQ % Term Bonds due December 1, 201 -92015 —Yield: 1.000% (Plus accrued interest) CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bobby Ferrell Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoads Brenda Thiel Stephen Davis, Finance and Internal Services Director David Jurgens, Water and 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 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 2005 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 2005 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 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 2005 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 IntroductoryStatement............................................................................................................. TheSeries 2005 Bonds............................................................................................................. Security for the Series 200 Bonds BondInsurance......................................................................................................................... Book -Entry Only System......................................................................................................... TheProject............................................................................................................................... RefundingProgram.................................................................................................................. Historical Sales and Use Tax Collections................................................................................. Pstimated Sources and Uses of Funds...................................................................................... E ctinizited Debt Service Requirements..................................................................................... Estimated Debt Service Coverage............................................................................................ ProjectedMandatory Redemptions.......................................................................................... TheCity.................................................................................................................................... TheSales and Use Tax............................................................................................................. Definitions of Certain Terms.................................................................................................... Summaryof the Indenture........................................................................................................ Summary of the Continuing Disclosure Agreement................................................................. Underwriting............................................................................................................................ TaxMatters.............................................................................................................................. Ratings....................................................................................................................................... LegalMatters............................................................................................................................ Miscellaneous........................................................................................................................... Accuracy and Completeness of Official Statement.................................................................. 2 4� 8 10 4#Ll. 11 4-4-12 12 13 13 14 17 23 28 3233 ;435- 35 36 36 ............... ' m ............... 37 APPENDIX A - Form of Bond Counsel Opinion................................................................................................ A-1 APPENDIX B - Specimen of Bond Insurance Policy.......................................................................................... B-1 [THIS PAGE LEFT BLANK INTENTIONALLY] '€3 C KUTAK ROCK LLP ATLANTA CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE Bell MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE KANSAS CITY THE THREE SISTERS BUILDING 501-975-3000 214 WEST DICKSON STREET LOS ANGELES FAYETTEVILLE. ARKANSAS 72701-6221 FACSIMILE 501-975-3001 OKLAHOMA CITY OMAHA oe-o>s-4soo www.kutakrock.com PASADENA RICHMOND November 29, 2005 SCOTTSDALE WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas • Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, • 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4838-7042-5344.1 Approving Opinion • November 29, 2005 Page 2 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 Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: I. 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 Series 2005 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 Series 2005 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 Series 2005 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 any Additional Bonds and any RLF Loans (as such terms are defined in the Indenture) issued hereafter. 17J 4838-7042-5344.1 KUTAK ROCK LLP Approving Opinion • November 29, 2005 Page 3 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 Series 2005 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 Rep!. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with • respect to the Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, &ctr& I LLB' • 4838-7042-5344.1 W fZ • It Si 0 c: KUTAK ROCK LLP ATLANTA • CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE Dee MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK. ARKANSAS 72201-3409 IRVINE KANSAS CITY THE THREE SISTERS BUILDING 501-975-3000 LOS ANGELES 214 WEST DICKSON STREET FACSIMILE 5O1-975-3OO1 FAYETTEVILLE. ARKANSAS 72701-5221 OKLAHOMA CITY OMAHA 479-973-4200 www.kutakrock.com PASADENA RICHMOND SCOTTSDALE November 29, 2005 WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: • 4850-9516-2112.1 Ia'Iv_i u;t•I' tWWZR Supplemental Opinion • November 29, 2005 Page 2 (a) An executed counterpart of the Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; (e) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005A Bonds (the • "2005A Guaranty Agreement), by and between the City and MBIA Insurance Corporation ("MBIA"); (f) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement), by and between the City and MBIA; and (g) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "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 MATTERS," 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: 1. 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. • 4850-9516-2112.1 KUTAK ROCK LLP Supplemental Opinion • November 29, 2005 Page 3 2. 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 5. The 2005A Guaranty Agreement and the 2005B Guaranty Agreement have been duly authorized, executed and delivered by the City and, assuming due authorization,' execution and delivery by MBIA, the 2005A Guaranty Agreement and the • 2005B Guaranty Agreement constitute valid and binding agreements of the City enforceable in accordance with their terms. 6. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 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 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, 4850-9516-2112.1 KUTAK ROCK LLP ATLANTA CHICAGO • SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK. ARKANSAS 72201-3409 IRVINE THE THREE SISTERS BUILDING 501-975-3000 KANSAS CITY 214 WEST DICKSON STREET FACSIMILE 501-975-3001 LOS ANGELES FAYETTEVILLE. ARKANSAS 72701-6221 OKLAHOMA CI I C 475-973 -4200 www.kutakrock.com OMAHA PASADENA RICHMOND November 29, 2005 SCOTTSDALE WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance by the City of Fayetteville, Arkansas (the "City") of (i) its $27,000,000 aggregate principal amount of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) its $45,000,000 aggregate principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds"), and have delivered on this date our approving opinion with respect thereto. All capitalized terms not otherwise defined herein shall have the meanings assigned thereto in such approving opinion. A portion of the proceeds of the Series 2005A Bonds will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), • between the City and the Escrow Trustee, for the purpose of defeasing the City's previously 4820-5868-2624.1 KUTAK ROCK LLP • Defeasance Opinion November 29, 2005 Page 2 issued $35,000,000 aggregate original principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Prior Bonds"). The Prior Bonds were issued by the City 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 (collectively, the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee. This opinion is being delivered in connection with the defeasance of the Prior Bonds pursuant to Article VII of the Prior Indenture. In connection with this opinion, we have examined (i) the Escrow Agreement, (ii) the Prior Indenture, and (iii) the approving opinion of Kutak Rock LLP dated November 16, 2004 (the "Prior Bond Approving Opinion"). For purposes of this opinion, we have also reviewed originals, certified or otherwise identified to our satisfaction, of (a) a certificate of the Escrow Trustee with respect to receipt of proceeds of the Series 2005A Bonds and the receipt of moneys transferred from the bond fund and the debt service reserve fund for the Prior Bonds, all of which moneys were deposited with the Escrow Trustee pursuant to the terms of the Escrow Agreement, and (b) such other documents, opinions, certificates and other items as we have deemed relevant and necessary in rendering this opinion. • It is our opinion, under existing law, that: 1. The issuance of the Series 2005A Bonds and the deposit of a portion of the proceeds thereof with the Escrow Trustee pursuant to the Escrow Agreement to defease the Prior Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Prior Bonds or the Series 2005A Bonds and will not cause the Prior Bonds or the Series 2005A Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. For the purposes of this opinion, we have assumed the continuing exclusion from gross income for federal income tax purposes of the interest on the Prior Bonds. 2. The requirements of Article VII of the Prior Indenture as to the discharge of the lien thereof on the receipts of the Sales and Use Tax have been satisfied, and the lien of the Prior Indenture against the receipts of the Sales and Use Tax has been discharged. Very truly yours, LV-LL- 4820-5868-2624.1 1 9z S CI N KIT WILLIAMS FAYETTEVILLE CITY ATTORNEY VID J. WHITAKER .. istant City Attorney - . dy Housley Office Manager THE CITY OF FAYETTEVILLE, ARKANSAS Phone (479) 575-8313 - 113 W. Mountain, Suite 302 FAX (479) 5758315 - Fayetteville, AR 72701-6083 November 29, 2005 Simmons First Trust Company, N.A., as trustee Pine Bluff, Arkansas Stephens Inc. - - • Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York • •Kutak Rock LLP Little Rock, Arkansas Re: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A; and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital • Improvement Bonds, Series 2005B Ladies and Gentlemen: • I am counsel to the City of Fayetteville, Arkansas (the "City") and have acted in that capacity in connection with the issuance and sale by the City of its (i) $27,000,000 Sales and Use Tax Refunding and.Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and • (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B .(the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), which Bonds are being sold pursuant to the terms of a Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between Stephens Inc. and the City. The terms defined in the Bond Purchase Agreement are used in this opinion with the meanings assigned to them in the • Bond Purchase Agreement. In this connection, I have reviewed, certain documents with respect to the Bonds; and have examined such records, certificates and other documents as I have considered necessary or appropriate for. the purposes of this opinion, including Ordinance No. 4327 adopted by the City Council on August 7, 2001 (the "Election Ordinance"),Ordinance No. 4768 adopted by the City Council on October 4, 2005 (the "Bond Ordinance"), the Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the -"Trustee"), the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee, the Continuing Disclosure dated November 29, 2005. (the "Disclosure Agreement"), by and between the City •Agreement and the Trustee, the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and. Simmons First Trust Company, N.A., as escrow •• trustee (the "Escrow Trustee"), the Financial Guaranty Agreement dated November 29,2005, with respect to the surety bond for the Series 2005A Bonds (the "2005A Guaranty Agreement"), the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement"), the Preliminary Official Statement dated October 27, 2005 (the "Preliminary Official Statement"), and the Official Statement dated November 3, 2005 (the "Official Statement") relating to the offering of the Bonds, and. closing certificates of.the City. Based on such review and such other considerations of law and fact as I believe to be relevant,'I am of the opinion that: - 1. 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 Election Ordinance and the Bond Ordinance, to levy the Sales and Use Tax, andto execute and deliver the Bonds, the Indenture, the Tax Regulatory Agreement, the Disclosure • Agreement, the,. Escrow Agreement, the 2005A Guaranty 'Agreement, the 2005B Guaranty Agreement and the Bond Purchase Agreement. 2. The City has duly approved the Preliminary Official Statement and the Official Statement. 3.. The Election Ordinance and the Bond 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. 4. The Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the 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. 5. 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 is expressed) is fair, accurate and complete and does not omit any matter which, in my opinion, for the purposes for which the Official Statement is to be used, should be included or referred to therein. 6. 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 Bonds, the Sales and Use Tax, the Election Ordinance, the Bond Ordinance, the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement or the .Bond Purchase Agreement and, to the best of my knowledge, there is no investigation, pending or threatened, • • • and no threatened action, suit or proceeding involving any of the matters hereinabove mentioned in this paragraph 6. 7. , The adoption of the Election Ordinance and the execution and delivery of the Indenture, the Agreement, the. Escrow Agreement, the 2005A Agreement and the Bond_ Purchase Agreement, under the circumstances contemplated thereby, conflict with or constitute on the part of the City other instrument to which the City is• a party o consent decree to which the City is subject. Tax Regulatory r Bond • Ordinance and the Agreement, the Disclosure Guaranty Agreement, the 2005B Guaranty and compliance with the provisions thereof, do not and will not in any material respect a breach of or default under any agreement or any existing law, regulation,: court order or 8. Based upon the examinations which I have made as counsel to the City specified above, nothing has come to my attention which would lead me to believe that the Official Statement (except for financial and statistical data contained or incorporated in the Official Statement, as to which no view is 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. I hereby consent to the references made to me in the Official Statement. 3 Sincerely, Kit Williams Fayetteville City Attorney 9 • 271 COPY FINANCIAL GUARANTY INSURANCE POLICY • MBIA Insurance Corporation Armonk, New York 10504 Policy No. 47198(1) MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terns of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to Simmons First Trust Company, N.A., Pine Bluff, Arkansas or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fluid payment) and interest on, the Obligations (as that tam is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking find payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects, in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (h) the reunbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses () and (ii) of the preceding sentence shall be refenred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner ofan Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of fiords, in an account with U.S. Bank Trust National Association, in New York, New York, successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or tment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation As used herein, the tens "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not inc hide the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Strew, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this 29th day of November, 2005. ,ABTA Inranc orporation President • Attest: c Asshstari Secretary S D -R-7 11O4 I'l=]L/jI • Capital Strength. Triple -A Performance. November 29, 2005 Simmons First Trust Company, N.A. Pine Bluff, Arkansas COPY MBIA Ins r Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A Ladies and Gentlemen: In connection with the above -described obligations (the "Obligations") of which you are acting as paying agent (the "Paying Agent"), please be advised that the payment to you of principal of and interest on the Obligations has been guaranteed by a policy of financial guaranty insurance (the "Policy") issued by the MBIA Insurance Corporation (the "Insurer"). U.S. Bank Trust National Association, New York, New York, (the "Fiscal Agent") is acting as the fiscal agent for the Insurer. The Policy unconditionally and irrevocably guarantees to any owner or holder of the Obligations or, if applicable, of the coupons appertaining thereto (the "Owner"), the full and complete payment required to be made by or on behalf of the issuer of the Obligations (the "Issuer") to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations as such payments shall •become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference (a "Preference") to the Owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence are referred to collectively in this letter as the "Insured Amounts." The Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligations. The Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Obligations upon tender by an Owner thereof, or (iv) any Preference relating to (i) through (iii) above. • /LABIA I cOpy -2- In the event that the Issuer does not make full and complete payment when due of the principal of and interest on the Obligations, please immediately notify, by telephone or telegraph, the Insurer, 113 King Street, Armonk, New York, 10504, (914) 273-4545. On the due date or within one business day after receipt of such notice, whichever is later, the Insurer will deposit fiords with the Fiscal Agent sufficient to pay the Obligations (or, if applicable, coupons appertaining thereto) then due. Upon presentment and surrender of such Obligations (or, if applicable, coupons) or presentment of such other proof of ownership of Obligations together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for the Owners in any legal proceeding related to payment of Insured Amounts on the Obligations (or, if applicable, coupons), such instruments being in a form satisfactory to the Fiscal Agent, the Fiscal Agent shall disburse to you payment of the Insured Amounts due on such Obligations (and, if applicable, coupons), less any amount held by you for the payment of such Insured Amounts and legally available therefor. Forms of such instruments of assignment and inshwnents to effect the appointment of the Insurer as such agent for the Owners (collectively, the "Claim Documents"), which are currently acceptable to the Fiscal Agent and the Insurer, are on file with the Fiscal Agent. The Insurer may, from time to time, file revised forms of Claim Documents with the Fiscal Agent in substitution for the forms previously filed with the Fiscal Agent, and upon such filing, the revised forms shall supersede all forms of Claim Documents • previously filed with the Fiscal Agent, except as otherwise directed by the Insurer in writing. In the event that you shall have prior knowledge of an impending failure by the Issuer to make payment on the Obligations (or, if applicable, coupons) when due, please immediately notify the Insurer so that it will be possible to have funds available for you on the due date to make payments against surrendered Obligations (and, if applicable, coupons). Your cooperation in this matter will be most appreciated and will make it possible for the Owners of Obligations guaranteed by the Insurer to be assured of all payments when due. Very truly yours, Jth.k Neil G. Budnick President • MBIA FINANCIAL GUARANTY INSURANCE POLIC"r O D MBIA Insurance Corporation 0 U Armonk, New York 10504 • Policy No. 47199(1) MBIA Insurance Corporation (the "Instuet'l, in consideration of the payment of the premium and subject to the term of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to Simmons First Trust Company, N.A., Pine Bluff, Arkansas or its successor (the "Paying Agent") ofan amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Inver elects, in its sole dis<xetion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and® of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in r upon receipt of written notice by registered or certified wrg n t by or an Obligation bed mail, e mail, by the Insurer from the Paying Agent or any owner of the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of • any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instnrnents being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the temp "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The tam owner shall not include the Issuer or any party whose agreement with the Issuer continues the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this 29th day ofNovember, 2005. IA Ins rant orporation Presid • President Attest r p cL Assi n Secreuvy SrD-R•7 1101 MBIA Insurance Corporation Mw 113 King Street, Armonk, NY 10504 v�B' y Tel 914-273-4545 www.mbia.com • Capital Strength. iple-A Performance. COPY November 29, 2005 Simmons First Trust Company, N.A. Pine Bluff, Arkansas $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B Ladies and Gentlemen: In connection with the above -described obligations (the "Obligations") of which you are acting as paying agent (the 'Paying Agent"), please be advised that the payment to you of principal of and interest on the Obligations has been guaranteed by a policy of financial guaranty insurance (the "Policy") issued by the MBIA Insurance Corporation (the "Insurer"). U.S. Bank Trust National Association, New York, New York, (the "Fiscal Agent") is acting as the fiscal agent for the Insurer. The Policy unconditionally and irrevocably guarantees to any owner or holder of the Obligations or, if applicable, of the coupons appertaining thereto (the "Owner"), the full and complete payment required to be made by or on behalf of the issuer of the Obligations (the "Issuer") to the Paying Agent or its successor of an amount equal to (t) the principal of (either at the stated mattuity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations as such payments shall • become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference (a "Preference") to the Owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence are referred to collectively in this letter as the "Insured Amounts." The Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligations. The Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking find redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Obligations upon tender by an Owner thereof, or (iv) any Preference relating to (i) through (iii) above. MIA COPY • In the event that the Issuer does not make full and complete payment when due of the principal of and interest on the Obligations, please immediately notify, by telephone or telegraph, the Insurer, 113 King Street, Armonk, New York, 10504, (914) 273-4545. On the due date or within one business day after receipt of such notice, whichever is later, the Insurer will deposit funds with the Fiscal Agent sufficient to pay the Obligations (or, if applicable, coupons appertaining thereto) then due. Upon presentment and surrender of such Obligations (or, if applicable, coupons) or presentment of such other proof of ownership of Obligations together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for the Owners in any legal proceeding related to payment of Insured Amounts on the Obligations (or, if applicable, coupons), such instruments being in a form satisfactory to the Fiscal Agent, the Fiscal Agent shall disburse to you payment of the Insured Amounts due on such Obligations (and, if applicable, coupons), less any amount held by you for the payment of such Insured Amounts and legally available therefor. Forms of such instruments of assignment and instruments to effect the appointment of the Insurer as such agent for the Owners (collectively, the "Claim Documents"), which are currently acceptable to the Fiscal Agent and the Insurer, are on file with the Fiscal Agent The Insurer may, from time to time, file revised forms of Claim Documents with the Fiscal Agent in substitution for the forms previously filed with the Fiscal Agent, and upon such filing, the revised forms shall supersede all forms of Claim Documents previously filed with the Fiscal Agent, except as otherwise directed by the Insurer in writing. • In the event that you shall have prior knowledge of an impending failure by the Issuer to make payment on the Obligations @r, if applicable, coupons) when due, please immediately notify the Insurer so that it will be possible to have fiords available for you on the due date to make payments against surrendered Obligations (and, if applicable, coupons). Your cooperation in this matter will be most appreciated and will make it possible for the Owners of Obligations guaranteed by the Insurer to be assured of all payments when due. Very truly yours, Neil G. Budnick President • • E C COPY DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. 47198(2) MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of City of Fayetteville, Arkansas (the "Issuer") under the Ordinance No. 4768 adopted on October 4, 2005 (the "Document") to Simmons First Trust Company, N.A., Pine Bluff, Arkansas (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds , Series 2005A (the "Obligations"), provided that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed $1,350,000 or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein. 1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form • attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article 1I of the Financial Guaranty Agreement dated the date hereof between the Insurer and the Issuer (the "Financial Guaranty Agreement"); provided, that no premium is due and unpaid on this Surety Bond and that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. • /LABIA COPY 6. The term of this Surety Bond shall expire on the earlier of (i) December I, 2009 (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. This Surety Bond shall be governed by and interpreted under the laws of the State of New York. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. 9. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. 10. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this 29th day of November, 2005. }'•tit rt t I / atil/• ' � ^ , III — ___ �--;- • wK SB-DSRF-9-AR 4195 S DEMAND FOR PAYMENT MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Attachment I Surety Bond No. 47198(2) 20 Reference is made to the Surety Bond No. 47198(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The debt service reserve fund requirement for the Obligations is $ • (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its • /NSIA II NOTICE OF REINSTATEMENT [Paying Agent] [Address] COPY Attachment 2 Surety Bond No. 47198(2) 20 Reference is made to the Surety Bond No. 47198(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article 11 of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ f J MBIA Insurance Corporation President I /N[31A • • • Capital Strength. Triple -A Performance. November 29, 2005 Simmons First Trust Company, N.A. Pine Bluff, Arkansas MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com COPY $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A Ladies and Gentlemen: In connection with the above -described obligations (the "Obligations") for which you are acting as Paying Agent, please be advised that the payment to you of certain amounts which are to be applied to payment of principal of and interest on the Obligations has been guaranteed by the accompanying Surety Bond No. 47198(2) (the "Surety Bond") issued by MBIA Insurance Corporation (the "Insurer"). U.S. Bank Trust National Association, New York, New York, (the "Fiscal Agent") is acting as the fiscal agent for the Insurer. The maximum amount available under the Surety Bond for payment pursuant to any one demand for payment by you as described below (a "Demand for Payment") shall not exceed the Surety Bond Limit as defined on the first page of the Surety Bond. The amount available at any particular time to be paid to you under the Surety Bond (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth in the Surety Bond and as described below. If the Issuer under the Document (as those terms are defined on the first page of the Surety Bond) does not make full and complete payment thereunder when due, please immediately deliver, by prepaid rapifax, telex, TWX or telegram, a complete executed Demand for Payment (substantially in the form of Attachment 1 to the Surety Bond) to the Insurer, MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504 (telephone: (914) 273-4545; telecopy (914) 765-3161 or 3162). Please confirm delivery and receipt of such Demand for Payment by telephone. /LABIA • Page Two November 29, 2005 COPY Upon the later of: (i) three (3) days after receipt by the Insurer of a completed Demand for Payment, duly executed by you certifying that payment due under the Document has not been made to you; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by you to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to you, of amounts which are then due to you (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The amount payable by the Insurer under the Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer under the Surety Bond and will be reinstated to the extent of each reimbursement of the Insurer by the Issuer pursuant to Article II of the accompanying Financial Guaranty Agreement between the Insurer and the Issuer (the "Financial Guaranty Agreement"). In no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify you, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to you will be substantially in the form attached to the • Surety Bond as Attachment 2. This letter does not alter the terms of the Surety Bond or the Financial Guaranty Agreement. In the event that you shall have prior knowledge of an impending failure by the Issuer to make payment as required by the Document when due, please immediately notify the Insurer so that it will be possible for the Insurer to have funds available for you on the due date to make payments as described above. Your cooperation in this matter will be most appreciated and will make it possible for the holders of Obligations to be assured of all payments when due to the extent of the Surety Bond Coverage. Very truly yours, Neil G. Budnick President • E COPY DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. 47199(2) MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of City of Fayetteville, Arkansas (the "Issuer") under the Ordinance No. 4768 adopted on October 4, 2005 (the "Document") to Simmons First Trust Company, N.A., Pine Bluff, Arkansas (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds , Series 2005B (the "Obligations"), provided that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed $2,250,000 or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the"Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein. 1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form • attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment do the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article II of the Financial Guaranty Agreement dated the date hereof between the Insurer and the Issuer (the "Financial Guaranty Agreement"); provided, that no premium is due and unpaid on this Surety Bond and that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. MBL4 COPY • 6. The term of this Surety Bond shall expire on the earlier of (i) December I, 2015 (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. This Surety Bond shall be governed by and interpreted under the laws of the State of New York. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. 9. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. 10. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this 29th day of November, 2005. • SB-DSRF-9-AR 4/95 I MBIA Insurance Corporation P esesident '�J Attest l//��ld Yli r✓ _"/� A / �� MBA COPY • Attachment I Surety Bond No. 47199(2) DEMAND FOR PAYMENT 20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Reference is made to the Surety Bond No. 47199(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (d) The debt service reserve fund requirement for the Obligations is $ • (e) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its • /LABIA • NOTICE OF REINSTATEMENT [Paying Agent] [Address] COPY Attachment 2 Surety Bond No. 47199(2) 20 Reference is made to the Surety Bond No. 47199(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article 11 of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is S J MBIA Insurance Corporation President • MBIA • • • Cital Strength. Triple -A Performance. allovember 29, 2005 Simmons First Trust Company, N.A. Pine Bluff, Arkansas MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com COPY $2,250,000 Debt Service Reserve Fund for the $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B Ladies and Gentlemen: In connection with the above -described obligations (the "Obligations") for which you are acting as Paying Agent, please be advised that the payment to you of certain amounts which are to be applied to payment of principal of and interest on the Obligations has been guaranteed by the accompanying Surety Bond No. 47198(2) (the "Surety Bond") issued by MBIA Insurance Corporation (the "Insurer"). U.S. Bank Trust National Association, New York, New York, (the "Fiscal Agent") is acting as the fiscal agent for the Insurer. The maximum amount available under the Surety Bond for payment pursuant to any one demand for payment by you as described below (a "Demand for Payment") shall not exceed the Surety Bond Limit as defined on the first page of the Surety Bond. The amount available at any particular time to be paid to you under the Surety Bond (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth in the Surety Bond and as described below. If the Issuer under the Document (as those terms are defined on the first page of the Surety Bond) does not make full and complete payment thereunder when due, please immediately deliver, by prepaid rapifax, telex, TWX or telegram, a complete executed Demand for Payment (substantially in the form of Attachment 1 to the Surety Bond) to the Insurer, MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504 (telephone: (914) 273-4545; telecopy (914) 765-3161 or 3162). Please confirm delivery and receipt of such Demand for Payment by telephone. COPY • Page Two November 29, 2005 Upon the later of: (i) three (3) days after receipt by the Insurer of a completed Demand for Payment, duly executed by you certifying that payment due under the Document has not been made to you; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by you to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to you, of amounts which are then due to you (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The amount payable by the Insurer under the Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer under the Surety Bond and will be reinstated to the extent of each reimbursement of the Insurer by the Issuer pursuant to Article II of the accompanying Financial Guaranty Agreement between the Insurer and the Issuer (the "Financial Guaranty Agreement"). In no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify you, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the • Insurer gives such notice. The notice to you will be substantially in the form attached to the Surety Bond as Attachment 2. This letter does not alter the terms of the Surety Bond or the Financial Guaranty Agreement. In the event that you shall have prior knowledge of an impending failure by the Issuer to make payment as required by the Document when due, please immediately notify the Insurer so that it will be possible for the Insurer to have funds available for you on the due date to make payments as described above. Your cooperation in this matter will be most appreciated and will make it possible for the holders of Obligations to be assured of all payments when due to the extent of the Surety Bond Coverage. /U5OJ Very tur Neil G. Budnick President MBIA • Capital Strength. Triple -A Performance. City of Fayetteville, Arkansas 113 W. Mountain Fayetteville, Arkansas 72701 TAX CERTIFICATE MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com RE: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A; Policy No. 47198(1) $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A Policy No. 47198(2) $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005B; Policy No. 47199(1) $2,250,000 Debt Service Reserve Fund for the $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005B Policy No. 47199(2) (the "Obligations") • Ladies and Gentlemen: In connection with the issuance of the above -referenced obligations (the "Obligations"), MBIA Insurance Corporation (the "Insurer") is issuing a financial guaranty insurance policies (the "Policies") and debt service reserve fund surety bonds (the "Surety Bonds") securing the payment of principal and interest on the Obligations. This is to advise you that: 1. The Policies and Surety Bonds are unconditional obligations of the Insurer to pay scheduled payments of principal and interest on the Obligations in the event of a failure to do so by the City of Fayetteville, Arkansas (the "Issuer"); 2. The insurance premiums in the amounts of $67,000 and $22,000 and $130,000 and $36,000, for the Policies and Surety Bonds respectively, represent the charge for a transfer of credit risk and were determined in arm's length negotiations and are required to be paid as a condition to the issuance of the Policies and Surety Bonds; 3. No portion of such premiums represents an indirect payment of costs related to the issuance of the Obligations other than for the transfer of credit risk; 4. The Insurer does not reasonably expect that it will be called upon to make any payment under the Policies; 5. To the extent the Insurer is called upon to make any payment under the Policies, the Insurer reasonably expects to pursue all available legal remedies to secure reimbursement for such payments; and • /LABIA • 6. The Insurer would not have issued the Policy in the absence of a Debt Service Reserve Fund of the size and type established by the Ordinance No. 4768 adopted on October 4, 2005, pursuant to which the Obligations are being issued. Dated: November 29, 2005 MBIA Insurance Corporation J • MBIA • CERTIFICATE OF MBIA INSURANCE CORPORATION I, Stephanie Taylor Ciavarello, Assistant Secretary of MBIA Insurance Corporation, do hereby certify that the information concerning MBIA Insurance Corporation and its policies as set forth in the Official Statement, dated November 3, 2005 under the caption "Bond Insurance", regarding $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A and $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005B, is accurate. IN WITNESS WHEREOF, I hereunto set my hand and deliver this Certificate on this 29th day of November, 2005. I C • ZE c it MBIA • Capital Strength. Triple -A Performance. November 29, 2005 City of Fayetteville, Arkansas 113 W. Mountain Fayetteville, Arkansas 72701 Stephens, Inc. 3425 North Futrall Drive, Suite 201 Fayetteville, Arkansas 72703 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds • Series 2005A $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B $2,250,000 Debt Service Reserve Fund for the $55,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005B Ladies and Gentlemen: I am Deputy General Counsel of the MBIA Insurance Corporation, a New York corporation (the "Corporation"), and have acted as counsel to the Corporation in connection with the issuance of Financial Guaranty Insurance Policy Nos. 47198(1) and 47199(1) relating to $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A and $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and • • Capital Improvement Bonds, Series 2005B and Debt Service Reserve Surety Bond Nos. 47198(2) and 47199(2) in an amount not to exceed $1,350,000 and $2,250,000 relating to the Bonds (collectively, the "Policies"). In so acting, I have examined copies of the Policies and such other relevant documents as I have deemed necessary. Based upon the foregoing, I am of the following opinion: 1. The Corporation is a stock insurance corporation, duly incorporated and validly existing under the laws of the State of New York and is licensed and authorized to issue the Policies under the laws of the State of New York. S • Page 2 • 2. The Policies have been duly executed and are valid and binding obligations of the Corporation enforceable in accordance with its terms except that the enforcement of the Policies may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). V ry truly yours, hael Kno Deputy General Couns I • • • It SI • FINANCIAL GUARANTY AGREEMENT FINANCIAL GUARANTY AGREEMENT made as of November 29, 2005, by and between City of Fayetteville, Arkansas (the "Issuer") and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state ofNew York. WITNESSETH: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terms of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more firlly set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows: • ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and term thereof shall be subject to and limited by the terms and conditions of the Surety Bond. Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason. Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of the Insurer's special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE II REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses; Indemnification. (a) The Issuer will reimburse the Insurer, within the Reimbursement Period, without demand or • notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. • (b) The Issuer also agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the Insurer of the Issuer's obligations under this Agreement, the Document, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the Insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply with the covenants or conditions of this Agreement or (ii) reliance by the Insurer upon representations made by the Issuer or (iii) a default by the Issuer under the terms of the Document or any other documents executed in connection with the issuance of the Obligations. (d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available fiords at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the Insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not • to exceed the Surety Bond Limit); and third, upon firll reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments; Instruments of Further Assurance. To the extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instrument, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the Issuer hereby grants to the Insurer a security interest in or lien on, as the case maybe, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The Issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other further instruments as may be required by law or as shall reasonably be requested by the Insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection • with the issuance of the Obligations; or (b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder, or • (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated. Section 2.05. Insurer's Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Quarterly Reports. The Issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fund balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the Insurer, (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year, (c) Access to Facilities. Books and Records. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and and upon reasonable notice all books and records relative to the project financed by the Obligations; • (d) Compliance Certificate. On an annual basis the Issuer will provide to the Insurer a certificate confining compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the Obligations. ARTICLE III AMENDMENTS TO DOCUMENT So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Docrmuent or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by the Issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or • (d) Except as otherwise provided in this Section 4.01, the Issuer shall fail to perform any of its other obligations under the Document, or any other document executed in connection with the issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or • (e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign banlwptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (I) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property, and such proceeding or petition shall continue undisrnissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days. Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the Issuer to the Insurer under the Document or any related instrument, and any obligation, agreement or covenant of the Issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. In addition, if an Event of Default shall occur due to the failure to pay to the Insurer the amounts due under Section 1.03 hereof, the Insurer shall have the right to cancel the Surety Bond in accordance with • its terms. All rights and re edies of the Insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. ARTICLE V SETTLEMENT The Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the hmsm&s decision thereon, if made in good faith, shall be final and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement ofpayments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise • of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. • Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Issuer and the Insurer. The Issuer hereby agrees that upon the written request of the Paying Agent, the Insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The Insurer agrees to deliver to the Issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond. Section 6.04. Successors and Assigns: Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the Insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent ofthe Insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond. The Issuer's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. • Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Issuer's request and in reliance on the Issuer's promise to execute this Agreement. Section 6.08. Notices. Requests. Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: If to the Issuer. City of Fayetteville, Arkansas 113 W Mountain Fayetteville, Arkansas 72701 Attention: Finance & Internal Services Director If to the Paying Agent: Simmons First Trust Company, N.A. Pine Buff, Arkansas Attention: Corporate Trust Officer If to the Insurer MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. • Section 6.10. Governing Iaw. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. •Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Issuer and the Insurer. Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 6.13. Survival of Obligations. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. • Attest • City By. Title A48IA • DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. 47198(2) MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of City of FayettevilLe, Arkansas (the "Issuer") under the Ordinance No. 4768 adopted on October 4, 2005 (the "Document") to Simmons First Trust Company, N.A., Pine Bluff, Arkansas (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations"), provided that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed $1,350,000 or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular tittle to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth•herein. I. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form • attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of finds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article 11 of the Financial Guaranty Agreement dated the date hereof between the Insurer and the Issuer (the "Financial Guaranty Agreement"); provided, that no premium is due and unpaid on this Surety Bond and that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. • MBIA I 6. The term of this Surety Bond shall expire on the earlier of (i) December 1, 2009 (the maturity date of the Obligations being currently issued), or (i) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. This Surety Bond shall be governed by and interpreted under the laws of the State of New York. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. 9. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. 10. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this 29th day of November, 2005. • SB-DSRF-9-AR 495 • • :,L t •, • J 1w* �� \ •Y . G7l Attachment I Surety Bond No. 47198(2) DEMAND FOR PAYMENT ,20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Reference is made to the Surety Bond No. 47198(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The debt service reserve fund requirement for the Obligations is $ • (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its • U Attachment 2 Surety Bond No. 47198(2) NOTICE OF REINSTATEMENT ,20 [Paying Agent] [Address] Reference is made to the Surety Bond No. 47198(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ Li Attest: MBIA Insurance Corporation President Assistant Secretary • ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forms of such terms. "Agreement" means this Financial Guaranty Agreement "Closing Date" means November 29, 2005. "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment 1. "Document" means Ordinance No. 4768 adopted on October 4, 2005. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement "Insurer" has the same meaning as set forth in the first paragraph of this Agreement. "Issuer" means City of Fayetteville, Arkansas. "Obligations" means $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A. • "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose. "Paying Agent" means Simmons First Trust Company, N.A.. "Premium" means $22,000 payable to the Insurer on or prior to the Closing Date. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of 12 Months following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, N.A., New York, New Yorlc, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. "State" means AR. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document. "Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit. "Surety Bond Limit" means $1,350,000. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by • the Issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalf of the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment. r LJ COMMITMENT [To be provided.] • • • ti • FINANCIAL GUARANTY AGREEMENT FINANCIAL GUARANTY AGREEMENT made as of November 29, 2005, by and between City of Fayetteville, Arkansas (the "Issuer") and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state of New York. WITNESSETH: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terns of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more fiilly set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows: • ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and term thereof shall be subject to and limited by the terms and conditions of the Surety Bond. Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason. Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of the Insurer's special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE H REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expanses• Indemnification (a) The Issuer will reimburse the Insurer, within the Reimbursement Period, without demand or • notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. (b) The Issuer also agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the Insurer of the Issuer's obligations under this Agreement, the Document, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the Insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply with the covenants or conditions of this Agreement or (ii) reliance by the Insurer upon representations made by the Issuer or (iii) a default by the Issuer under the terms of the Document or any other documents executed in connection with the issuance of the Obligations. (d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawfiil currency of the United States in immediately available finds at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the Insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not • to exceed the Surety Bond Limit); and third, upon frill reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments: Instruments of Further Assurance. To the extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instnrnent, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the Issuer hereby grants to the Insurer a security interest in or Gen on, as the case maybe, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The Issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other further instruments as may be required by law or as shall reasonably be.requested by the Insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of: (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or • (b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder; or • (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated. Section 2.05. Insurer Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Quarterly Reports. The Issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fund balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the Insurer; (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year; (c) Access to Facilities. Books and Records. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and upon reasonable notice all books and records relative to the project financed by the Obligations; and • (d) Compliance Certificate. On an annual basis the Issuer will provide to the Insurer a certificate confirming compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the Obligations. ARTICLE III AMENDMENTS TO DOCUMENT So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Document or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default The following events shall constitute Events of Default hereunder. (a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by the Issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or • (d) Except as otherwise provided in this Section 4.01, the Issuer shall fail to perform any of its other obligations under the Document, or any other document executed in connection with the issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or • (e) The issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (0 An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days. Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the Issuer to the Insurer under the Document or any related instrument, and any obligation, agreement or covenant of the Issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. In addition, if an Event of Default shall occur due to the failure to pay to the Insurer the amounts due under Section 1.03 hereof, the Insurer shall have the right to cancel the Surety Bond in accordance with • its terms. All rights and remedies of the Insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. ARTICLE V SETTLEMENT The Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the Insurer's decision thereon, if made in good faith, shall befinal and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise • of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further ther notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. • Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Issuer and the Insurer. The Issuer hereby agrees that upon the written request of the Paying Agent, the Insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The Insurer agrees to deliver to the Issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond. Section 6.04. Successors and Assigns; Descriptive Headines. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the Insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond. The Issue's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. • Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Issuer's request and in reliance on the Issuer's promise to execute this Agreement. Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: If to the Issuer. City of Fayetteville, Arkansas 113 W Mountain Fayetteville, Arkansas 72701 Attention: Finance & Internal Services Director If to the Paying Agent: Simmons First Trust Company, N.A. Pine Buff, Arkansas Attention: Corporate Trust Officer If to the Insurer. MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. • Section 6.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. • Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instr unent. Complete counterparts of this Agreement shall be lodged with the Issuer and the Insurer. Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 6.13. Survival of Obliag tions. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. City By. Title I • Presi Attest. Assistant Secretary /LABIA DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. 47199(2) MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of City of Fayetteville, Arkansas (the "Issuer") under the Ordinance No. 4768 adopted on October 4, 2005 (the "Document") to Simmons First Trust Company, N.A., Pine Bluff, Arkansas (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds , Series 2005B (the "Obligations"), provided that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed $2,250,000 or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the"Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein. I. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form • attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article 11 of the Financial Guaranty Agreement dated the date hereof between the Insurer and the Issuer (the "Financial Guaranty Agreement"); provided, that no premium is due and unpaid on this Surety Bond and that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. • VA = _ L 6. The term of this Surety Bond shall expire on the earlier of (i) December 1, 2015 (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. This Surety Bond shall be governed by and interpreted under the laws of the State of New York. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within one year after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. 9. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. 10. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this 29th day of November, 2005. • SB-DSRF-9-AR 4195 • MIBIA Insurance Corporation PM ent Attest: l(lE Q n /2/ /'2 MBIA C Attachment I Surety Bond No. 47199(2) DEMAND FOR PAYMENT 20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Reference is made to the Surety Bond No. 47199(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (d) The debt service reserve fund requirement for the Obligations is $ • (e) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its • /LABIA • Attachment 2 Surety Bond No. 47199(2) NOTICE OF REINSTATEMENT 20_ [Paying Agent] [Address] Reference is made to the Surety Bond No. 47199(2) (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein.and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ MBIA Insurance Corporation President r• is ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forams of such terms. "Agreement" means this Financial Guaranty Agreement "Closing Date" means November 29, 2005. "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment I. "Document" means Ordinance No. 4768 adopted on October 4, 2005. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement. "Insurer" has the same meaning as set forth in the first paragraph of this Agreement. "Issuer" means City of Fayetteville, Arkansas. "Obligations" means 45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005B. • "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose. "Paying Agent" means Simmons First Trust Company, NA.. "Premium" means $36,000 payable to the Insurer on or prior to the Closing Date. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of 12 Months following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, NA., New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. "State" means AR. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document. "Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit. "Surety Bond Limit" means $2,250,000. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by • the Issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalf of the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment. 0 ANNEX C &S)3IIlE!IIuI [To be provided.] LJ • • CERTIFICATE OF ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION The undersigned hereby certify as follows: 1. The undersigned is the duly qualified and acting Sales & Use Tax Manager of the Department of Finance and Administration of the State of Arkansas. 2. This Certificate is executed in connection with the issuance of (i) $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds"), by the City of Fayetteville, Arkansas (the "City"). 3. There has been filed in this office a certified copy of Ordinance No. 4327 of the City, adopted August 7, 2001, a map of the City, a proclamation declaring the results of an election held November 6, 2001, within the City, a copy of a proof of publication of such proclamation, and a certified copy of Ordinance No. 4768 of the City, adopted October 4, 2005, all relating to the levy by the City of a three-quarter of one percent (0.75%) city-wide sales and use tax under the authority of Arkansas Code Annotated Sections 14-164-301 et seq. (the "Special Tax") and the pledge of the receipts from the Special Tax to the payment of the Series • 2005A Bonds and the Series 2005B Bonds. 4. The collection of the Special Tax commenced April 1, 2002. ik. Certified this ,30 day of November, 2005. DEPARTMENT OF FINANCE AND ADMINISTRATION Roberta Overman, Sales & Use Tax Manager • 4841-0940-0576.1 • CERTIFICATE OF TREASURER OF THE STATE OF ARKANSAS The undersigned hereby certifies as follows: 1. The undersigned is a duly qualified officer acting on behalf of the Treasurer of the State of Arkansas. 2. This Certificate is executed in connection with the issuance of (i) $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds"), by the City of Fayetteville, Arkansas (the "City"). 3. There has been filed in the office of the Treasurer of the State of Arkansas a certified copy of Ordinance No. 4327 of the City, adopted August 7, 2001, a map of the City, a proclamation declaring the results of an election held November 6, 2001, within the City, a copy of a proof of publication of such proclamation, and a certified copy of Ordinance No. 4768 of the City, adopted October 4, 2005, all relating to the levy by the City of a three-quarter of one percent (0.75%) city-wide sales and use tax under the authority of Arkansas Code Annotated Sections 14-164-301 er seq. (the "Special Tax") and the pledge of the receipts from the Special Tax to the payment of the Series 2005A Bonds and the Series 2005B Bonds. • Certified this ___ of November, 2005. TREASURER OF THE STATE OF ARKANSAS By: Title: r 4845-8883-0976.1 • • • C t: TRUSTEE'S CERTIFICATE • Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee for (i) $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), hereby certifies that: 1. Pursuant to the provisions of a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "City") and Simmons First Trust Company, N.A., arrangements have been made for Simmons First Trust Company, N.A. to serve as trustee and paying agent (the "Trustee") with respect to the Bonds. The Trustee hereby accepts such appointment. - 2. Pursuant to the provisions of the Indenture and directions from the City, Glenda Dean, Corporate Trust Officer, has duly authenticated (i) the initial Series 2005A Bonds in the aggregate principal amount of $27,000,000, being in the form of eight typewritten registered bonds, numbered R05A-I through R05A-8, inclusive, and (ii) the initial Series 2005B Bonds in the aggregate principal amount of $45,000,000, being in the form of six typewritten registered bonds, numbered R05B-1 through R05B-6, inclusive. 3. Each person who, on behalf of the Trustee, authenticated the initial Bonds or executed the Indenture, the Tax Regulatory Agreement dated November 29, 2005, or the Continuing Disclosure Agreement dated November 29, 2005, with respect to the Bonds was at the date thereof and is now duly elected, appointed or authorized, qualified and acting as an officer or •authorized signatory of the Trustee and is duly authorized to perform such acts at the respective times of such acts, and the signatures of such persons appearing on such documents are their genuine signatures. 4. The following are names, titles and specimen signatures of each of the above - mentioned officers of the Trustee: Name Office Si nature Glenda L. Dean Corporate Trust Officer 5. The Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America. The Trustee has all requisite power and authority to carry out its obligations as Trustee under the Indenture. IN WITNESS WHEREOF, SIMMONS FIRST TRUST COMPANY, N.A., has caused this certificate to be executed in its corporate name by an officer thereunto duly authorized. Dated: November 29, 2005. SIMMONS FIRST TRUST COMPANY, N.A. Pine Bluff, Arkansas By: • Name: RoPsl Title: Vice President & Trust Officer 4836-1778-4064.1 • ESCROW TRUSTEE'S CERTIFICATE Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee for $34,225,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), hereby certifies that: I. Pursuant to the provisions of an Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City of Fayetteville, Arkansas (the "City") and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"), arrangements have been made for the deposit of moneys with the Escrow Trustee sufficient in amount to redeem the Series 2004 as provided in the Escrow Agreement. 2. The person who, on behalf of the Escrow Trustee, executed the Escrow Agreement is now the duly elected, appointed or authorized, qualified and acting officer or authorized signatory of the Escrow Trustee and is duly authorized to perform such act, and the signature of such person appearing on such document is their genuine signature. 4. The following is the name, title and specimen signature of the above -mentioned officer of the Escrow Trustee: • Name Office ignature Glenda L.Dean Corporate Trust Officer jtnjc 5. The Escrow Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America. The Escrow Trustee has all requisite power and authority to carry out its obligations as Escrow Trustee under the Escrow Agreement. IN WITNESS WHEREOF, SIMMONS FIRST TRUST COMPANY, N.A., has caused this certificate to be executed in its corporate name by an officer thereunto duly authorized. Dated: November 29, 2005. SIMMONS FIRST TRUST COMPANY, N.A. Pine Bluff, Arkansas By: Name: Roy Ferrell Title: Vice President & Trust Officer 4813-5495-7056.1 • CERTIFICATE OF UNDERWRITER The undersigned, on behalf of Stephens Inc., as underwriter in connection with the issuance of (i) $27,000,000 aggregate principal amount of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 aggregate principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), by the City of Fayetteville, Arkansas (the "Issuer"), hereby represents that: 1. The Yield on the Bonds, as set forth in Section 4.10(b) of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the Issuer and Simmons First Trust Company, N.A., as trustee for the Bonds (the "Trustee"), calculated in accordance with the Regulations, is equal to 3.8899695%. 2. The offering prices of the Bonds, as set forth in Section 4.5 of the Tax Regulatory Agreement, represent the maximum initial offering prices at which a substantial amount of each maturity of the Bonds were offered for sale and sold to the public (exclusive of bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) through a bona fide offering. Such initial offering prices were established by a bona fide bid without regard to any amounts which would increase the Yield on any maturity of the Bonds above its market yield. The description of the interest rates and Yields contained in the final Official Statement with respect to the Bonds constitutes a true and correct summary thereof. • 3. To the best knowledge of the undersigned, the representations of the Issuer contained in the Tax Regulatory Agreement are true and correct. • 4. With respect to the Debt Service Reserve Fund established for the Bonds, the establishment of the Debt Service Reserve Fund at the level of funding described in Section 4.8 of the Tax Regulatory Agreement is, in the best judgment of the undersigned, reasonably required to market the Bonds at an economical interest rate for the Issuer and is, in the judgment of the undersigned, established at a level of funding comparable to that found for obligations similar to the Bonds issued within the past year. 5. We understand that this Certificate shall form a part of the basis for the opinion, dated the date hereof, of Kutak Rock LLP, as Bond Counsel, to the effect that interest on the Bonds is not includible in the gross income of the recipients thereof for purposes of federal income taxation under existing laws, regulations, rulings and judicial decisions. IN WITNESS WHEREOF, the undersigned has set his hand as of the date set forth below. Dated: November 29, 2005 STEPHENSINC. By: Authc ized Representative 4813-0259-3792.1 6E • C c• • UNDERWRITER'S RECEIPT The undersigned, on behalf of Stephens Inc., as purchaser (the "Purchaser") of (i) $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), hereby acknowledges receipt of each and all of the Bonds, said Bonds being in the form of fourteen (14) typewritten fully registered bonds in the name of Cede & Co., as nominee of The Depository Trust Company, in authorized denominations, bearing interest and containing such other terms and provisions as set forth in that certain Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "City") and Simmons First Trust Company, N.A., as trustee (the "Trustee"). The Bonds have been checked, inspected and approved by the Purchaser. The Purchaser further acknowledges the receipt of, or waives the requirement for, each opinion, document and certificate contemplated by the Bond Purchase Agreement dated November 3, 2005, between the City and the Purchaser, and acknowledges that each such opinion, document and certificate, to the extent received, is satisfactory to the Purchaser as to form and substance. • Dated: November 29, 2005 STEPHENSINC. By: cr'\0. p. ,q Title: v1 • ELOZIexar4r#i TRUSTEE'S RECEIPT AND CERTIFICATE • AS TO APPLICATION OF FUNDS The undersigned, Simmons First Trust Company, N.A., as trustee (the "Trustee") under a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between City of Fayetteville, Arkansas (the "City") and the Trustee, with respect to the City's (i) $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds"), hereby certifies that: 1. The Trustee has received this date, on behalf of the City, from Stephens Inc. (the "Underwriter"), (i) $27,205,690.46, that being the agreed purchase price of the Series 2005A Bonds, and (ii) $44,970,785.06, that being the agreed purchase price of the Series 2005B Bonds, all pursuant to the Bond Purchase Agreement dated November 3, 2005, between the City and the Underwriter. 2. (a) The total proceeds of the sale of the Series 2005A Bonds (i.e., $27,205,690.46) have been deposited or will be applied, in accordance with the written directions of the City, as follows: (i) $39,899.51, representing the accrued interest on the Series 2005A Bonds, will be deposited into the Interest Account of the Bond Fund; • (ii) $22,000.00 will be wired to MBIA Insurance Corporation in order to purchase the 2005A Surety Bond (as defined in the Indenture), which shall be deposited into the Series 2005A Account of the Debt Service Reserve Fund; (iii) $67,000.00 will be wired to MBIA Insurance Corporation in payment of the premium on the 2005A Policy (as defined in the Indenture); (iv) $23,209,258.25 shall be transferred to the Escrow Trustee for deposit in the Escrow Fund created under the Escrow Deposit Agreement dated November 29, 2005, by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (v) $61,843.27 will be deposited into the Costs of Issuance Fund and will be applied immediately to pay a portion of those Costs of Issuance set forth in Exhibit D to the City's Closing Certificate; and (vi) The remaining balance, in the amount of $3,805,689.43, will be deposited in the Project Fund. (b) The total proceeds of the sale of the Series 2005B Bonds (i.e., $44,970,785.06) have been deposited or will be applied, in accordance with the written directions of the City, as follows: • (i) $69,838.71, representing the accrued interest on the Series 2005B Bonds, will be deposited into the Interest Account of the Bond Fund; 4814-5358-8736.2 • (ii) $36,000.00 will be wired to MBIA Insurance Corporation in order to purchase the 2005B Surety Bond (as defined in the Indenture), which shall be deposited into the Series 2005B Account of the Debt Service Reserve Fund; (iii) $130,000.00 will be wired to MBIA Insurance Corporation in payment of the premium on the 2005B Policy (as defined in the Indenture); (iv) $71,572.11 will be deposited into the Costs of Issuance Fund and will be applied immediately to pay a portion of those Costs of Issuance set forth in Exhibit D to the City's Closing Certificate; and (v) The remaining balance, in the amount of $44,663,374.24, will be deposited in the Project Fund. Dated: November 29, 2005 fl SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Lir Title: Co orate TrustOfficer 4814-5358-8736.2 2 • f • ESCROW TRUSTEE'S RECEIPT The undersigned, Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee") under the provisions of an Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City of Fayetteville, Arkansas (the "City") and the undersigned, hereby certifies that: The Escrow Trustee has received this date for deposit in the Escrow Fund established under the Escrow Agreement, the following sums: (1) $9,680,763.87 from the bond fund established for the City's Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"); (2) $1,711,250.00 from the debt service reserve fund established for the Series 2004 Bonds; and (3) $23,209,258.25 from the proceeds of the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"). Dated: November 29, 2005 SIMMONS FIRST TRUST COMPANY, N.A., • as Escrow Trustee By: aL Title: Corporate Trust Of cer • 4850-9621-0688.2 II -I2 -g8 2:2t?1 PRO9 DTC UNDERWRITING PUi c\ 10 -1• BY Blanket Issuer Letter of Representations (To be Canpla vd by ( City of Fayetteville AR (N- e(fauc) •� '4 •1• • ♦.11 •1 I ♦ ' .JJflj11 • • • • • 1 /\ • •1. • y • • b • • • I . I . 1 • .. ,,, • . ••••q itt I - •'Jt U. •q • ,'• 1 :,.. 4•s very wlyyours• Fayetteville, AR 72701 kwo It 501-575-8330 • ... • • r. . _. • ` .. • • • • S. • Neither• • • • r• • •. • • • .15: uc Y • • • nu•t•, • ••... •• •• _• I. • •• I _ •• • I • •• r• • • • YSs S. .r_ •• •1• •._ •a• •. • • • • ,r• •.• 11 r ,4 r • • •• r••♦ • II,,, n YI •q• • • •• .qo , • ••• • 1 -rY rl ' • •' • l• Y • I • s •."s... _,5. 1• • • •1 bY• • .5_... _ 1 • a._. r .rl rl •. I. ••_•• •5 r•_ • •I • ••. —••.•.•�•.•1 I. Y'1• •Y _• •'••r••.•• • ••.r ••r.•• • +••..• ru.• •. •••' a. rl • .p, ••Y• for • ••% • ••.4••• •, • ••••. I• r _ y such Y 4 •! ••' 1• • •! •.__•_•_••, 1 • • ••.•I• y• ••II•_• • • • ••Y, _ u 111_• and • • • •V1••Y •••••••1 1 •1'1 r/• • •J • • .'per • � •1 •1••• ]I. 1 a .• j • ••II • : • •.• •• •• • 5_ The McGraw-Hill companies STANDARD &POOR'S November 23, 2005 MBIA Insurance Corporation 113 King Street Armonk, NY 10504 Attention: Mr. Adam Carta, Assistant Vice President 55 Water Street 38th Floor New York, NY 10041-0003 te1212438.2074 reference no.: 743812 Re: $27,00,000 City of Fayetteville, Arkansas, Sales and Use Tar Refunding and Capital Improvement Bonds, Series 2005A, dated: November 15, 2005, due: December 1, 2006- 2009, (POLICY #47198(1)) Dear Mr. Carta: Standard & Poor's has reviewed the rating on the above -referenced obligations. After such review, we have changed the rating to "AAA" from "AA-". The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Therefore, rating adjustments may result from changes in the financial • position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. • Standard & Poor's is pleased to be of service to you. For more information please visit our website at www.standardandpoors.com. If we can be of help in any other way, please contact us. Thank you for choosing Standard & Poor's and we look forward to working with you again. • Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. aJ4/�, kl • • orth dStreet STANDARD UOONnPlna,S bLlnwln Plana, Suae 3200 Oallas, TX 75201 • &POOR'S tel 214 871-1402 reference no.: 743812 October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director Re: US$26,235,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, dated: November 1, 2005, due: December!, 2010 Dear Mr. Davis: Pursuant to your request for a Standard & Poor's rating on the above -referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA-". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon • the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients ofthe rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial • information and the documents. Standard & Poor's may change, suspend, withdraw, or place on Mr. Steve Davis Page 2 October 19, 2005 • CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com If we can be of help in any other way, please call or contact us at gypublicfinance@)standardandpoors com Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, •Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosures cc: Mr. Dennis R. Hunt Mr. Gordon M. Wilboum • STANDARD &POOR'S • Standard & Poor's Ratings Services Terms and Conditions Applicable To U.S. Public Finance Ratings Request for a rating. Standard & Poor's issues public finance ratings for a fee upon request from an issuer, or from an underwriter, financial advisor, investor, insurance company, or other entity, provided that the obligor and issuer (if different from the obligor) each has knowledge of the request. The tern "issuer/obligor" in these Terms and Conditions means the issuer and the obligor if the obligor is different from the issuer. Agreement to Accept Terms and Conditions. Standard & Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard & Poor's public finance rating constitutes agreement to comply in all respects with the terms and conditions contained herein and in the rating letter and acknowledges the issuer/obligor's understanding of the scope and limitations of the Standard & Poor's rating as stated herein and in the rating letter. Fees and expenses. In consideration of our analytic review and issuance of the rating, the issuer/obligor agrees to pay Standard & Poor's a rating fee. Payment of the fee is not conditioned on Standard & Poor's issuance of any particular rating. In most cases an annual surveillance fee will be charged for so long as we maintain the rating. The issuer/obligor will reimburse Standard & Poor's for reasonable travel and legal expenses if such expenses are not included in the fee. Should the rating not be issued, the issuer/obligor agrees to compensate Standard & Poor's based on the time, effort, and charges incurred through the date upon which it is determined that the rating will not be issued. • Scope of Rating. The issuer/obligor understands and agrees that (i) an issuer rating reflects Standard & Poor's current opinion of the issuer/obligor's overall financial capacity to pay its financial obligations as they come due, (ii) an issue rating reflects Standard & Poor's current opinion of the likelihood that the issuer/obligor will make payments of principal and interest on a timely basis in accordance with the terms of the obligation, (iii) a rating is an opinion and is not a verifiable statement of fact, (iv) ratings are based on information supplied to Standard & Poor's by the issuer/obligor or by its agents and upon other information obtained by Standard & Poor's from other sources it considers reliable, (v) Standard & Poor's does not perform an audit in connection with any rating and a rating does not represent an audit by Standard & Poor's, (vi) Standard & Poor's relies on the issuer/obligor, its accountants, counsel, and other experts for the accuracy and completeness of the information submitted in connection with the rating and surveillance process, (vii) Standard & Poor's undertakes no duty of due diligence or independent verification of any information, (viii) Standard & Poor's does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information, (ix) Standard & Poor's may raise, lower, suspend, place on CreditWatch, or withdraw a rating at any time, in Standard & Poor's sole discretion, and (x) a rating is not a "market" rating nor a recommendation to buy, hold, or sell any financial obligation. Publication. Standard & Poor's reserves the right to publish, disseminate, or license others to publish or disseminate the rating and the rationale for the rating unless the issuer/obligor specifically requests that the rating be assigned and maintained on a confidential basis. If a confidential rating subsequently becomes public through disclosure by the issuer/obligor or a third party other than Standard & Poor's, Standard& Poor's reserves the right to publish it. Standard & Poor's may publish explanations of Standard & Poor's ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Standard & Poor's ability to modify or refine Standard & Poor's criteria at any time as Standard & Poor's deems appropriate. Information to be Provided by the Issuer/obligor. The issuer/obligor shall meet with Standard & Poor's for an analytic review at any reasonable time Standard & Poor's requests. The issuer/obligor also agrees to provide Standard & Poor's promptly with all information relevant to the rating and surveillance of the rating including information on material changes to information previously supplied to Standard & Poor's. The rating may be affected by Standard & • Poor's opinion of the accuracy, completeness, timeliness, and reliability of information received from the issuer/obligor or its agents. Standard & Poor's undertakes no duty of due diligence or independent verification of information provided by the issuer/obligor or its agents. Standard & Poor's reserves the right to withdraw the rating if the issuer/obligor or its agents fails to provide Standard & Poor's with accurate, complete, timely, or reliable •information. Standard & Poor's Not an Advisor. Fiduciary, or Expert. The issuer/obligor understands and agrees that Standard & Poor's is not acting as an investment, financial, or other advisor to the issuer/obligor and that the issuer/obligor should not and cannot rely upon the rating or any other information provided by Standard & Poor's as investment or financial advice. Nothing in this Agreement is intended to or should be construed as creating a fiduciary relationship between Standard & Poor's and the issuer/obligor or between Standard & Poor's and recipients of the rating. The issuer/obligor understands and agrees that Standard & Poor's has not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the U.S. Securities Act of 1933. Limitation on Damages. The issuer/obligor agrees that Standard & Poor's, its officers, directors, shareholders, and employees shall not be liable to the issuer/obligor or any other person for any actions, damages, claims, liabilities, costs, expenses, or losses in any way arising out of or relating to the rating or the related analytic services provided for in an aggregate amount in excess of the aggregate fees paid to Standard & Poor's for the rating, except for Standard & Poor's gross negligence or willful misconduct. In no event shall Standard & Poor's, its officers, directors, shareholders, or employees be liable for consequential, special, indirect, incidental, punitive or exemplary damages, costs, expenses, legal fees, or losses (including, without limitation, lost profits and opportunity costs). In furtherance and not in limitation of the foregoing, Standard & Poor's will not be liable in respect of any decisions made by the issuer/obligor or any other person as a result of the issuance of the rating or the related analytic services provided by Standard & Poor's hereunder or based on anything that appears to be advice or recommendations. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. The issuer/obligor acknowledges and agrees that Standard & Poor's does not waive any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Term. This Agreement shall terminate when the ratings are withdrawn. Notwithstanding the foregoing, the paragraphs above, "Standard & Poor's Not an Advisor. Fiduciary, or expert" and "Limitation on Damages", shall survive the • termination of this Agreement or any withdrawal of a rating. Third Parties. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary to this Agreement or to the rating when issued. Binding Effect This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Complete Agreement This Agreement constitutes the complete agreement between the parties with respect to its subject matter. This Agreement may not be modified except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties agree that the state and federal courts of New York shall be the exclusive forums for any dispute arising out of this Agreement and the parties hereby consent to the personal jurisdiction of such courts. rke MCGrow HiII Companies STANDARD November 23, 2005 MBIA Insurance Corporation 113 King Street Armonk, NY 10504 Attention: Mr. Adam Carta, Assistant Vice President 55 Water Street 38th Floor New York, NY 10041.0003 let 212 438-2074 reference no.: 743820 Re: $45,00,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005B, dated: November 15, 2005, due: December 1, 2009- 2011, Term Bonds due: December 1, 2015, (POLICY #47199(1)) Dear Mr. Carta: Standard & Poor's has reviewed the rating on the above -referenced obligations. After such review, we have changed the rating to "AAA" from "AA-". The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Therefore, rating adjustments may result from changes in the financial • position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. • Standard & Poor's is pleased to be of service to you. For more information please visit our website at www.standardandpoors.com. If we can be of help in any other way, please contact us. Thank you for choosing Standard & Poor's and we look forward to working with you again. • Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. aJ /� 'Cl • • STANDARD MOR'S October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North AIuS Street Lincoln Plaza, Suite 3200 Dallas, TX 75201 tel 214 871.1402 reference no.: 743820 Re: US$65,000,000 City of Fayetteville, Arkansas, Sales and Use Tar Capital Improvement Bonds, Series 2005B, dated: November 1, 2005, due: December 1, 2018 Dear Mr. Davis: Pursuant to your request for a Standard & Poor's rating on the above -referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA-". Standard & Pool's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon • the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial • information and the documents. Standard & Poor's may change, suspend, withdraw, or place on Mr. Steve Davis Page 2 October 19, 2005 CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nvoublicfinance@standardandPoors com. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, l 7Is' •Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosures cc: Mr. Dennis R. Hunt Mr. Gordon M. Wilbourn • STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To U.S. Public Finance Ratings Request for a rating Standard & Poor's issues public finance ratings for a fee upon request from an issuer, or from an underwriter, financial advisor, investor, insurance company, or other entity, provided that the obligor and issuer (if different from the obligor) each has knowledge of the request. The term "issuer/obligor" in these Terms and Conditions means the issuer and the obligor if the obligor is different from the issuer. Agreement to Accept Terms and Conditions. Standard & Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard & Poor's public finance rating constitutes agreement to comply in all respects with the terms and conditions contained herein and in the rating letter and acknowledges the issuer/obligor's understanding of the scope and limitations of the Standard & Poor's rating as stated herein and in the rating letter. Fees and expenses. In consideration of our analytic review and issuance of the rating, the issuer/obligor agrees to pay Standard & Poor's a rating fee. Payment of the fee is not conditioned on Standard & Poor's issuance of any particular rating. In most cases an annual surveillance fee will be charged for, so long as we maintain the rating. The issuer/obligor will reimburse Standard & Poor's for reasonable travel and legal expenses if such expenses are not included in the fee. Should the rating not be issued, the issuer/obligor agrees to compensate Standard & Poor's based on the time, effort, and charges incurred through the date upon which it is determined that the rating will not be issued. Scope of Rating. The issuer/obligor understands and agrees that (i) an issuer rating reflects Standard & Poor's current • opinion of the issuer/obligor's overall financial capacity to pay its financial obligations as they come due, (ii) an issue rating reflects Standard & Poor's current opinion of the likelihood that the issuer/obligor will make payments of principal and interest on a timely basis in accordance with the terms of the obligation, (iii) a rating is an opinion and is not a verifiable statement of fact, (iv) ratings are based on information supplied to Standard & Poor's by the issuer/obligor or by its agents and upon other information obtained by Standard & Poor's from other sources it considers reliable, (v) Standard & Poor's does not perform an audit in connection with any rating and a rating does not represent an audit by Standard & Poor's, (vi) Standard & Poor's relies on the issuer/obligor, its accountants, counsel, and other experts for the accuracy and completeness of the information submitted in connection with the rating and surveillance process, (vii) Standard & Poor's undertakes no duty of due diligence or independent verification of any information, (viii) Standard & Poor's does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information, (ix) Standard & Poor's may raise, lower, suspend, place on CreditWatch, or withdraw a rating at any time, in Standard & Poor's sole discretion, and (x) a rating is not a "market" rating nor a recommendation to buy, hold, or sell any financial obligation. Publication. Standard & Poor's reserves the right to publish, disseminate, or license others to publish or disseminate the rating and the rationale for the rating unless the issuer/obligor specifically requests that the rating be assigned and maintained on a confidential basis. If a confidential rating subsequently becomes public through disclosure by the issuer/obligor or a thrd party other than Standard & Poor's, Standard & Poor's reserves the right to publish it. Standard & Poor's may publish explanations of Standard & Poor's ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Standard & Poor's ability to modify or refine Standard & Poor's criteria at any time as Standard & Poor's deems appropriate. Information to be Provided by the Issuer/obligor. The issuer/obligor shall meet with Standard & Poor's for an analytic review at any reasonable time Standard & Poor's requests. The issuer/obligor also agrees to provide Standard & Poor's promptly with all information relevant to the rating and surveillance of the rating including information on material changes to information previously supplied to Standard & Poor's. The rating may be affected by Standard & • Poor's opinion of the accuracy, completeness, timeliness, and reliability,of information received from the issuer/obligor or its agents. Standard & Poor's undertakes no duty of due diligence or independent verification of information provided by the issuer/obligor or its agents. Standard & Poor's reserves the right to withdraw the rating if the issuer/obligor or its agents fails to provide Standard & Poor's with accurate, complete, timely, or reliable information. Standard & Poor's Not an Advisor. Fiduciary, or Expert. The issuer/obligor understands and agrees that Standard & Poor's is not acting as an investment, financial, or other advisor to the issuer/obligor and that the issuer/obligor should not and cannot rely upon the rating or any other information provided by Standard & Poor's as investment or financial advice. Nothing in this Agreement is intended to or should be construed as creating a fiduciary relationship between Standard & Poor's and the issuer/obligor or between Standard & Poor's and recipients of the rating. The issuer/obligor understands and agrees that Standard & Poor's has not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the U.S. Securities Act of 1933. Limitation on Damages. The issuer/obligor agrees that Standard & Poor's, its officers, directors, shareholders, and employees shall not be liable to the issuer/obligor or any other person for any actions, damages, claims, liabilities, costs, expenses, or losses in any way arising out of or relating to the rating or the related analytic services provided for in an aggregate amount in excess of the aggregate fees paid to Standard & Poor's for the rating, except for Standard & Poor's gross negligence or willfiil misconduct. In no event shall Standard & Poor's, its officers, directors, shareholders, or employees be liable for consequential, special, indirect, incidental, punitive or exemplary damages, costs, expenses, legal fees, or losses (including, without limitation, lost profits and opportunity costs). 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Notwithstanding the foregoing, the paragraphs above, "Standard & Poor's Not an Advisor, Fiduciary, or Expert" and "Limitation on Damages", shall survive the • termination of this Agreement or any withdrawal of a rating. Third Parties. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary to this Agreement or to the rating when issued. Binding Effect This Agreement shall be binding on, and inure to the benefit of; the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Complete Agreement. This Agreement constitutes the complete agreement between the parties with respect to its subject matter. This Agreement may not be modified except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties agree that the state and federal courts of New York shall be the exclusive forums for any dispute arising out of this Agreement and the parties hereby consent to the personal jurisdiction of such courts. • STANDARD & POOR'S October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North Akard Street Lincoln Plan, Suite 3200 Dallas, TX 75201 tel 214 871.1402 relerenee no.: 40128707 Re: City ofFayetteville, Arkansas, Outstanding Sales and Use Tax Bonds, Various Series Dear Mr. Davis: Standard & Poor's has reviewed the rating on the above -referenced obligations. After such review, we have affirmed the "AA-" rating and stable outlook. A copy of the rationale supporting the rating and outlook is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of • any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on CreditWatch the rating as a result of changes in, or unavailability of; such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. • Mr. Steve Davis Page 2 October 19, 2005 0 Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 If you have any questions, or if we can be of help in any other way, please feel free to call or contact us at nypublicfinance(@,standardandpoors.com. For more information on Standard & Poor's, please visit our website at www standardandpoors.com We appreciate the opportunity to work with you and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. r i th enclosure • ILI'i,Iti4 City of Fayetteville, Arkansas Primary Credit Analyst Wendy Wippennan, Dallas (1) 214-871-1421; wendy_wipperman@standardandpoors.com Secondary Credit Analyst Horatio Aldrete-Sanchez, Dallas (1)21 4-871-1426; lomeb_aldrete@standardandpoors.com Rationale Standard & Poor's Ratings Services assigned its'AA-'rating, and stable outlook, to Fayetteville, Ark.'s series 2005A sales and use tax refunding and capital improvement bonds and series 2005B sales and use tax capital improvement bonds. The rating reflects the city's: • Stable economic base, anchored by University of Arkansas; • Strong legal provisions, including a capped lien and mandatory use of surplus sales tax revenues for principal prepayment; • Solid debt service coverage; and • Healthy historical growth of the pledged revenue stream. DuppKwfi f A pledge of a dedicated 0.75% citywide sales and use tax, which was !SrAa�,,m x authorized by the electorate on Nov. 6, 2001, secures the bonds. • University of Arkansas and the poultry industry anchor Fayetteville's expanding economy. With a fall 2005 student enrollment of roughly 17,800, the university accounts for about 30% of the city's 2000 U.S. Census population of 58,047. Population growth, which has increased by 38% since 1990, has been solid. Due mainly to the large student population, per capita median income levels are below the nation's 88% average but are higher than the state's 107% average. Per capita retail sales are 91% of the nation's average and an estimated 11% above the state's average. The city's unemployment rate averaged 3.4% in 2005, well below state and national rates. Fiscal 2004 pledged sales tax revenues provided 1.17x maximum annual debt service (MADS) coverage. For the most recent 12 -month period ending Sept. 30, 2005, sales tax collections generated 1.24x MADS coverage. Pledged sales tax revenues, which have grown by a cumulative 22.5% since 2000, reflect healthy growth. Fiscal 2005 year-to-date sales tax revenues exceed collections for the same period in 2004 by a strong 9.2%. Legal provisions are exceptionally strong due to state statutory requirements, which require that tax receipts can be used solely to pay principal, interest, and administrative fees. Any surplus revenues must be used to redeem bonds before maturity in inverse order of maturity. In fact, the pledged revenue stream's strong performance will allow for the early amortization of the series 2002 sales and use tax bonds. Management expects the series 2005B bonds, which mature in 2018, to be redeemed by 2014. A debt service reserve funded at 5% of the principal amount outstanding being financed from bond • proceeds provides additional bondholder security. The additional bonds test requires that pledged sales tax revenues provide a minimum 1.25x MADS coverage. fl • • City officials will use bond proceeds to refund series 2004 sales and use tax capital improvement bonds outstanding and finance the construction of a new 10 -million -gallons -per -day wastewater treatment plant. Outlook The stable outlook reflects Fayetteville's stable and expanding economy and Standard & Poor's expectation that the pledged sales tax revenue stream will provide solid debt service coverage in the future and rapid principal retirement. Economy University of Arkansas, the city's leading employer with about 2,867 employees, as well as a student enrollment of about 17,800, and the poultry industry anchor Fayetteville's economy. University officials are projecting student enrollment to increase to 20,000 by 2010. City officials estimate population growth at 3% annually. Additional leading employers include: • Pinnacle Foods Corp.; • Tyson Foods Inc., which produces its entree and Mexican food lines in the city; • Wal-Mart Stores Inc.; and • Superior Industries International Inc. Property tax base growth, which has increased by an average of 15% annually since 1994, has been healthy. The university has been undergoing a $642 million capital improvement program (CIP) over the past several years. Commercial and residential construction activity remains strong; nearly $165 million in building permits were issued in 2004. A Sam's Club store is currently under construction with an expected opening date in 2006; city officials expect the store to increase sales tax collections. CIP Fayetteville currently owns a single wastewater treatment plant, and it contracts privately for the plant's operation. The plant, which has a capacity of 12 million gallons per day (mgd), is designed to meet the city's needs through 2005. Service area population growth and excess wet -weather flows have resulted in the citys need to increase its wastewater system's capacity. The city completed a comprehensive CIP that identified the necessary system upgrades, expansions, and replacements to meet the service area's needs for a 20 -year design period. The $178 million CIP includes the construction of additional sewer interceptor lines, force mains and pump stations, renovations to the existing wastewater treatment plant, and the construction of a new 10- mgd wastewater treatment plant. This issuance will fund the construction of a new 10-mgd wastewater treatment plant and other wastewater infrastructure improvements. The construction of the second wastewater treatment facility is scheduled to begin in the first quarter of 2006 with projected completion in the third quarter of 2008. Officials have previously funded roughly $59 million of total project costs with the issuance of the city's series 2002 and 2004 sales and use tax bonds. Management plans to finance the remaining CIP costs through the issuance of bonds secured by the city's water and sewer system revenues and state soil and water conservation loans. t I I Its're�8't�JJ<ILFfYE�+': �N�ji�-�~...�i ���1Ti. w + i � ".- 5'�uY�/� `N�"�➢F i ' %w ... Waa rOdUCBdI rf Oni, "^'�"` 9 v a;, d P rapt < Standard c Dot's Rattn sDlrect tti""ek, ` e t 1`iC.itJVM1 fY4 ^'"lJdltj VI Yi YY[N°F.'^/�ip.+�,.� M , premier soufcaMCJof real,tr e; Web bas cred, flV t# gs, >nre',a to h irom'a organiz�8 n giat hasMbe 4L teade m�lobJectivaa cietld analysts for more1�+ ;(har}14Q`>yearssra:pre fe ihigS:dYnamcartl�tnep duyct�.vstou� Pa RahngsDIroctWeb skte atw w stank dardendp n taw `s a` .� Published by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. Executive offices: 1221 Avenue of the Americas, New York, NY 10020. Editorial offices: 55 Water Street, New York, NY 10041. Subscriber services: (1) 212-438-7280. Copyright 2005 by The McGraw-Hill Companies, Inc.' Reproduction in whole or in part prohibited except by penNssion. MI rights reamed. Information has been obtained by Standard & Pools from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Standard & Poor's or others, Standard & Pones does not guarantee the accuracy, adequacy, or completeness of any Information and is not responsible for any errors or omissions or the result obtained from the use of such Information. Ratings am statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. V7Mcjg,j • • REQUISITION City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: Requisition No.: TO: Simmons First Trust Company, N.A., as Trustee Pursuant to the provisions of Section 502 of the Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, you are authorized to make the following described payment directly to the Payee named below from the Project Fund: Name and Address of Payee: Amount of Payment: • General Classification of the Expenditures: The undersigned hereby certifies that he is authorized to deliver this Requisition on behalf of the Issuer. The amount requested hereunder has not been the basis for any previous Requisition by the Issuer and is justly due and owing to the person(s) named herein as a proper payment or reimbursement of a Project Cost. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. CITY OF FAYETTEVILLE, ARKANSAS By: Authorized Representative • 4812-7002-2400.1 KUTAK ROCK LLP ATLANTA CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE THE THREE SISTERS BUILDING 501-975-3000 KANSAS CITY 214 WEST DICKSON STREET LO8 ANGELES FACSIMILE 501-975-3001 OKLAHOMA CITY FAYETTEVILLE, ARKANSAS 72701-5221 479-973-4200 www.kutakrock.com OMAHA PASADENA RICHMOND GORDON M. WILBOURN December 21 2005 WASHINGTON gonlon.wllboum®kulakrook.com > WASHINGTON (501) 975-3101 WICHITA TO THE ATTACHED DISTRIBUTION LIST: $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B Ladies and Gentlemen: Enclosed is a copy of the final transcript with respect to the above -captioned matter. If you have any questions or require anything additional, please let me know. Sincerely, Gordon M. Wilbourn paj Enclosure 4846-1910-9632.1 • KUTAK ROCK LLP 1111 1631011 will I Cora Iii $27,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $45,000,000 CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B City of Fayetteville, Arkansas Mr. Steve Davis (1 Bound) Finance and Internal Services Director City of Fayetteville, Arkansas 113 West Mountain Fayetteville, AR 72701 Trustee Ms. Glenda L. Dean (1 Bound) Corporate Trust Officer Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, AR 71611 Underwriter Mr. Dennis Hunt (1 Bound) Senior Vice President and Manager Stephens Inc. 3425 North Futrall Drive, Suite 201 Fayetteville, AR 72703 Fayetteville City Attorney (1 Bound) Kit Williams, Esq. City Attorney City of Fayetteville, Arkansas 113 West Mountain Fayetteville, AR 72701 Bond Insurer Ms. Sandra Lisanti (3 Unbound) MBIA Insurance Corporation 113 King Street Armonk, NY 10504 4846-1910-9632.1 o T y • KUTAK ROCK LLP DRAFT 09/27/05 y N v $ PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER _,2005 m ° NEW ISSUE *RATINGS:" " " (Underlying ;; T _ BOOK -ENTRY ONLY ( Insured) The o u In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain t2 representations and continuing compliance with certain covenants, interest on the Series 2005 Bonds is excluded from gross income for federal income tax os purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Under existing laws, regulations, rulings and judicial T ` decisions, Bond Counsel is of the opinion that the Series 2005 Bonds and the interest thereon are exempt from allstate. county and municipal taxes in the State E ofArkansas. For a more complete description, see the caption "TAX MATTERS" herein. y O C T � L 9 0 ($26,235,0001** _ CITY OF FAYETTEVILLE, ARKANSAS a o SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A T O C E.2 N A E Q $65,000,000'" '" CITY OF FAYETTEVILLE, ARKANSAS g z SALES AND USE TAX CAPITAL IMPROVEMENT BONDS 16 = SERIES 2005B oo Dated: November 1, 2005 Due: December 1, as shown below e o The Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and the Sales and Use Tax Capital o Improvement Bonds, Series 2005B (the "Series 20058 Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), are being issued by .5 2 the City of Fayetteville, Arkansas (the "City") for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004(the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities, (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF o E FUNDS," "REFUNDING PROGRAM" and "THE PROJECT" herein. o h .2 The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry E c foray in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. 8 e E m 2 The Series 2005 Bonds shall bear interest from their dated date, payable on June I and December I of each year, commencing June I, 2006. All such $ u N interest payments shall be payable to the persons in whose name such Series 2005 Bonds are registered on the bond registration books maintained by Simmons First Trust Company, N.A., Pine Bluff, Arkansas as trustee (the "Trustee"), as of the fifteenth day of the calendar month preceding the calendar month in o' which PP P Y' P Y. P Y PP rPo which the applicable interest payment date falls. Principal of and premium, if m on the Series 2005 Bonds shall be payable at the principal corporate trust _ y office of the Trustee. So long as DTC or its nominee is the registered owner of the Series 2005 Bonds, disbursement of such payments to DTC Participants is e m .o the responsibility of DTC, and the disbursement of such a p ypayments to Beneficial Owners is the responsibility of DTC Participants or Indirect Participants, as '-'-'C- o more fully described herein. - Pursuant to a Trust Indenture dated as of November I, 2005 (the "Indenture"), between the City and the Trustee, the payment of the principal of, E premium, if any, and interest on the Series 2005 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"). See the caption "SECURITY FOR THE BONDS" herein. Assuming the satisfaction of certain coverage tests, the City has reserved the right to issue additional indebtedness to be secured on a parity basis with the Series 2005 Bonds. See the caption "THE SERIES 2005 BONDS — a O' Additional Bonds" herein. The Series 2005 Bonds are subject to mandatory redemption prior to maturity as more fully described herein under the caption € O "THE SERIES 2005 BONDS - Redemption." w c 2 m o The Series 2005 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2005 u o Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance 2� of the Series 2005 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any —a .� appropriation for the payment of the Series 2005 Bonds, except as described herein with respect to the Sales and Use Tax. U. ES" v W MATURITY SCHEDULE** N u O � . � y Series 2005A Bonds Maturity Principal Interest Maturity Principal Interest (December I) Amount Rate Yield (December I) Amount Rate Yield d 2006 $ % % 2009 $ % % E 0 2007 2010 v h — 2008 0. � U 9 kit � N • Series 2005B Bonds Maturity Principal Interest Maturity Principal Interest (December I) Amount Rate Yield (December 1) Amount Rate Yield 2010 $ 0/• "/U 2015 $ % % 2011 2016 2012 2017 2013 2018 2014 (Plus accrued interest) The Series 2005 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 2005 Bonds will be available for delivery in New York, New York, on or about November , 2005. Stephens Inc. The date of this Official Statement is November . 2005. • See the caption "RATINGS" herein. •• Preliminary; subject to change. • • r L CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bobby Ferrell Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoads Brenda Thiel Stephen Davis, Finance and Internal Services Director David Jurgens, Water and Wastewater Director Sondra Smith, City Clerk Kit Williams, City Attorney CI • SIMMONS FIRST TRUST COMPANY, N.A. Pine Bluff, Arkansas Trustee and Paying Agent KUTAK ROCK LLP Little Rock, Arkansas Bond Counsel STEPHENS INC. Fayetteville, Arkansas Underwriter 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 2005 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 2005 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 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 2005 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 Introductory Statement .......................................... The Series 2005 Bonds .......................................... Security for the Bonds ........................................... Book -Entry Only System ....................................... TheProject............................................................. Refunding Program ................................................ Historical Sales and Use Tax Collections .............. Estimated Sources and Uses of Funds ................... Estimated Debt Service Requirements ................... Estimated Debt Service Covers e g......................................... Projected Mandatory Redemptions ........................................ TheCity................................................................................. Pape 2 4 5 7 8 8 9 10 10 10 14 20 24 29 31 31 33 33 33 33 APPENDIX A - Form of Bond Counsel Opinion................................................................................................. A-1 • [THIS PAGE LEFT BLANK INTENTIONALLY] • PRELIMINARY OFFICIAL STATEMENT • ($26,235,000] * CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $65,000,000* CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS SERIES 2005B 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 by the City of Fayetteville, Arkansas (the "City") of (i) Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in the principal amount of [$26,235,000]* (the "Series 2005A Bonds"), and (ii) Sales and Use Tax Capital Improvement Bonds, Series 2005B, in the principal amount of $65,000,000* (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). 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. & 2005 Supp.) §§14-164-301 el 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 2005 Bonds are to be issued by the City pursuant to Amendment 62, the Act and Ordinance No. adopted and approved on October _, 2005 (the "Authorizing Ordinance"), for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities (the "Project"), (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and 'THE PROJECT' herein. The Series 2005 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"). 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 2005 Bonds, and the Series 2005 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 2005 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 2005 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 2005 Bonds under certain circumstances set forth in the Indenture (hereinafter defined). The Series 2005 Bonds and any Additional Bonds are herein collectively referred to as the "Bonds" See the caption "THE SERIES 2005 BONDS - Additional Bonds" • herein. Preliminary; subject to change. 4852-0231-0656.2 The Series 2005 Bonds are subject to redemption from excess moneys in the Project Fund following • completion of the Project and from Surplus Tax Receipts. So long as the Series 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the early redemption of the Series 2005B Bonds prior to their application to early redemption of the Series 2005A Bonds. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS." Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2005 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 2005 Bonds, the Sales and Use Tax, the Continuing Disclosure Agreement, and the Trust Indenture dated as of November 1, 2005 (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 2005 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 2005 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the forms of Series 2005A Bond and Series 2005B 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 2005 BONDS Description. The Series 2005 Bonds will be initially dated as of November I, 2005, and will bear interest payable semiannually on June 1 and December 1 of each year, commencing June 1, 2006, at the rates set forth on the cover page hereof. The Series 2005 Bonds will mature on December 1 in the years and in the principal amounts set forth on the cover page hereof The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2005 Bonds shall be payable to the persons in whose name such Series 2005 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 2005 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 2005 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 2005 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. (a) The Series 2005A Bonds are subject to redemption prior to maturity as follows (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund moneys in excess of the amount needed to complete the Project. 4852-0231-0656.2 .a (ii) The Series 2005A 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, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. (b) The Series 2005B Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005B 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, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. In the case of any defeasance of the Series 2005B Bonds, the dates of redemption, the principal amounts and the maturities of the Series 2005B Bonds to be redeemed will be determined by taking into consideration the mandatory redemption requirements set forth above and the Sales and Use Tax receipts for the most recent twelve months. Partial Redemption of a Series 2005 Bond. If less than all of the Series 2005 Bonds of a maturity are called for redemption, the particular Series 2005 Bonds or portions of Series 2005 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 2005 Bonds, the procedures established by DTC shall control with respect to the selection of the particular Series 2005 Bonds to be redeemed. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2005 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 2005 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2005 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 2005 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 Project Costs in connection with the acquisition, construction, reconstruction, extension, • improving or equipping of the Project, (ii) refunding the Series 2005 Bonds or any series of Additional Bonds, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the Series 2005 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 4852-0231-0656.2 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. 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, 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. No Additional Bonds shall be issued unless there is no default at the time of issuance under the Indenture. 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. 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 2005 Bonds, transfers of beneficial interests in the Series 2005 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 2005 Bonds pursuant to Ordinance No. _, duly adopted by the City Council of the City on October_, 2005 (the "Authorizing Ordinance"). 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 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 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 appropriate Account within the Debt Service Reserve Fund an amount sufficient to cause the amounts on deposit therein to be equal to 5% of the aggregate principal amount on such series of Bonds (the "Reserve Requirement"). The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds as due for which there are no available funds in the Bond Fund to make such payments. The Reserve Requirement may be satisfied by cash or by Investment Securities, including surety bonds. If the amount in an Account of 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 such Account of 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 Accounts and Principal Accounts of the Bond Fund, as provided in the Indenture). If a surplus shall exist in an Account of the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the appropriate Interest Account of the Bond Fund. 4852-0231-0656.2 [Application has been made to (" ") for the issuance of surety bonds for the • purpose of funding the required portion of the Debt Service Reserve Fund for the Series 2005A Bonds (the "2005A Surety Bond") and for the Series 2005B Bonds (the "2005B Surety Bond," and together with the 2005A Surety Bond, the "Surety Bonds" ). The Series 2005 Bonds will only be delivered upon the issuance of the Surety Bonds. The premiums on the Surety Bonds are to be fully paid from the proceeds of the Series 2005 Bonds upon their issuance and delivery. The Surety Bonds provide that on the later of (i) _ U days after receipt by of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Series 2005 Bonds when due has not been made or (ii) the interest payment date specified in the Demand for Payment submitted to will promptly deposit funds with the Trustee sufficient to enable the Trustee to make such payments due on the Series 2005 Bonds, but in not event exceeding the applicable Surety Bond Coverage, as defined in the Surety Bonds. Pursuant to the terms of the each of the Surety Bonds, the applicable Surety Bond Coverage is automatically reduced to the extent of each payment made by under the terms of such Surety Bond, and the City is required to reimburse for any draws under such Surety Bond with interest at a market rate, subject to Arkansas usury limits. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the applicable Surety Bond Coverage. The reimbursement obligation of the City is subordinate to the City's obligations under the Indenture with respect to the Series 2005 Bonds. In the event the amount on deposit in, or credited to, an Account of the Debt Service Reserve Fund exceeds the amount of the applicable Surety Bond, any draw on that Surety Bond shall be made only after all of the funds in such Account have been expended. The Surety Bonds do not insure against nonpayment caused by the insolvency or negligence of the Trustee or any Paying Agent. For information on see the caption "BOND INSURANCE" herein.] • BOOK -ENTRY ONLY SYSTEM The Series 2005 Bonds will be issued only as one fully registered Series 2005 Bond for each maturity of each series, 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 2005 Bonds. The fully registered Series 2005 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 2005 Bonds. Owners of any book entry interests in the Series 2005 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2005 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 2005 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 I7A 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 4852-0231-0656.2 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 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2005 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 2005 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 2005 Bonds, except in the event that use of the Book -Entry System for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 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 2005 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 2005 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005 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 2005 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 2005 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 2005 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 2005 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. Cf:i.Y.E6# E01IRM l The Trustee and the City, so long as a book entry method of recording and transferring interest in the Series • 2005 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 2005 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 2005 Bonds made to DTC or its nominee as the registered owner of the Series 2005 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 2005 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. 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 12.6 million gallon per day advanced wastewater treatment plant and 33 wastewater pumping stations. These facilities serve an estimated population equivalent of 75,000 and transport an average daily flow of approximately II million gallons. Growth of the service area population and excess wet weather flows have consumed the available wastewater system capacity and have 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 new wastewater treatment plant with a capacity of 10 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 30 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 11.2 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 presently expected to be approximately $_ million. [DISCUSS CONTRACTING STATUS] This cost estimate has been developed by the various design firms and includes allowances for inflation. Within the $ 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 in the quarter of 200_.] $ of the costs of the Project have previously been financed with proceeds of the City's • $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002, and $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004. The remaining costs of the Project are expected to be financed by a combination of the Series 2005 Bonds and other bonds secured by City sales and use taxes (subject to approval by the voters of the City) and/or bonds secured by revenues of the City's water and sewer system. 4852-0231-0656.2 REFUNDING PROGRAM A portion of the proceeds of the Series 2005A Bonds will be used to accomplish an advance refunding of [$26,235,000] outstanding principal amount of the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of December 1, 2004 (the "Series 2004 Bonds"). The Series 2004 Bonds were issued to finance a portion of the Project. Upon delivery of the Series 2005A Bonds, certain proceeds thereof will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an irrevocable Escrow Deposit Agreement (the "Escrow Agreement") between the City and the Escrow Trustee, and will be utilized, together with available bond fund and debt service reserve fund moneys, to defease the Series 2004 Bonds. The proceeds of the Series 2005A Bonds and other available moneys to be deposited with the Escrow Trustee will be held in trust for the owners of the Series 2004 Bonds and will be utilized to purchase United States Treasury obligations or held as cash, and will be sufficient, together with the investment earnings on such obligations, to pay the principal and interest due on the Series 2004 Bonds on their respective maturity or redemption dates. After such deposit, the Series 2004 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. The accuracy of (a) the arithmetical computations of the adequacy of the maturing principal amounts of the United States Treasury obligations and uninvested cash on hand in the Series 2004 escrow account under the Escrow Agreement to pay, when due, the principal of and interest on the Series 2004 Bonds, and (b) the mathematical computations supporting the conclusion that the Series 2005A Bonds are not "arbitrage bonds" under Section 148 of the Code, will be verified by BKD, LLP, Little Rock, Arkansas, independent certified public accountants. Such verification of mathematical accuracy and mathematical computations will be based upon the mathematical computations provided by the Underwriter. HISTORICAL SALES AND USE TAX COLLECTIONS Collection of the Sales and Use Tax commenced April 1, 2002. Set forth below is a table showing City sales and use tax receipts over the last eight years and for the -month period from January 1, 2005 to . 2005. Sales and Use Tax receipts for the most recent twelve-month period ( 1, 2004 to 2005) were $ Historical Collections Year (0.75%) Growth Percentage 1997. $ 7,201,0681'1 n/a 1998 7,833,8201'1 8.78% 1999 8,238,7811') 5.17% 2000 8,685,6430) 5.42% 2001 8,951,902") 3.07% 2002 9,338,322/') 4.32% 2003 9,721,700(2) 4.11% 2004 10,637,825(2) 9.42% 2005 (3) n/a (1) Reflects 75% of the collections of the City's 1% general sales and use tax. (2) Reflects actual collections of the Sales and Use Tax. (3) Reflects actual collections of the Sales and Use Tax for the =month period from January 1, 2005 to 2005. 4852-0231-0656.2 ESTIMATED SOURCES AND USES OF FUNDS • The proceeds of the Series 2005A Bonds are expected to be used as follows: Sources of Funds') Par Amount of Series 2005A Bonds [$26,235,000] Net Reoffering [Premium] [Discount] Series 2004 Bond Fund and Debt Service Reserve Fund Total Sources: Uses of Funds') Deposit to 2004 Escrow Fund 2005A Surety Bond Premium 2005A Bond Insurance Premium Deposit to Project Fund Costs of Issuance and Underwriter's Discount Total Uses: The proceeds of the Series 2005B Bonds are expected to be used as follows: Sources of Funds') Par Amount of Series 2005B Bonds Net Reoffering [Premium][Discount] Total Sources: Uses of Funds(') Deposit to Project Fund 2005B Surety Bond Premium 2005B Bond Insurance Premium Costs of Issuance and Underwriter's Discount Total Uses: Preliminary; subject to change. $65,000,000 4852-0231-0656.2 a ESTIMATED DEBT SERVICE REQUIREMENTS • As of the date of closing, the Series 2005 Bonds will constitute the only debt obligations secured by receipts of the Sales and Use Tax. The following table sets forth estimates of the amounts required to pay scheduled principal of and interest on the Series 2005 Bonds during each year: Series 2005A Series 2005A Series 2005B Series 2005B Total Debt Year Principal Interest'( Principal Interest(') Service 2006 $ $ $ $ $ 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 L1�. �_ili �„ tIt ttt (t) Preliminary; subject to change. Assuming for purposes of this Preliminary Official State, an average coupon rate on the Series 2005A Bonds of % per annum and an average coupon rate on the Series 2005B Bands of _%. ESTIMATED DEBT SERVICE COVERAGE • The following table shows estimated maximum annual debt service coverage with respect to the Series 2005 Bonds utilizing the most recent twelve months of Sales and Use Tax receipts. Historical Sales and Use Tax Receipts('( Maximum Annual Debt Service Requirement on Series 2005 Bonds(�1 Maximum Annual Debt Service Coverage X tD Sales and Use Tax receipts for the twelve-month period from 1, 2004 to 2005. (2) Preliminary; subject to change. 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 SERIES 2005 BONDS WILL APPROXIMATE SUCH HISTORICAL RESULTS. PROJECTED MANDATORY REDEMPTIONS The table under the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" does not reflect possible mandatory redemptions of the Series 2005 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, (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 2005B Bonds are Outstanding, all • Surplus Tax Receipts are required to be used to redeem Series 2005B Bonds prior to maturity. Upon final maturity or redemption in whole of the Series 2005B Bonds and for so long as any of the Series 2005A Bonds are Outstanding, Surplus Tax Receipts are required to be used to redeem Series 2005A Bonds prior to maturity. IT IS NOT EXPECTED THAT ANY OF THE SERIES 2005A BONDS WILL BE REDEEMED PRIOR TO 4852-0231-06562 10 MATURITY FROM SURPLUS TAX RECEIPTS. 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. Series 2005A and Series 2005A Bonds Series 2005B Bonds Total Series 2005A and Year Ending Series 2005B Redeemed Prior to Redeemed Prior to Series 2005B December 1i0 Principal Due Maturi t2) Maturityl2) Principal Retired 2006 $ $ -0- $ $ 2007 -0- 2008 -0- 2009 -0- 2010 -0- 2011 -0- 2012 -0- 2013 -0- 2014 -0- Series 2005 Bonds are subject to mandatory redemption from Surplus Tax Receipts on each June I and December I. See the caption "THE SERIES 2005 BONDS — Redemption" herein. (2) Assuming Sales and Use Tax receipts of S for the twelve months ending December 1, 2006, and 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 comer 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. The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Coody Mayor 12/31/08 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/08 Kyle Cook Alderman 12/31/06 Lioneld Jordan Alderman 12/31/08 Don Man Alderman 12/31/08 Robert Reynolds Alderman 12/31/06 Shirley Lucas Alderman 12/31/06 Brenda Thiel Alderman 12/31/08 Robert Rhoads Alderman 12/31/06 • Bobby Ferrell Alderman 12/31/08 4852-0231-0656.2 11 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 30,729 127,846 1,923,322 1980 36,608 178,609 2,286,435 1990 42,099 210,908 2,350,624 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 19,590 17,750 1995 20,193 18,546 1996 20,870 19,442 1997 21,586 20,228 1998 22,893 21,256 1999 24,213 22,223 2000 23,316 21,995 2001 24,585 22,750 2002 24,788 23,556 2003 25,359 24,384 • 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 $1,880,105,000 $16,997,721,000 11.06% 1994 2,217,229,000 19,090,516,000 11.61 1995 2,486,425,000 20,998,923,000 11.84 1996 2,692,554,000 22,053,022,000 12.21 1997 2,845,968,000 22,872,236,000 12.44 1998 3,018,896,000 23,944,647,000 12.61 1999* n/a n/a n/a 2000 3,526,791,000 28,488,033,000 12.38 2001 3,806,422,000 29,652,693,000 12.84 2002 3,841,326,000 29,269,775,000 13.12 2003 3,968,812,000 29,920,716,000 13.26 2004 4,610,051,000 31,463,983,000 14.65 * Methodology changed to calendar year basis. No reliable information is available for 1999. Source: Sales and Marketing Management Survey of Buying Power. LJ 4852-0231-0656.2 12 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 340,593,452 101,274,620 441,868,072 1996 359,369,202 113,157,365 472,526,567 1997 382,798,143 120,064,627 502,862,770 1998 401,001,338 127,575,096 528,576,434 1999 413,648,415 137,404,499 551,052,914 2000 432,951,171 145,147,891 578,099,062 2001 486,853,822 155,794,579 642,648,401 2002 541,004,690 158,688,783 699.693,473 2003 565,846,525 167,638,657 733,485,182 2004 649,361,820 183,102,702 832,464,522 Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the City' ) are shown below for the years indicated: 2001 2002 2003(1) 2004 Residential Building 339 328 735 755 Permits Commercial Building 38 35 31 29 Permits Value of All Building • Permits $85,262,302 $100,809,486 $179,007,987 $164,695,359 (I) 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. 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 3.6 5.7 2005* 2.9 4.8 * August, 2005 only, preliminary. 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 2005 of approximately 17,821. For the 2005-06 fiscal year ending June • 30, 2006, the University has an operating budget in excess of $ million, which does not include the agricultural experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately faculty, administrative, secretarial, clerical and maintenance personnel in both full- time and part-time positions, making the University the largest employer in the City. 4852-0231-0656.2 13 • Other major employers in the City, their products or services and approximate number of employees are set forth below: Employer Pinnacle Foods, International Superior Industries Washington Regional Medical Center Tyson Foods, Inc. Fayetteville School District City of Fayetteville Arkansas Western Gas Co. Ayrshire Electronics Dillard's Department Store McClinton Anchor Co. Veterans Admin. Med. Ctr. Wal-Mart Supercenter Washington County Product or Service Frozen Dinners Cast Aluminum Wheels Medical Food Products Education Government Utilities Manufacturing Retail Limestone & Hot Mix Medical Retail Government Source: Fayetteville Chamber of Commerce. THE SALES AND USE TAX Employee Range 1,000-2,499 1,000-2,499 1,000-2,499 800-1,599 500-999 500-999 300-499 300-499 300-499 300-499 300-499 300499 300-499 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 2005 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; provided, however, sales taxes are not levied on services purchased by radio or television providers for use in providing their 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; 4852-0231-0656.2 14 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; service of providing indoor tanning at a tanning salon; wrecker and towing services; service of collecting and disposing of solid waste; parking lot and gutter cleaning services; dry cleaning and laundry services; industrial laundry services; mini warehouse and self storage rental services; body piercing, tattooing and electrolysis services; pest control services; security and alarm monitoring services; boat storage and docking fees; furnishing campground spaces or trailer spaces at public or privately owned campgrounds, except for federal campgrounds, on less than a month -to -month basis; locksmith services; pet grooming and kennel services; and the new installation and replacement labor for hardwood, vinyl, ceramic tile or other types of flooring; and (vi) Initial installation services relating to motor vehicles, aircraft, farm machinery and implements, motors of all kinds, tires and batteries, boats, electrical appliances and devices, furniture, rugs, flooring, upholstery, household appliances, television and radio, 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; provided, however, if the item being installed is specifically exempted from the imposition of the sales tax, the service of installation will also be exempt; • (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; (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; (h) Orders by telegraph, telephone or other ,means of communication transmitted by florists; (i) Sales of beer, wine, liquor or any intoxicating beverages; (j) Proceeds derived from the operation or use of coin -operated pinball machines, coin -operated music machines, coin -operated mechanical games, and similar devices; (k) Contracts, including service contracts, maintenance agreements and extended warranties, which in whole or in part provide for the future performance of or payment for services which are subject to the sales tax; (1) Receipts derived from the retail sale of any device used in playing bingo and any charge for admittance to facilities or for the right to play bingo or other games of chance regardless of whether such activity might otherwise be permitted by law; and (m) The first $50,000 of the purchase price from the sale of machinery or equipment and related • attachments that are sold to or used by a person engaged primarily in the harvesting of timber. 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: 4852-0231-0656.2 15 (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 certain set dollar amounts; (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; (f) 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 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, to the Arkansas Future Farmers of America Foundation and the Arkansas Future Farmers of America Association, to qualified museums and to the Arkansas Symphony Orchestra, Inc.; (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; (j) 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; 4852-0231-0656.2 16 (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; (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; (jj) Feedstuffs used in the commercial production of livestock or poultry; (kk) New and used mobile homes and custom manufactured homes; (1I) 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 and wall and floor tile manufacturers; (oo) Electricity used for the production of chlorine and other chemicals using a chlor-alkali manufacturing process; • (pp) Tangible personal property lawfully purchased with food stamps, food coupons, food instruments or vouchers in connection with certain Federal programs; (qq) Publications sold through regular subscriptions; 4852-0231-0656.2 17 (rr) 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; (ss) Prescriptive durable medical equipment, mobility enhancing equipment and prescriptive disposable medical equipment; (it) Insulin and test strips for testing blood sugar levels in humans; (uu) Telephone instruments sent into the State for refurbishing or repair and then shipped back to the state of origin; (vv) Industrial metal rollers sent into the State for repair or remanufacture and then shipped back to the state of origin; (ww) 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; (xx) 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; (yy) Parts or other tangible personal property incorporated into or which become a part of commercial jet aircraft component or subcomponent; (zz) Transfer of fill material by a business engaged in transporting or delivering fill material; (aaa) Long-term leases, thirty days or more, of commercial trucks used for interstate transportation of goods under certain conditions; • (bbb) Foodstuffs to nonprofit agencies; (ccc) 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; (ddd) Natural gas used as a fuel in the process of manufacturing glass; (eee) Sales to Fort Smith Clearinghouse; (fit) Substitute fuel used in producing, manufacturing, fabrication, assembling, processing, finishing or packaging of articles at manufacturing facilities or processing plants in the State; (ggg) Railroad rolling stock used in transporting persons or property in interstate commerce; (hhh) 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; (iii) Fire protection and emergency equipment to be owned by and exclusively used by a volunteer fife department, and supplies and materials to be used in the construction and maintenance of volunteer fire departments; (ijj) Gas produced from biomass and sold for the purpose of generating energy to be sold to the gas producer; (kkk) Parts or other tangible personal property incorporated into or which become part of commercial jet aircraft components or subcomponents; (111) Catalysts, chemicals, reagents and solutions which are consumed or used in producing, manufacturing, processing or finishing articles of commerce at manufacturing or processing plants in the State; (mmm) Fuel packaging materials sold to persons engaged in the business of processing hazardous and • non -hazardous waste materials into fuel products; (nnn) Instructional materials used in public schools; and (000) Livestock reproduction equipment and substances used in livestock reproduction. 4852-0231-0656.2 18 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 Tar. 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 fuel) 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; (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; (f) Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing 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 (I) 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) Modular homes constructed with materials on which the sales or use tax has once been paid; 4852-0231-0656.2 19 (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; (j) 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; (I) All new and used motor vehicles, trailers or semi -trailers that are purchased for a total consideration of less than $2,500; 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 Revenues of the State (the "Commissioner") 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 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 terms 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 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" means Bonds in addition to the Series 2005 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, 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 from sources other than Sales and Use Tax receipts. • "Authorized Representative" means either the Mayor or the 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. 4852-0231-0656.2 20 "Authorizing Ordinance" means Ordinance No. , adopted by the City on October —, 2005, which • authorized the issuance of the Series 2005 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 2005 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 is limited to the extent described under the caption "THE SERIES 2005 BONDS — Additional Bonds" herein. "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. "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, 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, 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 4852-0231-0656.2 21 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 October 1, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any 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 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; and (f) other forms of investments approved in writing by [BOND INSURER], including the 2005A Surety Bond and the 2005B Surety Bond. "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 VII 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. 4852-0231-0656.2 22 "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. "2005A Policy" means "2005B Policy" means "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; (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. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 4852-0231-0656.2 23 (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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of the Indenture, the Reserve Requirement may be satisfied by the deposit of cash or by the deposit of Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. "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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued in the original aggregate principal amount of [$26,235,000]*. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued in the original aggregate principal amount of $65,000,000*. • "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture. "2005A Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "2005B Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "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 Administrative Services Director of the City, for a full statement thereof. * Preliminary; subject to change. 4852-0231-0656.2 24 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 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein 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, 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, commencing no later than December 31, 2005, there shall be transferred from the Revenue Fund (i) into the Series 2005A Interest Account and the Series 2005B Interest Account of the Bond Fund, an amount equal to 1/6 of the interest on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next interest payment date, and (ii) into the Series 2005A Principal Account and the Series 2005B Principal Account of the Bond Fund, an amount equal to 1/12 of the principal on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next principal payment date. Moneys in the Bond Fund shall be used solely for the purpose of paying Annual Debt Service on the Bonds 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 then Outstanding in accordance with the Indenture, together with the required fees and expenses to be paid or 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) 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. Subject to transfer to the United States in payment of any arbitrage rebate due under Section 148(0 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. (e) 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 4852-0231-0656.2 25 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 appropriate Principal Account(s) of the Bond Fund at such times as may be necessary to effectuate redemptions of the Bonds on the first available redemption date. All Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS" herein. (t) Project Fund. A portion of the proceeds of the Series 2005 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 the corresponding series of Bonds by redemption or purchase. See the caption "THE SERIES 2005 Bonds — Redemption" herein. (g) Cost of Issuance Fund. A portion of the proceeds of the Series 2005 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 Accounts of the Bond 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. 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. Valuation of Funds arrd 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. 4852-0231-0656.2 26 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, (I) 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. In the case of any defeasance of Bonds, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. 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; (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 4852-0231-0656.2 27 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: (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 4852-0231-0656.2 28 (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 (t) 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. 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 2005 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 -I2 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, 2006, 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 4852-0231-0656.2 29 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 2005 Bonds; (vii) Modifications to rights of Bondowners; (viii) Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2005 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 2005 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2005 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 person" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2005 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 2005 Bonds, including Persons holding Series 2005 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. 4852-0231-06562 30 "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 2005 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 2005 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2005 Bonds. UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), (i) the Series 2005A Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005A Bonds [plus][less] a net reoffering [premium]discount] of $ and less an underwriting discount of $) ) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005A Bonds, and (ii) the Series 2005B Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005B Bonds [plus][less] a net reoffering [premium][discount] of $ and less an underwriting discount of $ ) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005B Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2005 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2005 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 2005 • 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 2005 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 2005 Bonds to the public, and may offer the Series 2005 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 2005 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 and to exclude from the scope of the agreement any financial advisory services relating to the Series 2005 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 third preceding paragraph.] 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 2005 Bonds is excluded from the 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 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 4852-0231-0656.2 31 Notwithstanding Bond Counsel's opinion that interest on the Series 2005 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 their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Series 2005 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2005 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 2005 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 2005 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 2005 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 2005 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 2005 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. Original Issue Discount. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Discount Bonds") are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as • described above. The amount of original issue discount which is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of any particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Original Issue Premium. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Premium Bonds") are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser's yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser's basis in such Premium Bond is reduced 4852-0231-0656.2 32 by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal • income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. State Taxes. Bond Counsel is of the opinion that, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2005 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 2005 Bonds the rating of "AAA" based on the delivery of the by and has assigned an underlying rating of""to to the Series 2005 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 2005 Bonds. Neither the City nor the Underwriter has undertaken any responsibility subsequent to the issuance of the Series 2005 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 2005 Bonds. LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2005 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 2005 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 2005 Bonds or questioning or affecting the legality of the Series 2005 Bonds or the proceedings and authority under which the Series 2005 Bonds are to be issued, or questioning the right of the City to issue the Series 2005 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 Sales and Use Tax or the City's ability to pay debt service with respect to the Series 2005 Bonds. 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 2005 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. • 4852-0231-0656.2 33 The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, • Arkansas. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor I 4852-0231-0656.2 34 • APPENDIX A Proposed Form of Bond Counsel 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 , 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§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_, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 1, 2005 (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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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. 4852-023]-06562 A -I • 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 • Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4852-0231-0656.2 A-2 S BOND PURCHASE AGREEMENT KUTAK ROCK LLP DRAFT 09/27/05 November _, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A nituI $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B • 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. I. 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 (i) [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $ (equal to the par amount of the Series 2005A Bonds [plus][less] a net reoffering [premium][discount] of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2005, to the Closing Date (hereinafter defined), and (ii) $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase Price," and together with the 2005A Purchase Price, the "Purchase Price") of $ • (equal to the par amount of the Series 2005B Bonds [plus][less] a net reoffering 4843-9700-4288.2 • [premium][discount] of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2005, to the Closing Date. The Series 2005 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. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by [BOND INSURER] contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. • of the City which was adopted by the City Council on October _, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), [(iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds,] and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, [(ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds,] and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the "Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Series 2004 Bonds at the times and in the • amounts provided in the Escrow Agreement. The City will undertake, pursuant to a Continuing 4843-9700-4288.2 2 • Disclosure Agreement to be dated as of the date of delivery of the Series 2005 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 2005 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 2005 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 November _, 2005, relating to the Series 2005 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 "Rule"). 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 November _, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. CI 4843-97004288.2 3 • 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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) 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 2005 Bonds, and (viii) 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 • 2005 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. (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 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 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 Series 2005 • 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 4843-9700-4288.2 4 • 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, • the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843-9700-4288.2 5 • (j) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (1) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 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 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. • 4843-9700-4288.2 • (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 _, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 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 Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 • 2005 Bonds; or 4843-9700-4288.2 7 • (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-9700-4288.2 8 • 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 2005 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 Series 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall have occurred, nor shall any development involving a prospective and material adverse 4843-9700-4288.2 9 • 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on . the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) [The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by , together with such supporting certificates of and an opinion of counsel to as shall be satisfactory to Bond Counsel]; (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of"_____ which ratings shall be in effect as of the Closing Date; (9) [The surety bond for deposit in the Series 2005A Account of the • Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for deposit in the Series 2005B Account of the Debt Service Reserve Fund (the "2005B Surety Bond"), each issued by , together with such 9: S J aIflr:rs; 10 • supporting certificates of and an opinion of counsel to as shall be satisfactory to Bond Counsel]; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in • any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 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 4843-9700-42882 11 • 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; (x) to the best of his knowledge, no event affecting 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; (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, • the Authorizing Ordinance, the Election 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 4843-9900-4288.2 12 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 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 Series 2005 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 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any 4843-9700-4288.2 14 • fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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 2005 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 p.m. on the date first above written: CITY OF FAYETTEVILLE, ARKANSAS • By: Title: Mayor 4843-9700-4288.2 15 [1 • EXHIBIT A MATURITY SCHEDULE [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $ % % % 2007 % % % 2008 % % 2009 % % 2010 % % $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2010 $ % % % 2011 % % 2012 % % 2013 % % % 2014 % % 2015 % % % 2016 % % % 2017 % % 2018 % % % (with accrued interest on all Bonds from November 1, 2005) 4843-9700-4288.2 A-1 0 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 , 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas • Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) § § 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 _, • 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 1, 2005 (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 4843-9700-4288.2 B-1 • supplemental thereto for the provisions, among others, with respect to the nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax • receipts securing the Series 2005 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 4843-9700-42882 B-2 • 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. • It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, • 4843-9700-4288.2 I;31 • EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November , 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A • and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4843-9700-4288.2 C -I • (a) An executed counterpart of the Bond Purchase Agreement dated November 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November _, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November _, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November _, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and (e) Portions of the Official Statement dated November _, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 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 MATTERS," 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: 1. 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 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 4843-9700-4288.2 C-2 • 5. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 6. The issuance of the Series 2005 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 2004 (the "Series 2004 Bonds"), and will not cause the Series 2004 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 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, • 4843-9700-4288.2 C-3 N T CA. E - KUTAK ROCK LLP DRAFT 09/27/05 WI $ PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER _, 2005 v u u X T NEW ISSUE *RATINGS:" "(Underlying"_ a BOOK -ENTRY ONLY ( Insured) 7 V a a o u In the opinion of Kutak Rock LLP, Bond Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain '5 representations and continuing compliance with certain covenants, interest on the Series 2005 Bonds is excluded from gross income for federal income tax oz purposes and is not a specific preference item for purposes of the federal alternative minimum tax. Under existing laws, regulations, rulings and judicial decisions, Bond Counsel is of the opinion that the Series 2005 Bonds and the interest thereon are exempt from allstate, county and municipal taxes in the Slate E ofArkansas. For a more complete description, see the caption "TAX MA TTERS" herein. I.,>' O O ca v E I$26,235,000]** CITY OF FAYETTEVILLE, ARKANSAS a o SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A m o 0 E o v o $65,000,000** c CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS y y L 8 y SERIES 2005B y O 3 o Dated: November 1, 2005 Due: December 1, as shown below c o The Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and the Sales and Use Tax Capital o a . Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), are being issued by s the City of Fayetteville, Arkansas (the "City") for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement 3 H Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities, (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, e c a and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF E � FUNDS," "REFUNDING PROGRAM" and "'I'IIE PROJECT" herein. c i; h .2 The Series 2005 Bonds are issuable only as fully registered bonds and, when issued, will be registered in the name of Cede & Co., as nominee of The e W V Depository Trust Company ("DTC"), New York, New York,' to which principal, premium, if any, and interest payments on the Series 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry np a. form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. E.g The Series 2005 Bonds shall bear interest from their dated date, payable on June I and December I of each year, commencing June 1, 2006. All such interest payments shall be payable to the persons in whose name such Series 2005 Bonds are registered on the bond registration books maintained by Simmons a` 'v First Trust Company, N.A., Pine Bluff, Arkansas as trustee (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 2005 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 2005 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 v n more fully described herein. a U Pursuant to a Trust Indenture dated as of November 1, 2005 (the "Indenture"), between the City and the Trustee, the payment of the principal of, '3 a premium, if any, and interest on the Series 2005 Bonds is secured by a pledge of the receipts from a three-quarters of one percent (0.75%) city-wide sales and ,o use tax (the "Sales and Use Tax"). See the caption "SECURITY FOR THE BONDS" herein. Assuming the satisfaction of certain coverage tests, the City has e'a 'a reserved the right to issue additional indebtedness to be secured on a parity basis with the Series 2005 Bonds. See the caption "THE SERIES 2005 BONDS — e 3 Additional Bonds" herein. The Series 2005 Bonds are subject to mandatory redemption prior to maturity as more fully described herein under the caption "THE SERIES 2005 BONDS - Redemption." o e ro The Series 2005 Bonds are special obligations of the City secured by and payable solely from receipts of the Sales and Use Tax. The Series 2005 v o Bonds do not constitute an indebtedness of the City within the meaning of any constitutional or statutory debt limitation or restriction. The issuance .o w .W of the Series 2005 Bonds shall not directly, indirectly or contingently obligate the City to levy or pledge any taxes whatsoever or to make any '3 appropriation for the payment of the Series 2005 Bonds, except as described herein with respect to the Sales and Use Tax. o E c H MATURITY SCHEDULE** y V O a = Series 2005A Bonds V V y Maturity Principal Interest Maturity Principal Interest (December 1) Amount Rate Yield (December 1) Amount Rate Yield c v c 2006 $ % % 2009 $ E g c 2007 2010 2008 O.� O N V N 1. O • Series 2005B Bonds Maturity Principal Interest Maturity Principal Interest (December 1) Amount Rate Yield (December 1) Amount Rate Yield 2010 $ "/o % 2015 $ % "/• 2011 2016 2012 2017 2013 2018 2014 (Plus accrued interest) The Series 2005 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 2005 Bonds will be available for delivery in New York, New York, on or about November . 2005. Stephens Inc. The date of this Official Statement is November_, 2005. • See the caption "RATINGS" herein. Preliminary; subject to change. • • CITY OF FAYETTEVILLE, ARKANSAS Issuer City Council Dan Coody, Mayor Kyle Cook Bobby Ferrell Lioneld Jordan Shirley Lucas Don Marr Robert Reynolds Robert Rhoads Brenda Thiel Stephen Davis, Finance and Internal Services Director David Jurgens, Water and Wastewater Director Sondra Smith, City Clerk Kit Williams, City Attorney • C 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 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 2005 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 2005 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 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 2005 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 • • Introductory Statement ................................................. The Series 2005 Bonds ................................................. Security for the Bonds .................................................. Book -Entry Only System .............................................. TheProject.................................................................... Refunding Program....................................................... Historical Sales and Use Tax Collections ..................... Estimated Sources and Uses of Funds .......................... Estimated Debt Service Requirements .......................... Estimated Debt Service Coverage ........................ Projected Mandatory Redemptions ....................... TheCity................................................................. The Sales and Use Tax .......................................... Definitions of Certain Terms ................................ Summary of the Indenture .................................... Summary of the Continuing Disclosure Agreement Underwriting......................................................... TaxMatters........................................................... Ratings.................................................................... LegalMatters......................................................... Miscellaneous........................................................ Accuracy and Completeness of Official Statement APPENDIX A - Form of Bond Counsel Opinion ....... ............................................. 5 ..........................................0......0.0.............0.. 33 ..................................................0.0...........00.. 33 ............................................................................. A-1 [THIS PAGE LEFT BLANK INTENTIONALLY] • PRELIMINARY OFFICIAL STATEMENT • [$26,235,000] CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BONDS SERIES 2005A $65,000,000* CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BONDS i1i11$tt4IIl1.1U 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 by the City of Fayetteville, Arkansas (the "City") of (i) Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, in the principal amount of [$26,235,000]* (the "Series 2005A Bonds"), and (ii) Sales and Use Tax Capital Improvement Bonds, Series 2005B, in the principal amount of $65,000,000* (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). 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. & 2005 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 2005 Bonds are to be issued by the City pursuant to Amendment 62, the Act and Ordinance No. adopted and approved on October _, 2005 (the "Authorizing Ordinance"), for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) financing a portion of the costs of certain improvements to the City's wastewater treatment plants, sewerage and related facilities (the "Project"), (iii) purchasing policies of municipal bond insurance, (iv) purchasing surety bonds for deposit in the debt service reserve, and (v) paying certain expenses in connection with the issuance of the Series 2005 Bonds. See the captions "ESTIMATED SOURCES AND USES OF FUNDS," "REFUNDING PROGRAM" and 'THE PROJECT" herein. The Series 2005 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"). 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 2005 Bonds, and the Series 2005 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 2005 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 2005 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 2005 Bonds under certain circumstances set forth in the Indenture (hereinafter defined). The Series 2005 Bonds and any Additional Bonds are herein collectively referred to as the "Bonds." See the caption "THE SERIES 2005 BONDS - Additional Bonds" • herein. Preliminary; subject to change. 4852-0231-0656.2 The Series 2005 Bonds are subject to redemption from excess moneys in the Project Fund following • completion of the Project and from Surplus Tax Receipts. So long as the Series 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the early redemption of the Series 2005B Bonds prior to their application to early redemption of the Series 2005A Bonds. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS." Pursuant to the provisions of a Continuing Disclosure Agreement dated as of the date of delivery of the Series 2005 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 2005 Bonds, the Sales and Use Tax, the Continuing Disclosure Agreement, and the Trust Indenture dated as of November I, 2005 (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 2005 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 2005 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Indenture. Copies of the Continuing Disclosure Agreement, the Indenture, and the forms of Series 2005A Bond and Series 2005B 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 2005 BONDS Description. The Series 2005 Bonds will be initially dated as of November 1, 2005, and will bear interest payable semiannually on June 1 and December 1 of each year, commencing June 1, 2006, at the rates set forth on the cover page hereof. The Series 2005 Bonds will mature on December 1 in the years and in the principal amounts set forth on the cover page hereof. The Series 2005 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 2005 Bonds will be made so long as Cede & Co. is the registered owner of the Series 2005 Bonds. Individual purchases of the Series 2005 Bonds will be made only in book -entry form, in denominations of $5,000 or integral multiples thereof. Individual purchasers ("Beneficial Owners") of Series 2005 Bonds will not receive physical delivery of bond certificates. See the caption "BOOK -ENTRY ONLY SYSTEM" herein. All interest payments on the Series 2005 Bonds shall be payable to the persons in whose name such Series 2005 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 2005 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 2005 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 2005 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. (a) The Series 2005A Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund moneys in excess of the amount needed to complete the Project. 4852-0231-0656.2 (ii) The Series 2005A 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, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. It is not expected that any of the Series 2005A Bonds will be redeemed prior to maturity from Surplus Tax Receipts. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. (b) The Series 2005B Bonds are subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund moneys in excess of the amount needed to complete the Project. (ii) The Series 2005B 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, (ii) maintain the Debt Service 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 2005B Bonds are Outstanding, all Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to maturity. See the caption "PROJECTED MANDATORY REDEMPTIONS" herein. In the case of any defeasance of the Series 2005B Bonds, the dates of redemption, the principal amounts and the maturities of the Series 2005B Bonds to be redeemed will be determined by taking into consideration the mandatory redemption requirements set forth above and the Sales and Use Tax receipts for the most recent twelve months. Partial Redemption of a Series 2005 Bond. If less than all of the Series 2005 Bonds of a maturity are called for redemption, the particular Series 2005 Bonds or portions of Series 2005 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 2005 Bonds, the procedures established by DTC shall control with respect to the selection of the particular Series 2005 Bonds to be redeemed. Notice of Redemption. Notice of the call for any redemption, identifying the Series 2005 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 2005 Bonds, by any other means acceptable to DTC, including facsimile) to the registered owner of each such Series 2005 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 2005 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 Project Costs in connection with the acquisition, construction, reconstruction, extension, . improving or equipping of the Project, (ii) refunding the Series 2005 Bonds or any series of Additional Bonds, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the Series 2005 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 4852-0231-0656.2 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. 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, 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. No Additional Bonds shall be issued unless there is no default at the time of issuance under the Indenture. 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. 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 2005 Bonds, transfers of beneficial interests in the Series 2005 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 • Cenral. 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 2005 Bonds pursuant to Ordinance No. _, duly adopted by the City Council of the City on October 2005 (the "Authorizing Ordinance"). 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 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 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 appropriate Account within the Debt Service Reserve Fund an amount sufficient to cause the amounts on deposit therein to be equal to 5% of the aggregate principal amount on such series of Bonds (the "Reserve Requirement"). The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds as due for which there are no available funds in the Bond Fund to make such payments. The Reserve Requirement may be satisfied by cash or by Investment Securities, including surety bonds. If the amount in an Account of 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 such Account of 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 Accounts and Principal Accounts of the Bond Fund, as provided in the Indenture). If a surplus shall exist in an Account of the Debt Service Reserve Fund over and above the Reserve Requirement, such surplus shall be deposited into the appropriate Interest Account of the Bond Fund. 4852-0231-0656.2 [Application has been made to (" ") for the issuance of surety bonds for the • purpose of funding the required portion of the Debt Service Reserve Fund for the Series 2005A Bonds (the "2005A Surety Bond") and for the Series 2005B Bonds (the "2005B Surety Bond," and together with the 2005A Surety Bond, the "Surety Bonds" ). The Series 2005 Bonds will only be delivered upon the issuance of the Surety Bonds. The premiums on the Surety Bonds are to be fully paid from the proceeds of the Series 2005 Bonds upon their issuance and delivery. The Surety Bonds provide that on the later of (i) _ U days after receipt by of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Series 2005 Bonds when due has not been made or (ii) the interest payment date specified in the Demand for Payment submitted to will promptly deposit funds with the Trustee sufficient to enable the Trustee to make such payments due on the Series 2005 Bonds, but in not event exceeding the applicable Surety Bond Coverage, as defined in the Surety Bonds. Pursuant to the terms of the each of the Surety Bonds, the applicable Surety Bond Coverage is automatically reduced to the extent of each payment made by under the terms of such Surety Bond, and the City is required to reimburse for any draws under such Surety Bond with interest at a market rate, subject to Arkansas usury limits. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the applicable Surety Bond Coverage. The reimbursement obligation of the City is subordinate to the City's obligations under the Indenture with respect to the Series 2005 Bonds. In the event the amount on deposit in, or credited to, an Account of the Debt Service Reserve Fund exceeds the amount of the applicable Surety Bond, any draw on that Surety Bond shall be made only after all of the funds in such Account have been expended. The Surety Bonds do not insure against nonpayment caused by the insolvency or negligence of the Trustee or any Paying Agent. For information on see the caption "BOND INSURANCE" herein.] BOOK -ENTRY ONLY SYSTEM The Series 2005 Bonds will be issued only as one fully registered Series 2005 Bond for each maturity of each series, 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 2005 Bonds. The fully registered Series 2005 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 2005 Bonds. Owners of any book entry interests in the Series 2005 Bonds (the "book entry interest owners") described below, will not receive or have the right to receive physical delivery of the Series 2005 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 2005 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, MRS 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 4852-0231-0656.2 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 2005 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2005 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2005 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 2005 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 2005 Bonds, except in the event that use of the Book -Entry System for the Series 2005 Bonds is discontinued. To facilitate subsequent transfers, all Series 2005 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 2005 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 2005 Bonds, DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2005 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 2005 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 2005 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 2005 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 2005 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. 4852-0231-0656.2 The Trustee and the City, so long as a book entry method of recording and transferring interest in the Series • 2005 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 2005 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 2005 Bonds made to DTC or its nominee as the registered owner of the Series 2005 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 2005 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. 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 12.6 million gallon per day advanced wastewater treatment plant and 33 wastewater pumping stations. These facilities serve an estimated population equivalent of 75,000 and transport an average daily flow of approximately 11 million gallons. Growth of the service area population and excess wet weather flows have consumed the available wastewater system capacity and have 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 new wastewater treatment plant with a capacity of 10 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 30 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 11.2 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 presently expected to be approximately $_ million. [DISCUSS CONTRACTING STATUS] This cost estimate has been developed by the various design firms and includes allowances for inflation. Within the $_ 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 in the quarter of 200_.] $ of the costs of the Project have previously been financed with proceeds of the City's • $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002, and $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004. The remaining costs of the Project are expected to be financed by a combination of the Series 2005 Bonds and other bonds secured by City sales and use taxes (subject to approval by the voters of the City) and/or bonds secured by revenues of the City's water and sewer system. 4852-0231.0656.2 REFUNDING PROGRAM • A portion of the proceeds of the Series 2005A Bonds will be used to accomplish an advance refunding of [$26,235,000] outstanding principal amount of the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of December 1, 2004 (the "Series 2004 Bonds"). The Series 2004 Bonds were issued to finance a portion of the Project. Upon delivery of the Series 2005A Bonds, certain proceeds thereof will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an irrevocable Escrow Deposit Agreement (the "Escrow Agreement") between the City and the Escrow Trustee, and will be utilized, together with available bond fund and debt service reserve fund moneys, to defease the Series 2004 Bonds. The proceeds of the Series 2005A Bonds and other available moneys to be deposited with the Escrow Trustee will be held in trust for the owners of the Series 2004 Bonds and will be utilized to purchase United States Treasury obligations or held as cash, and will be sufficient, together with the investment earnings on such obligations, to pay the principal and interest due on the Series 2004 Bonds on their respective maturity or redemption dates. After such deposit, the Series 2004 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. The accuracy of (a) the arithmetical computations of the adequacy of the maturing principal amounts of the United States Treasury obligations and uninvested cash on hand in the Series 2004 escrow account under the Escrow Agreement to pay, when due, the principal of and interest on the Series 2004 Bonds, and (b) the mathematical computations supporting the conclusion that the Series 2005A Bonds are not "arbitrage bonds" under Section 148 of the Code, will be verified by BKD, LLP, Little Rock, Arkansas, independent certified public accountants. Such verification of mathematical accuracy and mathematical computations will be based upon the mathematical computations provided by the Underwriter. HISTORICAL SALES AND USE TAX COLLECTIONS Collection of the Sales and Use Tax commenced April 1, 2002. Set forth below is a table showing City sales and use tax receipts over the last eight years and for the -month period from January 1, 2005 to • 2005. Sales and Use Tax receipts for the most recent twelve-month period ( 1, 2004 to 2005) were $ Historical Collections Year (0.75%) Growth Percentage 1997 S 7,201,068(1) n/a 1998 7,833,820(1) 8.78% 1999 8,238,781(1) 5.17% 2000 8,685,643(1) 5.42% 2001 8,951,902(1) 3.07% 2002 9,338,322(1) 4.32% 2003 9,721,700(2) 4.11% 2004 10,637,825(2) 9.42% 2005 (3) n/a (1) Reflects 75% of the collections of the City's 1% general sales and use tax. (2) Reflects actual collections of the Sales and Use Tax. (3) Reflects actual collections of the Sales and Use Tax for the -month period from January 1, 2005 to 2005. 4852-0231-06562 • • ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the Series 2005A Bonds are expected to be used as follows: Sources of Funds'] Par Amount of Series 2005A Bonds [$26,235,000] Net Reoffering [Premium] [Discount] Series 2004 Bond Fund and Debt Service Reserve Fund Total Sources: $ Uses of Fundsl'1 Deposit to 2004 Escrow Fund $ 2005A Surety Bond Premium 2005A Bond Insurance Premium Deposit to Project Fund Costs of Issuance and Underwriter's Discount Total Uses: The proceeds of the Series 2005B Bonds are expected to be used as follows: Sources of Funds') Par Amount of Series 2005B Bonds $65,000,000 Net Reoffering [Premium] [Discount] Total Sources: $ Uses of Funds(') Deposit to Project Fund $ 2005B Surety Bond Premium 2005B Bond Insurance Premium Costs of Issuance and Underwriter's Discount Total Uses: S Preliminary; subject to change. 4852-0231-0656.2 J ESTIMATED DEBT SERVICE REQUIREMENTS As of the date of closing, the Series 2005 Bonds will constitute the only debt obligations secured by receipts of the Sales and Use Tax. The following table sets forth estimates of the amounts required to pay scheduled principal of and interest on the Series 2005 Bonds during each year: Series 2005A Series 2005A Series 2005B Series 2005B Total Debt Year Principal Interest(') Principal Interest[') Service 2006 $ $ $ $ $ 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Totals: $26.235.000 $65.000.000 $ $ Preliminary; subject to change. Assuming for purposes of this Preliminary Official State, an average coupon rate on the Series 2005A Bonds of_%per annum and an average coupon rate on the Series 2005B Bonds of_%. ESTIMATED DEBT SERVICE COVERAGE • The following table shows estimated maximum annual debt service coverage with respect to the Series 2005 Bonds utilizing the most recent twelve months of Sales and Use Tax receipts. Historical Sales and Use Tax Receipts(') $ Maximum Annual Debt Service Requirement on Series 2005 Bonds2) $ Maximum Annual Debt Service Coverage X "t Sales and Use Tax receipts for the twelve-month period from 1, 2004 to , 2005. (2) Preliminary; subject to change. 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 SERIES 2005 BONDS WILL APPROXIMATE SUCH HISTORICAL RESULTS. PROJECTED MANDATORY REDEMPTIONS The table under the caption "ESTIMATED DEBT SERVICE REQUIREMENTS" does not reflect possible mandatory redemptions of the Series 2005 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, (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(1) of the Code, and (iv) to pay Trustee and Paying Agent fees and expenses. So long as any of the Series 2005B Bonds are Outstanding, all • Surplus Tax Receipts are required to be used to redeem Series 2005B Bonds prior to maturity. Upon final maturity or redemption in whole of the Series 2005B Bonds and for so long as any of the Series 2005A Bonds are Outstanding, Surplus Tax Receipts are required to be used to redeem Series 2005A Bonds prior to maturity. IT IS NOT EXPECTED THAT ANY OF THE SERIES 2005A BONDS WILL BE REDEEMED PRIOR TO 4852-0231-0656.2 10 MATURITY FROM SURPLUS TAX RECEIPTS. 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. Series 2005A and Series 2005A Bonds Series 2005B Bonds Total Series 2005A and Year Ending Series 2005B Redeemed Prior to Redeemed Prior to Series 2005B December If1 Principal Due Mat,Maturity2) Maturity2) Principal Retired 2006 $ $ -0- $ $ 2007 -0- 2008 -0- 2009 -0- 2010 -0- 2011 -0- 2012 -0- 2013 -0- 2014 -0- ttl Series 2005 Bonds are subject to mandatory redemption from Surplus Tax Receipts on each June I and December 1. See the caption "THE SERIES 2005 BONDS — Redemption" herein. (2) Assuming Sales and Use Tax receipts of S for the twelve months ending December 1, 2006, and YIV130" i 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 comer 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. The City's elected officials and the dates on which their respective terms expire are as follows: Name Office Term Expires Dan Coody Mayor 12/31/08 Kit Williams City Attorney 12/31/06 Sondra Smith City Clerk 12/31/08 Kyle Cook Alderman 12/31/06 Lioneld Jordan Alderman 12/31/08 Don Marr Alderman 12/31/08 Robert Reynolds Alderman 12/31/06 Shirley Lucas Alderman 12/31/06 Brenda Thiel Alderman 12/31/08 Robert Rhoads Alderman 12/31/06 • Bobby Ferrell Alderman 12/31/08 4852-0231-06562 1 1 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 30,729 127,846 1,923,322 1980 36,608 178,609 2,286,435 1990 42,099 210,908 2,350,624 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 19,590 17,750 1995 20,193 18,546 1996 20,870 19,442 1997 21,586 20,228 1998 22,893 21,256 1999 24,213 22,223 2000 23,316 21,995 2001 24,585 22,750 2002 24,788 23,556 2003 25,359 24,384 • 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 $1,880,105,000 $16,997,721,000 11.06% 1994 2,217,229,000 19,090,516,000 11.61 1995 2,486,425,000 20,998,923,000 11.84 1996 2,692,554,000 22,053,022,000 12.21 1997 2,845,968,000 22,872,236,000 12.44 1998 3,018,896,000 23,944,647,000 12.61 1999* n/a n/a n/a 2000 3,526,791,000 28,488,033,000 12.38 2001 3,806,422,000 29,652,693,000 12.84 2002 3,841,326,000 29,269,775,000 13.12 2003 3,968,812,000 29,920,716,000 13.26 2004 4,610,051,000 31,463,983,000 14.65 * Methodology changed to calendar year basis. No reliable information is available for 1999. Source: Sales and Marketing Management Survey of Buying Power. 0 4852-0231-06562 12 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 340,593,452 101,274,620 441,868,072 1996 359,369,202 113,157,365 472,526,567 1997 382,798,143 120,064,627 502,862,770 1998 401,001,338 127,575,096 528,576,434 1999 413,648,415 137,404,499 551,052,914 2000 432,951,171 145,147,891 578,099,062 2001 486,853,822 155,794,579 642,648,401 2002 541,004,690 158,688,783 699.693,473 2003 565,846,525 167,638,657 733,485,182 2004 649,361,820 183,102,702 832,464,522 Source: Washington County Tax Assessor's Office. The assessed value represents 20% of the appraised value of property. Building permits issued by the Cityl') are shown below for the years indicated: 2001 2002 2003(2) 2004 Residential Building 339 328 735 755 Permits Commercial Building 38 35 31 29 Permits Value of All Building • Permits $85,262,302 $100,809,486 $179,007,987 $164,695,359 (1) 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 significant 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. 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 3.6 5.7 2005* 2.9 4.8 * August, 2005 only, preliminary. 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 2005 of approximately 17,821. For the 2005-06 fiscal year ending June • 30, 2006, the University has an operating budget in excess of $ million, which does not include the agricultural experimentation station or other associated operations. On the Fayetteville campus, the University employs approximately faculty, administrative, secretarial, clerical and maintenance personnel in both full- time and part-time positions, making the University the largest employer in the City. 4852-0231-0656.2 13 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 1,000-2,499 Superior Industries Cast Aluminum Wheels 1,000-2,499 Washington Regional Medical Medical 1,000-2,499 Center Tyson Foods, Inc. 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 300-499 Dillard's Department Store Retail 300-499 McClinton Anchor Co. Limestone & Hot Mix 300-499 Veterans Admin. Med. Ctr. Medical 300-499 Wal-Mart Supercenter Retail 300-499 Washington County Government 300-499 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 2005 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; provided, however, sales taxes are not levied on services purchased by radio or television providers for use in providing their 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; 4852-0231-0656.2 14 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; service of providing indoor tanning at a tanning salon; wrecker and towing services; service of collecting and disposing of solid waste; parking lot and gutter cleaning services; dry cleaning and laundry services; industrial laundry services; mini warehouse and self storage rental services; body piercing, tattooing and electrolysis services; pest control services; security and alarm monitoring services; boat storage and docking fees; furnishing campground spaces or trailer spaces at public or privately owned campgrounds, except for federal campgrounds, on less than a month -to -month basis; locksmith services; pet grooming and kennel services; and the new installation and replacement labor for hardwood, vinyl, ceramic tile or other types of flooring; and (vi) Initial installation services relating to motor vehicles, aircraft, farm machinery and implements, motors of all kinds, tires and batteries, boats, electrical appliances and devices, furniture, rugs, flooring, upholstery, household appliances, television and radio, 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; provided, however, if the item being installed is specifically exempted from the imposition of the sales tax, the service of installation will also be exempt; • (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; (0 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; (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; (h) Orders by telegraph, telephone or other ,means of communication transmitted by florists; (i) Sales of beer, wine, liquor or any intoxicating beverages; (j) Proceeds derived from the operation or use of coin -operated pinball machines, coin -operated music machines, coin -operated mechanical games, and similar devices; (k) Contracts, including service contracts, maintenance agreements and extended warranties, which in whole or in part provide for the future performance of or payment for services which are subject to the sales tax; (1) Receipts derived from the retail sale of any device used in playing bingo and any charge for admittance to facilities or for the right to play bingo or other games of chance regardless of whether such activity might otherwise be permitted by law; and (m) The first $50,000 of the purchase price from the sale of machinery or equipment and related • attachments that are sold to or used by a person engaged primarily in the harvesting of timber. 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: 4852-0231-0656.2 15 (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 certain set dollar amounts; (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; (f) 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 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, to the Arkansas Future Farmers of America Foundation and the Arkansas Future Farmers of America Association, to qualified museums and to the Arkansas Symphony Orchestra, Inc.; (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; (j) 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; 4852-0231-0656.2 16 (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; (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; (fl) 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; (jj) Feedstuffs used in the commercial production of livestock or poultry; (kk) New and used mobile homes and custom manufactured homes; (1I) 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 and wall and floor tile manufacturers; (oo) Electricity used for the production of chlorine and other chemicals using a chlor-alkali manufacturing process; • (pp) Tangible personal property lawfully purchased with food stamps, food coupons, food instruments or vouchers in connection with certain Federal programs; (qq) Publications sold through regular subscriptions; 4852-0231-0656.2 17 (rr) 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; (ss) Prescriptive durable medical equipment, mobility enhancing equipment and prescriptive disposable medical equipment; (it) Insulin and test strips for testing blood sugar levels in humans; (uu) Telephone instruments sent into the State for refurbishing or repair and then shipped back to the state of origin; (vv) Industrial metal rollers sent into the State for repair or remanufacture and then shipped back to the state of origin; (ww) 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; (xx) 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; (yy) Parts or other tangible personal property incorporated into or which become a part of commercial jet aircraft component or subcomponent; (zz) Transfer of fill material by a business engaged in transporting or delivering fill material; (aaa) Long-term leases, thirty days or more, of commercial trucks used for interstate transportation of goods under certain conditions; • (bbb) Foodstuffs to nonprofit agencies; (ccc) 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; (ddd) Natural gas used as a fuel in the process of manufacturing glass; (eee) Sales to Fort Smith Clearinghouse; (fff) Substitute fuel used in producing, manufacturing, fabrication, assembling, processing, finishing or packaging of articles at manufacturing facilities or processing plants in the State; (ggg) Railroad rolling stock used in transporting persons or property in interstate commerce; (hhh) 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; (iii) 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; (jjj) Gas produced from biomass and sold for the purpose of generating energy to be sold to the gas producer; (kkk) Parts or other tangible personal property incorporated into or which become part of commercial jet aircraft components or subcomponents; (I11) Catalysts, chemicals, reagents and solutions which are consumed or used in producing, manufacturing, processing or finishing articles of commerce at manufacturing or processing plants in the State; (mmm) Fuel packaging materials sold to persons engaged in the business of processing hazardous and • non -hazardous waste materials into fuel products; (nnn) Instructional materials used in public schools; and (000) Livestock reproduction equipment and substances used in livestock reproduction. 4852-0231-0656.2 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 fuel) 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; (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; (f) Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing 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) Modular homes constructed with materials on which the sales or use tax has once been paid; 4852-0231-0656.2 19 (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; (j) 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; (I) All new and used motor vehicles, trailers or semi -trailers that are purchased for a total consideration of less than $2,500; 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 Revenues of the State (the "Commissioner") 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 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 maybe 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 terms 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 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" means Bonds in addition to the Series 2005 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, 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 from sources other than Sales and Use Tax receipts. • "Authorized Representative" means either the Mayor or the 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. 4852-0231-0656.2 20 "Authorizing Ordinance" means Ordinance No. adopted by the City on October , 2005, which • authorized the issuance of the Series 2005 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 2005 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 is limited to the extent described under the caption "THE SERIES 2005 BONDS —Additional Bonds" herein. "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. "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, 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, 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 4852-0231-0656.2 21 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 October 1, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any 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 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; and (I) other forms of investments approved in writing by [BOND INSURER], including the 2005A Surety Bond and the 2005B Surety Bond. "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 VII 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. 4852-0231-0656.2 22 "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. "2005A Policy" means "2005B Policy" means "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; (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. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 4852-0231-0656.2 23 (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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of the Indenture, the Reserve Requirement may be satisfied by the deposit of cash or by the deposit of Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. "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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued in the original aggregate principal amount of [$26,235,000]*. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued in the original aggregate principal amount of $65,000,000. • "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of the Indenture. "2005A Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "2005B Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein. "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 Administrative Services Director of the City, for a full statement thereof. • *Preliminary; subject to change. 4852-0231-0656.2 24 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 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein Debt Service Reserve Fund, and a Series 2005A Account and a Series 20058 Account therein 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, 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, commencing no later than December 31, 2005, there shall be • transferred from the Revenue Fund (i) into the Series 2005A Interest Account and the Series 2005B Interest Account of the Bond Fund, an amount equal to 1/6 of the interest on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next interest payment date, and (ii) into the Series 2005A Principal Account and the Series 2005B Principal Account of the Bond Fund, an amount equal to 1/12 of the principal on the Series 2005A Bonds and the Series 2005B Bonds, respectively, due on the next principal payment date. Moneys in the Bond Fund shall be used solely for the purpose of paying Annual Debt Service on the Bonds 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 then Outstanding in accordance with the Indenture, together with the required fees and expenses to be paid or 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) 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. Subject to transfer to the United States in payment of any arbitrage rebate due under Section l48(t) 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. (e) 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 4852-0231-0656.2 25 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 appropriate Principal Account(s) of the Bond Fund at such times as may be necessary to effectuate redemptions of the Bonds on the first available redemption date. All Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds. See the captions "THE SERIES 2005 BONDS — Redemption" and "PROJECTED MANDATORY REDEMPTIONS" herein. (f) Project Fund. A portion of the proceeds of the Series 2005 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 the corresponding series of Bonds by redemption or purchase. See the caption "THE SERIES 2005 Bonds — Redemption" herein. (g) Cost of Issuance Fund. A portion of the proceeds of the Series 2005 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 Accounts of the Bond 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. 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. 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 ofFurther 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. 4852-0231-0656.2 26 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. In the case of any defeasance of Bonds, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. 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; (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 4852-0231-0656.2 27 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: (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 4852-0231-0656.2 28 (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. 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 2005 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, 2006, 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 4852-0231-0656.2 29 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 2005 Bonds; (vii) Modifications to rights of Bondowners; (viii) Bond calls; (ix) Defeasances; (x) Release, substitution or sale of property securing payment of the Series 2005 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 2005 Bonds, and shall be enforceable by any Beneficial Owner of the Series 2005 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 person" within the meaning of the Rule or upon the maturity, defeasance, prior redemption or payment in full of the Series 2005 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 2005 Bonds, including Persons holding Series 2005 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. 4852-0231-0656.2 30 "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 2005 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 2005 Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Series 2005 Bonds. UNDERWRITING Under a bond purchase agreement entered into by and among the City and Stephens Inc. (the "Underwriter"), (i) the Series 2005A Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005A Bonds [plus][less] a net reoffering [premium][discountl of $ and less an underwriting discount of $) ) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005A Bonds, and (ii) the Series 2005B Bonds are being purchased at a purchase price of $ (representing the stated principal amount of the Series 2005B Bonds [plus][less] a net reoffering [premium][discount] of $ and less an underwriting discount of $ ) plus accrued interest from November 1, 2005 to the date of delivery of the Series 2005B Bonds. The bond purchase agreement provides that the Underwriter will purchase all of the Series 2005 Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Series 2005 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 2005 • 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 2005 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 2005 Bonds to the public, and may offer the Series 2005 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 2005 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 and to exclude from the scope of the agreement any financial advisory services relating to the Series 2005 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 third preceding paragraph.] 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 2005 Bonds is excluded from the 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 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. Bond Counsel has expressed no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 4852-0231-0656.2 31 Notwithstanding Bond Counsel's opinion that interest on the Series 2005 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 their alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses). The accrual or receipt of interest on the Series 2005 Bonds may otherwise affect the federal income tax liability of the owners of the Series 2005 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 2005 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 2005 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 2005 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 2005 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 2005 Bonds, and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation. Original Issue Discount. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Discount Bonds") are being sold at an original issue discount. The difference between the initial public offering prices of such Discount Bonds and their stated amounts to be paid at maturity constitutes original issue discount treated in the same manner for federal income tax purposes as interest, as • described above. The amount of original issue discount which is treated as having accrued with respect to a Discount Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such Discount Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such Discount Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discount Bond, on days which are determined by reference to the maturity date of such Discount Bond. The amount treated as original issue discount on such Discount Bond for a particular semiannual accrual period is equal to the product of (i) the yield to maturity for such Discount Bond (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discount Bond at the beginning of any particular accrual period if held by the original purchaser, less the amount of any interest payable for such Discount Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discount Bond the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If such Discount Bond is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of Discount Bonds should consult their tax advisors with respect to the determination and treatment of original issue discount accrued as of any date and with respect to the state and local tax consequences of owning a Discount Bond. Original Issue Premium. The Series 2005A Bonds maturing in and the Series 2005B Bonds maturing in (collectively, the "Premium Bonds") are being sold at a premium. An amount equal to the excess of the issue price of a Premium Bond over its stated redemption price at maturity constitutes premium on such Premium Bond. An initial purchaser of a Premium Bond must amortize any premium over such Premium - Bond's term using constant yield principles, based on the purchaser's yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the premium to the call date, based on the purchaser's yield to the call date and giving effect to the call premium). As premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser's basis in such Premium Bond is reduced 4852-0231-0656.2 32 by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal • income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis may be reduced, no federal income tax deduction is allowed. Purchasers of the Premium Bonds should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes and with respect to the state and local tax consequences of owning a Premium Bond. State Taxes. Bond Counsel is of the opinion that, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2005 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 2005 Bonds the rating of "AAA" based on the delivery of the by and has assigned an underlying rating of""to to the Series 2005 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 2005 Bonds. Neither the City nor the Underwriter has undertaken any responsibility subsequent to the issuance of the Series 2005 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 2005 Bonds. LEGAL MATTERS Legal Opinions. Legal matters incident to the authorization and issuance of the Series 2005 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 2005 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 2005 Bonds or questioning or affecting the legality of the Series 2005 Bonds or the proceedings and authority under which the Series 2005 Bonds are to be issued, or questioning the right of the City to issue the Series 2005 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 Sales and Use Tax or the City's ability to pay debt service with respect to the Series 2005 Bonds. 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 2005 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. 4852-0231-0656.2 33 The execution and delivery of this Official Statement has been duly authorized by the City of Fayetteville, • Arkansas. CITY OF FAYETTEVILLE, ARKANSAS Mayor 0 4852-0231-0656.2 34 • APPENDIX A Proposed Form of Bond Counsel 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 9 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds • Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§ 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 _, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 1, 2005 (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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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. 4852-0231-06562 A-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 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 • Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 00 4852-0231-0656.2 A-2 KUTAK ROCK LLP DRAFT 09/27/05 CJ CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement dated as of November _, 2005 (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 (i) the City's [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) the City's $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, 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_, 2005 (the "Authorizing Ordinance"), and a Trust Indenture dated as of November 1, 2005 (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 15B(b)(1) of the 1934 Act. r. • "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, 2006, 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: 4848-7096-0896.2 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; • 4848-7096-0896.2 r • (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 4848-7096-0896.2 4 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 • 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 • L� Rv- Title: Mayor SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Title: i • EXHIBIT A NOTICE TO REPOSITORIES REGARDING FINANCIAL INFORMATION NAME OF ISSUER: City of Fayetteville, Arkansas NAME OF BOND ISSUES: [$26,235,000) Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B DATE OF ISSUANCE: November __,2005 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 _, 2005, between the City and Simmons First Trust Company, N.A., as trustee. [The City anticipates that the Annual Financial Information will be filed by .] Dated: SIMMONS FIRST TRUST COMPANY, N.A., as Trustee cc: City of Fayetteville Stephens Inc. 4848-7096-0896.2 A- l • 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.gov/info/municipal/nrmsir.htm. Bloomberg Municipal Repository 100 Business Park Drive Skillman, NJ 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 http://www.bloomberg.com/markets/rates/municontacts.html E-mail: Munis@Bloomberg.com DPC Data Inc. One Executive Drive • Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 http://www.dpcdata.com E-mail: nrmsir@dpcdata.com FT Interactive Data Attn: NRMSIR 100 William Street, 15`h Floor New York, NY 10038 Phone: (212) 771-6999; 800-689-8466 Fax: (212) 771-7390 http://www.ftid.com Email: NRMSIRna interactivedata.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 www.jjkenny.com/jjkenny/pserdescripjlatarep.html Email: nrmsir_repository@sandp.com • 4848-7096-0896.2 B-1 KUTAK ROCK LLP DRAFT 09/27/05 • ESCROW DEPOSIT AGREEMENT THIS ESCROW DEPOSIT AGREEMENT (this "Agreement") dated November _, 2005, by and between the City of Fayetteville, Arkansas, a political subdivision of the State of Arkansas (the "City"), and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, a national banking association organized and existing by virtue of the laws of the United States of America, as escrow trustee for the hereinafter defined Prior Bonds (the "Escrow Trustee"). WITNESSETH: WHEREAS, the City has heretofore issued its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of November 1, 2004, of which [$26,235,000] aggregate principal amount remain outstanding and are stated to mature on December 1, 2005 to December 1, 20__, inclusive (the "Prior Bonds"); and WHEREAS, the terms of and the security for the Prior Bonds are prescribed by that certain Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., as trustee (the "Prior Trustee"); and WHEREAS, Article VII of the Prior Indenture provides under certain circumstances that the Prior Bonds shall be deemed paid within the meaning of the Prior Indenture if there shall be on deposit with the Prior Trustee moneys or certain types of investment obligations described therein maturing on or prior to the maturity or redemption dates of the Prior Bonds and sufficient to pay when due the principal of, premium, if any, and interest on the Prior Bonds to the maturity date or redemption date, as the case may be; and WHEREAS, the City, pursuant to an ordinance adopted by its City Council on October _, 2005, and the Constitution and laws of the State of Arkansas, has authorized the issuance of [$26,235,000] aggregate principal amount of its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Refunding Bonds"), a portion of the proceeds of which are to be used, together with other available funds, to refund all of the Prior Bonds; and WHEREAS, the City has made arrangements for deposit with the Escrow Trustee of moneys and investment obligations derived from and purchased with (a) a portion of the proceeds derived from the sale of the Refunding Bonds, (b) amounts released from the Bond Fund for the Prior Bonds, and (c) amounts released from the Debt Service Reserve Fund for the Prior Bonds, which in the aggregate will provide sufficient immediately available funds to enable the Escrow Trustee to pay the principal of and interest on the Prior Bonds upon maturity and upon redemption prior to maturity, all as set forth on Schedule I hereto; and WHEREAS, the City has entered into this Agreement with the Escrow Trustee in order to ensure that the procedures required for discharging the Prior Bonds will be followed; • 4848-2069-0784.2 NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth, and in order to provide for the redemption of the Prior Bonds and to set forth the obligations of the parties hereto, the parties hereto agree as follows: Section 1. Establishment of Escrow Fund. There is hereby created and established with the Escrow Trustee a special, segregated and irrevocable escrow account designated "City of Fayetteville, Arkansas - 2004 Refunding Escrow Fund" (the "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 Prior Bonds, separate and apart from other funds of the City and the Escrow Trustee. Section 2. Deposit to Escrow Fund; Application of Moneys. Simultaneously with the execution of this Agreement, the City has sold and delivered the Refunding Bonds. From the proceeds of the sale of the Refunding Bonds, the City has delivered to the Escrow Trustee for deposit in the Escrow Fund immediately available moneys in the amount of $ . The Escrow Trustee, in its role as Prior Trustee, is hereby directed to liquidate all investments in the Bond Fund and Debt Service Reserve Fund established under the Prior Indenture and applicable to the Prior Bonds, and to transfer such moneys (viz., the sum of $ ) to the Escrow Fund. The Escrow Trustee has purchased, from and as an investment of moneys in the Escrow Fund, at the prices indicated, the direct noncallable obligations of the United States of America identified in Schedule 2 attached hereto (the "Government Obligations"). Accordingly, the Escrow Trustee now holds (or has the right to receive principal and interest on) the Governmental Obligations and $ in uninvested cash. • Section 3. Deposit to Escrow Fund Irrevocable. The deposit of the moneys and Governmental Obligations in the Escrow Fund shall constitute an irrevocable deposit of said moneys and Governmental Obligations exclusively for the benefit of the owners of the Prior Bonds, and such moneys and Governmental Obligations shall be held in escrow and shall be applied solely to the payment of the principal of and interest on the Prior Bonds through and including the redemption and maturity dates shown on Schedule 1. Subject to the requirements set forth herein for the use of the Escrow Fund and the moneys therein, the City covenants and agrees that the Escrow Trustee shall have full and complete control and authority over and with respect to the Escrow Fund and the moneys and Governmental Obligations deposited therein. Section 4. Use of Moneys. The Escrow Trustee shall apply the moneys and Governmental Obligations deposited in the Escrow Fund, together with any interest or income earned thereon, in accordance with the provisions hereof. The Escrow Trustee shall withdraw from the Escrow Fund immediately available funds for application to the payment of the principal of and interest on the Prior Bonds in the amounts and at the times necessary in accordance with Schedule I attached hereto. Schedule 3 attached hereto shows the availability and application of moneys in the Escrow Fund necessary to meet the requirements set forth in Section 1. The Escrow Trustee shall not sell, transfer, otherwise dispose of or cause to be redeemed prior to maturity, any Government Obligations, except as authorized by Section 5 hereof. The • Escrow Trustee shall make no further investment or reinvestment except as expressly authorized by Section 5. The liability of the Escrow Trustee for the payment of the amounts to be paid hereunder shall be limited to the moneys available for such purposes in the Escrow Fund. 4848-20694784.2 2 Subject to the provisions of Section 5 hereof, any amounts held as cash in the Escrow Fund shall be held in cash without any investment thereof, not as a deposit with any bank or other depository. The Escrow Trustee shall not have any duty with respect to calculating or verifying the mathematical sufficiency of the moneys in the Escrow Fund to be utilized to pay the principal of and interest on the Prior Bonds as the same shall become due and payable. Section 5. Investment of Escrow Fund Moneys. (a) The Escrow Trustee may from time to time sell, cause the redemption of, or otherwise dispose of any Government Obligations in the Escrow Fund upon the substitution of other direct or fully guaranteed and noncallable obligations of the United States of America, provided: (1) The Escrow Trustee shall have previously obtained an opinion of an independent certified public accountant that the substitution will not adversely affect the availability of moneys in the Escrow Fund at times and in amounts sufficient to meet the required payments on the Prior Bonds provided in Schedule 1 attached hereto; and (2) The Escrow Trustee shall receive an unqualified opinion of recognized attorneys in the field of tax-exempt municipal bonds to the effect that, if such substitution had been reasonably expected on the date of issuance of the Prior Bonds, such substitution would not have caused any of the Prior Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations of the U.S. Treasury thereunder proposed or in effect at the • time of such substitution and applicable to obligations issued on the date of issuance of the Prior Bonds, so as to adversely affect the exemption from Federal income taxation of the interest on the Prior Bonds or the Refunding Bonds; and (3) The City shall have given the Escrow Trustee its written consent to the substitution. All substituted obligations shall become a part of the Escrow Fund and shall be "Government Obligations" for all purposes of this Agreement. (b) Notwithstanding any other provision of this Agreement, the City and the Escrow Trustee hereby covenant that no part of the proceeds of the moneys in the Escrow Fund shall be used, at any time, directly or indirectly, in such a manner which, if such use had been reasonably anticipated on the date of issuance of the Refunding Bonds, would have caused any of the Refunding Bonds to be an "arbitrage bond" under Section 148 of the Code and the regulations of the U.S. Treasury thereunder proposed or in effect at the time of such use and applicable to obligations issued on the date of issuance of the Refunding Bonds. Section 6. Redemption and Defeasance. (a) The City hereby calls the Prior Bonds for redemption prior to maturity on 1, 20 1, 20__, and 1 20_, as follows: [INSERT CHART SHOWING REDEMPTION DATES] 0 V • The instructions to the Escrow Trustee to redeem portions of the Prior Bonds on 1, 20 1, 20 and 1, 20 are hereby declared to be irrevocable. Except as set forth above, the Prior Bonds will be redeemed at their respective maturity dates. (b) The Escrow Trustee is hereby irrevocably instructed to give notice of the call for redemption to the registered owners of those Prior Bonds to be redeemed prior to maturity. Such notice shall be given by first class mail, postage prepaid, in the form attached hereto as Exhibit A, at least thirty (30) days prior to the applicable redemption date. (c) As soon as practicable after receipt of these instructions, the Escrow Trustee shall mail by first class mail, postage prepaid, to all of the registered owners of the Prior Bonds, a notice of defeasance in the form attached hereto as Exhibit B. Section 7. Remaining Moneys in Escrow Fund. Upon the retirement of the Prior Bonds, any amounts remaining in the Escrow Fund shall be deposited in the bond fund for the Refunding Bonds, free and clear of the trust created by the Prior Indenture and this Agreement. Section S. Rights of Owners of Prior Bonds. The escrow created hereby shall be irrevocable and the owners of the Prior Bonds shall have a beneficial interest and a first, prior and paramount lien and claim on all moneys in the Escrow Fund until paid out, used and applied in accordance with this Agreement. • Section 9. Fees of Escrow Trustee. In consideration of all services to be rendered by the Escrow Trustee under this Agreement, the City has made arrangements satisfactory to the Escrow Trustee for payment of its reasonable fees and expenses, and the Escrow Trustee hereby acknowledges that it shall have no lien whatsoever upon any moneys in the Escrow Fund for payment of such fees and expenses. The Escrow Trustee agrees to remain in office until all of the Prior Bonds have been redeemed. Except to the extent arising from their gross negligence or willful misconduct, the Escrow Trustee and its respective successors, assigns, agents and servants shall not be held to any liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys and Governmental Obligations deposited therein, or by reason of any act, omission or error of the Escrow Trustee made in good faith in the conduct of its duties. The Escrow Trustee makes no representations or warranties as to whether the Escrow Fund is adequate or sufficient to defease or redeem the Prior Bonds and shall not be responsible or liable for any inadequacy or insufficiency. The Escrow Trustee shall be entitled to the immunities, powers, privileges and protections set forth in the Prior Indenture for the benefit of the Trustee as if set forth herein in their entirety. Section 10. Enforcement. The City and the owners of the Prior Bonds shall have the • right to take all actions available under law or equity to enforce this Agreement or the terms hereof. 4848-2069-4784.2 4 Section 11. Successors Bound. All covenants, promises and agreements in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the City, the Escrow Trustee and the owners of the Prior Bonds, whether so expressed or not. Section 12. Arkansas Law Governing. This Agreement shall be governed by the applicable laws of the State of Arkansas. Section 13. Termination. This Agreement shall terminate when all of the Prior Bonds have been paid as aforesaid and any remaining moneys have been transferred as provided in Section 7 hereof. Section 14. Severability. 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 covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Section 15. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be one and the same instrument. Section 16. No Recourse Against City Officers and Employees. No recourse shall be had for the payment of the principal of or interest on any of the Prior Bonds or for any claim based thereon or upon any obligation, covenant or agreement in this Agreement contained against any past, present or future officer, member, alderman or employee of the City or of 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 officers, members, aldermen or employees, as such, is hereby expressly waived and released as a condition of and consideration for the execution of this Agreement. Section 17. Notices. Unless otherwise provided, any notice, demand, direction, request or other instrument authorized or required by this Agreement to be given to or filed with the City or the Escrow Trustee shall be in writing and shall be addressed as follows: To the City: City of Fayetteville, Arkansas 113 West Mountain Fayetteville, Arkansas 72701 Attention: Finance & Internal Services Director To the Escrow Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: • 4848-2069-4784.2 5 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers as of the date first above written. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor SIMMONS FIRST TRUST COMPANY, N.A. By:_ Title: 0 [SIGNATURE PAGE TO ESCROW AGREEMENT] 4848-20694784.2 SCHEDULE1 REQUIREMENTS TO PAY AND REDEEM THE PRIOR BONDS Principal Payment Date Principal Due Redeemed 12-1-05 $ 6-1-06 12-1-06 6-1-07 12-1-07 6-1-08 12-1-08 J I Ej Redemption Premium Interest Due Total Due S -I • SCHEDULE2 DESCRIPTION OF GOVERNMENT OBLIGATIONS Type Maturity Date Principal Amount Coupon Rate U.S. Treasury Securities - SLGS $ % • S-2 4848-2069-4784.2 • SCHEDULE3 SCHEDULE OF AVAILABILITY AND APPLICATION OF ESCROW FUND Cash Balance at Period Ending Beginning of Period 11-_-05 $ - 12-1-05 6-1-06 12-1-06 6-1-07 12-1-07 6-1-08 12-1-08 Receipts from Debt Service Requirement Cash Balance at Government Obligations to Retire Prior Bonds End of Period 4848-20694784.2 S-3 EXHIBIT A • NOTICE OF REDEMPTION City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN by Simmons First Trust Company, N.A., Pine Bluff, Arkansas, the trustee (the "Trustee") for the Sales and Use Tax Capital Improvement Bonds, Series 2004, of the City of Fayetteville, Arkansas (the "City"), dated November 1, 2004 (the "Bonds"), that $ principal amount of the outstanding Bonds maturing on December 1, 20_ [and December 1, 20_] are hereby called for redemption and prepayment on 1, 20_. The outstanding Bonds called for redemption mature, bear interest and have been assigned CUSIP numbers as follows: Maturity Date (December 1) Principal Amount Interest Rate CUSIP $ No representation is made as to the accuracy of the CUSIP numbers set forth above, and the • redemption of the Bonds shall not be affected by any defect in or omission of such numbers. Each of the Bonds so called for redemption and prepayment shall be redeemed and prepaid at a redemption price of 100.0% of the principal amount thereof plus accrued interest to the date of redemption. The Bonds shall cease to bear interest as of 1, 20_. The Bonds so called for redemption shall be payable at the corporate trust office of the Trustee and shall be presented as follows: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: 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 , 200_. SIMMONS FIRST TRUST COMPANY, N.A. as Trustee • Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails no later than 1, 20_. 4848-2069-4784.2 A-1 • EXHIBIT B NOTICE OF DEFEASANCE City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN THAT, pursuant to the provisions 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 (the "Indenture"), under which the bonds referenced above (the "Bonds") were issued and secured, there has been deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as Trustee for the Bonds, moneys and direct noncallable obligations of the United States of America, sufficient in amount to pay at maturity and upon redemption, all of the outstanding Bonds. [INSERT CHART SHOWING REDEMPTION DATES] The Bonds called for redemption shall be redeemed at a price of 100% of the principal amount thereof, together with accrued interest to the date of redemption. On and after the applicable redemption dates, interest on the Bonds so called for redemption shall cease to accrue. As a result of the deposit with the Trustee of the moneys and direct noncallable obligations of the • United States of America described above, the Bonds are deemed to have been paid in accordance with Article VII of the Indenture. For further inquiries, contact Simmons First Trust Company, N.A., 501 Main Street, Pine Bluff, Arkansas 71601, Attn: Glenda Dean, phone (870) 541-1424. Date of mailing: December _, 2005 SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be • redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails as soon as possible after December 1, 2005. B-1 4848-2069-0784.2 • • E J KUTAK ROCK LLP DRAFT 09/27/05 CITY OF FAYETTEVILLE, ARKANSAS to SIMMONS FIRST TRUST COMPANY, N.A. as Trustee TRUST INDENTURE Dated as of November 1, 2005 Providing for: [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,0000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 4838-2657-8944.2 CI TABLE OF CONTENTS (This Table of Contents is not a part of the Trust Indenture and is only for convenience of reference.) Pape No. Parties.............................................................................................................................................. 1 Recitals............................................................................................................................................ I GrantingClauses............................................................................................................................. 2 ARTICLE I DEFINITIONS Section101. Definitions........................................................................................................ 4 Section102. Use of Words................................................................................................. 11 ARTICLE II THE BONDS Section Section Section Section204. Section205. 201. 202. 203. Security for the Bonds................................................................................... Authorized Amount....................................................................................... Details of the Bonds....................................................................................... Forms............................................................................................................. Payment.......................................................................................................... 11 12 12 13 13 • Section Section207. Section 206. 208. Execution....................................................................................................... Authentication................................................................................................ Delivery of the Bonds.................................................................................... 14 14 14 Section 209. Mutilated, Destroyed or Lost Bonds.............................................................. 16 Section 210. Registration and Transfer of Bonds............................................................... 17 Section211. Cancellation................................................................................................... 18 Section 212. Additional Bonds........................................................................................... 18 Section Section214. Section215. Section 213. 216. Superior Obligations Prohibited.................................................................... [RESERVED]................................................................................................ Temporary Bonds........................................................................................... Book -Entry Bonds; Securities Depository ..................................................... 18 19 19 19 • ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section 301. Redemption of the Bonds............................................................................... 20 Section302. Notice............................................................................................................. 21 Section 303. Selection of Bonds to be Redeemed.............................................................. 21 Section 304. Surrender of Bonds Upon Redemption.......................................................... 22 Section 305. Redemption in Part........................................................................................ 22 Section 306. Redemption of Additional Bonds.................................................................. 22 ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest ..................................... 22 Section 402. Performance of Covenants............................................................................. 23 4838-2657.89442 i • Section Section Section Section406. Section Section 403. £04. 405. 407. 408. Instruments of Further Assurance.................................................................. Recordation and Filing................................................................................... Inspection of Books....................................................................................... Tax Covenants............................................................................................... Trustee's and Paying Agent's Fees and Expenses ......................................... Construction of Project; Certification of Completion Date ........................... 23 23 23 23 24 24 Section409. Encumbrances................................................................................................ 24 Section 410. Continuing Disclosure................................................................................... 24 ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts.................................................................... 25 Section502. Project Fund................................................................................................... 25 Section503. Revenue Fund................................................................................................ 26 Section504. Bond Fund...................................................................................................... 27 Section 505. Cost of Issuance Fund.................................................................................... 28 Section 506. Redemption Fund........................................................................................... 28 Section507. Rebate Fund................................................................................................... 29 Section 508. Debt Service Reserve Fund............................................................................ 30 Section 509. Cessation of Fund Deposits........................................................................... 30 Section 510. Separate Accounts Authorized....................................................................... 30 • ARTICLE VI INVESTMENTS Section 601. Investment of Moneys.................................................................................... 31 Section 602. Investment Earnings....................................................................................... 31 Section 603. Valuation of Funds......................................................................................... 31 Section 604. Responsibility of Trustee............................................................................... 31 ARTICLE VII DISCHARGE OF LIEN Section701. Discharge of Lien........................................................................................... 31 Section 702. Bonds Deemed Paid....................................................................................... 32 Section 703. Non -Presentment of Bonds............................................................................ 32 . ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 801. Events of Default........................................................................................... 33 Section802. Acceleration................................................................................................... 33 Section 803. Other Remedies; Rights of Bondholders....................................................... 34 Section 804. Right of Bondholders to Direct Proceedings ................................................. 34 Section 805. Appointment of Receiver............................................................................... 34 Section806. Waiver............................................................................................................ 35 • Section 807. Application of Moneys.................................................................................. 35 Section 808. Remedies Vested in Trustee........................................................................... 36 4838-2657-8944.2 ii • C1 • Section 809. Rights and Remedies of Bondholders............................................................ 36 Section 810. Termination of Proceedings. 37 Section 811. Waivers of Events of Default......................................................................... 37 ARTICLE IX TRUSTEE AND PAYING AGENTS Section 901. Acceptance of Trusts...................................................................................... 37 Section 902. Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's PriorLien....................................................................................................... 39 Section 903. Additional Duties of Trustee.......................................................................... 40 Section 904. Notice to Bondholders of Default.................................................................. 41 Section 905. Intervention by Trustee.................................................................................. 41 Section 906. Merger or Consolidation of Trustee............................................................... 41 Section 907. Resignation by Trustee.................................................................................. 41 Section 908. Removal of Trustee........................................................................................ 41 Section 909. Appointment of Successor Trustee................................................................ 41 Section 910. Concerning Any Successor Trustee............................................................... 42 Section 911. Reliance Upon Instruments............................................................................ 42 Section 912. Appointment of Co-Trustee........................................................................... 42 Section 913. Designation and Succession of Paying Agents..............................................43 Section 1001. Section 1002. Section 1003. Section 1101. Section 1102. Section 1103. Section 1104. Section 1105. Section 1106. Section 1107. Section 1108. Section 1109. Section 1110. ARTICLE X SUPPLEMENTAL INDENTURES Supplemental Indentures Not Requiring Consent of Bondholders ................ 43 Supplemental Indentures Requiring Consent of Bondholders ....................... 44 Effect of Supplemental Indentures................................................................. 45 ARTICLE XI MISCELLANEOUS Consents, etc. of Bondholders ....... Notices........................................... Limitation of Rights ....................... Severability.................................... Applicable Provisions of Law........ Counterparts ................................... Successors and Assigns .................. Captions......................................... Photocopies and Reproductions ..... Bonds Owned by the City .............. .............................................................. 45 .................................6............................ 45 ..................................6......6..................6.46 .................................................6.....4...... 46 .....................................0........................ 46 .............................................................. 46 ...............................6...................6.......... 47 .............................................................. 47 ............................................................4.47 .............................................................. 47 Exhibit A Form of Series 2005A Bond...........................................:............................. A-1 Exhibit B Form of Series 2005B Bond......................................................................... B-1 Exhibit C Form of Coverage Certificate....................................................................... C-1 Exhibit D Requisition Form.......................................................................................... D-1 4838-2657-8944.2 iii • TRUST INDENTURE THIS TRUST INDENTURE, dated as of November 1, 2005, 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 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, the City Council of the City has determined that there is a great need for a source of revenue to finance all or 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 people of the State of Arkansas (the "State") by the adoption of Amendment No. 62 to the Constitution of the State, approved November 6, 1984 ("Amendment • 62"), have authorized cities and counties in the State to issue bonds, upon voter approval, to finance and refinance certain capital improvements of a public nature, and to secure said bonds by a pledge of the proceeds of certain taxes; and WHEREAS, the provisions of Amendment 62 have been implemented by the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq. (as from time to time amended, the "Act"); and WHEREAS, pursuant to the provisions of Ordinance No. 4327, duly adopted by the City Council of the City 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 principal amount of capital improvement bonds pursuant to Amendment 62 and the Act to finance the Project, 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 at the rate of three-quarters of one percent (0.75%) levied pursuant to the 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 aforementioned question approved the issuance of the capital improvement bonds and the corresponding levy of the Sales and Use Tax and pledge of Sales and Use Tax receipts to the payment of the capital improvement bonds; and WHEREAS, pursuant to ordinances of the City and in accordance with Amendment 62 • and the Act, the City has previously issued (i) its $25,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (ii) its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"); and 4838-2657-8944.2 WHEREAS, the Series 2002 Bonds have been redeemed in full from receipts of the Sales and Use Tax and the Series 2004 Bonds presently remain outstanding in the aggregate principal amount of [$26,235,000]; and WHEREAS, pursuant to the provisions of Ordinance No. of the City, adopted by the City Council on October _, 2005 (the "Authorizing Ordinance"), and in accordance with the provisions of Amendment 62 and the Act, the City proposes to issue (i) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), in the aggregate principal amount of [$26,235,000], and (ii) its Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), in the aggregate principal amount of $65,000,000, in order to accomplish an advance refunding of the outstanding Series 2004 Bonds and to provide for the financing of a portion of the Project; and WHEREAS, the City has determined to enter into this Indenture to authorize the issuance of and to secure the Series 2005 Bonds by granting to the Trustee a pledge and assignment of the interests and other rights herein contained, and certain funds and accounts created hereby; and WHEREAS, the Series 2005 Bonds are to be dated, bear interest, mature and be subject • to redemption as hereinafter in this Indenture set forth in detail; and WHEREAS, provision is made in this Indenture for the issuance of Additional Bonds (hereinafter defined) upon compliance with certain conditions set forth herein; and WHEREAS, the execution and delivery of this Indenture and the issuance of the Series 2005 Bonds have been in all respects duly and validly confirmed, authorized and approved under the provisions of the Authorizing Ordinance; and WHEREAS, all things necessary to make the Series 2005 Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the City according to the import thereof, and to constitute this Indenture a valid pledge of the Sales and Use Tax receipts to the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds, as specified in and in accordance with the provisions hereof, have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution, issuance and delivery of the Series 2005 Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS INDENTURE WITNESSETH: That the City, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Series 2005 Bonds by the • Holders and owners thereof, and the sum of Ten Dollars ($10.00), lawful money of the United States of America, to it duly paid by the Trustee, at or before the execution and delivery of these 4838-2657-8944.2 2 • presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds and all Additional Bonds (hereinafter defined), if any, according to their tenor and effect, and to secure the performance and observance by the City of all the covenants expressed or implied herein and in the Series 2005 Bonds and Additional Bonds (collectively, the "Bonds"), does hereby grant, bargain, sell, convey, mortgage, assign, transfer and pledge unto the Trustee, and unto its successor or successors in trust, and to them and their assigns forever, for the securing of the performance of the obligations of the City hereinafter set forth the following: I. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, (i) the proceeds of the sale of the Bonds, (ii) all receipts from the Sales and Use Tax, which are hereby irrevocably assigned and pledged to secure all obligations under this Indenture, and (iii) the Revenue Fund, Bond Fund, Debt Service Reserve Fund (subject to the limitations set forth in Section 508 hereof), Project Fund and Redemption Fund established by this Indenture, including the investment earnings thereon, if any. 2. • Any and all other properties, rights and interests of every kind and nature from time to time which have been, are hereby, or hereafter are, by delivery or by writing or transfer of any kind, conveyed, mortgaged, pledged, assigned or transferred, as and for additional security hereunder, by the City or by any other Person, firm or corporation, or with the written consent of the City, to the Trustee, which is hereby authorized to receive any and all such properties, rights and interests at any time and at all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all the same (the "Trust Estate") with all privileges and appurtenances hereby conveyed and assigned, or agreed or intended so to be, to the Trustee and its successors in said trusts and to them and their assigns forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all owners of the said Bonds issued under and secured by this Indenture without privilege, priority or distinction as to lien or otherwise of any of the Bonds over any of the other Bonds; provided, however, that if the City, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, premium, if any, and interest due on the Bonds, at the times and in the manner provided in the Bonds, according to the true intent and meaning thereof, and shall make the payments as required under this Indenture or shall provide, as permitted hereby, for the payment thereof by depositing or causing to be deposited with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of this • Indenture to be kept, and shall pay to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon such final payments or deposits this 4838-2657-8944.2 3 • Indenture and the lien and rights hereby granted shall cease, determine and be void; otherwise, this Indenture is to be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH that, and it is expressly declared that, all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all revenues and income hereby pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the City has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective owners from time to time of the Bonds or any part thereof, as follows, that is to say: ARTICLE I DEFINITIONS Section 101. Definitions. In addition to the words and terms elsewhere defined in this Indenture, the following words and terms as used in this Indenture shall have the following meanings: "Account" means an Account established by Article V of this Indenture. • "Act" means the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Rep!. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" mean Bonds in addition to the Series 2005 Bonds which are issued under the provisions of Section 212 of this 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, 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 from sources other than Sales and Use Tax receipts. "Authorized Representative" means either the Mayor or the 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 _ 2005, which authorized the issuance of the Series 2005 Bonds pursuant to this 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 4838-2657-8944.2 4 • 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 Section 501 of this Indenture. "Bonds" mean the Series 2005 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 is limited to the extent described in Section 212 hereof. "Book -Entry System" means the book -entry system maintained by the Securities Depository described in Section 216 of this 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. "City Clerk" means the person holding the office and performing the duties of the City Clerk of the City. "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. "Completion Date" means the date upon which the Project (or portion thereof) is first ready for normal continuous operation, as determined by a Qualified Engineer. "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 4838-2657-8944.2 5 • 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 Section 501 of this Indenture. "Debt Service" means, with respect to all or any particular amount of Bonds, 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, 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 Section 501 of this 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 hereof. "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 Article V of this 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 this Trust Indenture dated as of November 1, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any amendments and supplements • hereto. 4838-2657-8944.2 • "Investment Securities" means, if and to the extent the same are at the time legal for investment of Funds and Accounts held under this 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 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; (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; and (I) other forms of investments approved in writing by [BOND INSURER], including the 2005A Surety Bond and the 2005B Surety Bond. "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 this 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; 4838-2657-8944.2 7 • (b) Bonds deemed to be paid in accordance with Article VII of this Indenture; and (c) Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to this 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. "2005A Policy" means "2005B Policy" means "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 this 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; (d) all other costs incurred in connection with, and properly allocable to, the acquisition, construction and equipping of the Project; and 4838-2657-89442 f'I • (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 Section 501 of this Indenture. "Qualified Engineer" means an independent consulting engineer or firm of independent consulting engineers not in the regular employ of the City. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 Section 501 of this 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 Section 501 of this 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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of this Indenture, • the Reserve Requirement may be satisfied by cash or by Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. 4838-2657-8944.2 9 • "Revenue Fund" means the fund by that name created and established in Section 501 of this 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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued under and secured by this Indenture in the original • aggregate principal amount of [$26,235,000]. "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued under and secured by this Indenture in the original aggregate principal amount of $65,000,000. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of this Indenture, adopted by the City in accordance with Article X hereof. ["2005A Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein.] ["2005B Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein.] "Surplus Tax Receipts" shall have the meaning ascribed to such term in Section 503 hereof. "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 4838-2657-8944.2 10 • 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 this Indenture. Section 102. Use of Words. Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond", "owner", "holder" and "person" shall include the plural, as well as the singular, number. ARTICLE II THE BONDS Section 201. Security for the Bonds. (a) The Bonds are special and limited obligations of the City payable as to principal, premium, if any, and interest solely out of the Trust Estate. The Trust Estate is hereby pledged, appropriated and assigned to the payment of the principal of, premium, if any, and interest on the Bonds, all in accordance with their terms and the provisions • of this Indenture. The Bonds do not constitute an indebtedness for which the faith and credit of the State of Arkansas or the City is pledged within the meaning of any Constitutional or statutory limitation. The Bonds shall never constitute an obligation of or a charge against the general credit or general taxing powers of the City. (b) The pledge, charge, lien, trusts and assignments made herein with respect to the Trust Estate shall be valid and binding, and shall be deemed continuously perfected from the time of issuance of the Series 2005 Bonds, and the Trust Estate shall thereupon be immediately subject to the pledge, charge, lien, trust and assignment created hereby upon receipt thereof by or for the City or by the Trustee or the Paying Agent hereunder, without any physical delivery, segregation thereof or further act, and such pledge, charge, lien, trust and assignment shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice thereof. (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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to the application of such Surplus Tax Receipts to the redemption of Bonds of other series prior to maturity. (d) So long as any Bonds are Outstanding under the provisions of this Indenture, all • receipts derived from the Sales and Use Tax shall be deemed to be necessary to accomplish the purposes of the City and shall be subject to the covenants and agreements set forth in this 4838-2657-8944.2 11 • Indenture, and no such revenues or receipts shall ever be used or deposited otherwise except as herein expressly permitted. (e) The City covenants, as permitted by the Act, that while any of the Bonds are Outstanding it will use due diligence in causing the collection of the Sales and Use Tax. Nothing herein shall prohibit the City from increasing any sales and use tax from time to time, to the extent permitted by law, and no part of the revenues or receipts derived by the City from any such increase shall become part of the receipts derived from the Sales and Use Tax unless authorized and pledged by a Supplemental Indenture. Section 202. Authorized Amount. There is hereby authorized the issuance of bonds of the City to be designated (1) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" in the principal amount of [Twenty -Six Million Two Hundred Thirty -Five Thousand Dollars ($26,235,000)] (the "Series 2005A Bonds") and (2) "Sales and Use Tax Capital Improvement Bonds, Series 2005B" in the principal amount of Sixty -Five Million Dollars ($65,000,000) (the "Series 2005B Bonds"). No Bonds may be issued under the provisions of this Indenture except in accordance with this Article II. The total principal amount of Bonds that may be issued hereunder is hereby limited to the extent described in Section 212 hereof, except as provided in Section 209 and except for refunding bonds issued under the provisions of Section 212 hereof. Section 203. Details of the Bonds. (a) The Series 2005A Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A," (ii) shall be in the aggregate principal amount of [$26,235,000], (iii) shall be dated as of November 1, 2005, (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, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05A-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 1 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 2005A Bonds: Year (December 1) Principal Amount Interest Rate 2006 $ 2007 % 2008 % 2009 % 2010 % (b) The Series 2005B Bonds (i) shall be designated "City of Fayetteville, Arkansas • Sales and Use Tax Capital Improvement Bonds, Series 2005B," (ii) shall be in the aggregate principal amount of $65,000,000, (iii) shall be dated as of November 1, 2005, (iv) shall bear interest from such date at the rates hereinafter provided until paid, payable semiannually on 4838-2657-8944.2 12 • June 1 and December 1 of each year, commencing June 1, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05B-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 1 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 2005B Bonds: Year (December 1) Principal Amount Interest Rate 2010 $ 2011 2012 % 2013 % 2014 % 2015 % 2016 % 2017 2018 Section 204. Forms. (a) The Series 2005A 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 2005A Bonds, except upon the occurrence of the events described in Section 216 hereof. 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 2005A Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit A hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. (a) The Series 2005B Bonds shall be initially issued as fully registered Bonds, without coupons, in the form of nine 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 2005B Bonds, except upon the occurrence of the events described in Section 216 hereof. 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 2005B Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit B hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. Section 205. Payment. The Bonds shall be payable, with respect to principal, premium, if any, and interest in any coin or currency of the United States of America which at • the time of payment is legal tender for the payment of public and private debts. The principal of and premium, if any, on the Bonds shall be payable upon surrender thereof at the principal 4838-2657-8944.2 13 • corporate trust office of the Trustee. Payment of interest on each Bond shall be made by check or draft mailed to the registered owner of such Bond as of the applicable Record Date at his address as it appears on the registration books maintained by the Trustee. For purposes of this Indenture, interest on the Bonds shall be deemed to accrue on the basis of a 360 -day year of twelve 30 -day months. So long as the Securities Depository or its nominee is the sole registered owner of the Bonds, payment of interest thereon shall be made by wire transfer of immediately available funds by the Paying Agent to the Securities Depository or its nominee. Section 206. Execution. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor and City Clerk and shall have impressed or imprinted thereon the seal of the City. A facsimile signature shall have the same force and effect as if manually signed. In case any officer whose manual signature or a facsimile of whose signature shall appear on the Bonds shall cease to be such officer before the delivery of such Bonds, such signature or such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such official had remained in office until delivery. Section 207. Authentication. Only such Bonds as shall have endorsed thereon a certificate of authentication substantially in the form set forth in Exhibit A or Exhibit B attached hereto duly executed by the Trustee shall be entitled to any right or benefit under this Indenture. No Bond shall be valid and obligatory for any purpose unless and until such certificate of authentication shall have been duly executed by the Trustee, and such certificate of the Trustee • upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed if signed by an authorized officer of the Trustee, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds issued hereunder. Section 208. Delivery of the Bonds. The City shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds of any series and deliver said Bonds to the Securities Depository as may be directed in this Section 208, in Section 212 hereof or in any Supplemental Indenture. (a) Prior to the delivery or original issuance by the Trustee of any authenticated Bonds of any series, there shall be delivered to the Trustee: (1) An original executed counterpart of this Indenture or, in the case of Additional Bonds, a Supplemental Indenture by and between the City and the Trustee setting forth the details concerning such Additional Bonds; (2) Original executed counterparts of the Continuing Disclosure Agreement and the Tax Regulatory Agreement applicable to such series of Bonds; (3) A Certificate directing the Trustee to authenticate the Bonds and containing instructions as to the delivery of the Bonds upon payment to the Trustee, for • the account of the City, of a sum specified in such Certificate; 4838-2657-8944.2 14 (4) A copy, duly certified by the City Clerk, of the proceedings of the City authorizing the levy of the Sales and Use Tax and the issuance of the Bonds; (5) A written opinion of Bond Counsel approving the legality of the Bonds; (6) In the case of any series of Additional Bonds, a Certificate signed by the Mayor of the City certifying that (i) the City is not then in default in the performance of any of the covenants, conditions, agreements or provisions contained in this Indenture, and (ii) the City is current as to all required deposits at that time in all the Funds and Accounts described in Article V of this Indenture or hereafter created by Supplemental Indentures, or if the City is in default or is not so current, certifying in the case of (i) or (ii) as to that fact and that, upon the application of the proceeds of the sale of such Additional Bonds as provided in the Supplemental Indenture authorizing the issuance thereof, the City will not be in default or will be current thereafter; (7) In the case of any series of Additional Bonds, a written opinion of Bond Counsel to the effect that the exemption from federal income tax of the interest on the Series 2005 Bonds and any Additional Bonds theretofore issued will not be adversely affected by the issuance of the Additional Bonds being issued; and (8) Such further documents and certificates as may be required by the Original Purchaser of such series of Bonds. (b) Simultaneously with the delivery of the Series 2005A Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005A Bonds shall be deposited in the Series 2005A Account of the Bond Fund; (2) $ shall be transferred to [BOND INSURER] in order to purchase the 2005A Surety Bond, which shall be deposited in the Series 2005A Account of the Debt Service Reserve Fund; (3) $ shall be transferred to [BOND INSURER] in payment of the premium on the 2005A Policy; (4) An amount equal to $ shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) An amount sufficient, together with moneys held by Simmons First Trust Company, N.A., as trustee for the Series 2004 Bonds, in funds and accounts created by the trust indenture securing the Series 2004 Bonds, to refund the Series 2004 Bonds shall be deposited in Trust with Simmons First Trust Company, N.A., as escrow trustee (the 2004 Escrow Trustee"), in accordance with the provisions of an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005A Bonds (the "2004 Escrow Agreement"), by and between the City and the 2004 Escrow Trustee. The 2004 Escrow Agreement shall provide for the investment of the funds, to the extent feasible, in 4838-2657-8944.2 15 • Government Securities which will mature and bear interest at such times and in such amounts as will, together with any uninvested moneys held by the 2004 Escrow Trustee, provide sufficient moneys to pay as due at maturity and upon redemption prior to maturity as provided in the 2004 Escrow Agreement, all principal of and premium, if any, and interest on the Series 2004 Bonds. The 2004 Escrow Agreement will provide for the giving of notice of redemption prior to maturity of the Series 2004 Bonds, for the payment of required trustee and paying agent fees on the Series 2004 Bonds, and for the release of all claims of the Series 2004 Bonds on the Trust Estate; and (6) The balance of said proceeds, in the amount of $ , shall be deposited in the Series 2005A Account of the Project Fund. (c) Simultaneously with the delivery of the Series 2005B Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005B Bonds shall be deposited in the Series 2005B Account of the Bond Fund; (2) $ shall be transferred to [BOND INSURER] in order to purchase the 2005B Surety Bond, which shall be deposited in the Series 2005B Account of the Debt Service Reserve Fund; (3) $ shall be transferred to [BOND INSURER] in payment of the premium on the 2005B Policy; (4) An amount equal to $ shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) The balance of said proceeds, in the amount of $ , shall be deposited in the Series 2005B Account of the Project Fund. Section 209. Mutilated, Destroyed or Lost Bonds. In case any Bond issued hereunder shall become mutilated or be destroyed or lost, the City shall, if not then prohibited by law, cause to be executed and the Trustee may authenticate and deliver a new Bond of like series, date, number, maturity and tenor in exchange and substitution for and upon cancellation of such mutilated Bond, or in lieu of and in substitution for such Bond destroyed or lost, upon the Holder's paying the reasonable expenses and charges of the City and the Trustee in connection therewith, and, in the case of a Bond destroyed or lost, filing by the Holder with the Trustee evidence satisfactory to the Trustee that such Bonds were destroyed or lost, and of the Holder's ownership thereof, and furnishing the City and Trustee with indemnity satisfactory to them. The Trustee is hereby authorized to authent shall have matured, instead of issuing surrender thereof Upon the issuance require the payment of a sum sufficient be imposed in relation thereto and any • Trustee) connected therewith. cate any such new Bond. In the event any such Bonds a new Bond, the City may pay the same without the of a new Bond under this Section 209, the City may to cover any tax or other governmental charge that may other expenses (including the fees and expenses of the 4838-2657-8944.2 16 • Section 210. Registration and Transfer of Bonds. The City hereby constitutes and appoints the Trustee as Bond registrar of the City, and as Bond registrar the Trustee shall keep books for the registration and for the transfer of the Bonds as provided in this Indenture at the principal corporate trust office of the Trustee. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and payment of or on account of the principal of and interest on any such Bond shall be made only to or upon the order of the registered owner thereof, or the owner's legal representative, and neither the City, the Trustee nor the Bond registrar shall be affected by any notice to the contrary, but such registration may be changed as herein provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. 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. Bonds may be exchanged at the principal corporate trust office of the Trustee for an equal • aggregate principal amount of Bonds of any other authorized denomination or denominations of the same series with corresponding maturities. The City shall execute and the Trustee shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive, bearing numbers not contemporaneously then outstanding. The execution by the City of any Bond of any denomination shall constitute full and due authorization of such denomination and the Trustee shall thereby be authorized to authenticate and deliver such Bond. Such 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. If the Securities Depository or its nominee is the sole registered owner of the Bonds, transfers of ownership and exchanges shall be effected on the records of the Securities Depository and its Participants pursuant to rules and procedures established by the Securities Depository and its Participants. In such case, the Trustee shall deal with the Securities Depository as representative of the Beneficial Owners of the Bonds for purposes of exercising the rights of Bondholders hereunder, and the rights of the Beneficial Owners of such Bonds held • by the Securities Depository or its nominee shall be limited to those established by law and agreements between such Beneficial Owners and the Securities Depository and its Participants. 4838-2657-8944.2 17 • Requests, consents and directions from, and votes of, the Securities Depository or its nominee as representative shall not be deemed inconsistent if they are made with respect to different Participants or Beneficial Owners. Section 211. Cancellation. All Bonds surrendered for payment, redemption, transfer or exchange, if surrendered to the Trustee, shall be promptly cancelled by it, and, if surrendered to any person other than the Trustee, shall be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The City may at any time deliver to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder, which the City may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Trustee. All cancelled Bonds held by the Trustee shall be disposed of as directed by the City. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee may, upon the written request of the City, in lieu of such cancellation and delivery, destroy such Bonds in the presence of any officer of the City (but only if the City shall so require), and deliver a certificate of such destruction to the City. Section 212. Additional Bonds. 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 acquisition, construction, reconstruction, extension, improving or equipping of the Project, (ii) refunding the Series 2005 Bonds or any series of Additional Bonds, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the • Series 2005 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 this 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 a particular series of Bonds. Before any Additional Bonds are authenticated, there shall be delivered to the Trustee the items required for the issuance of Bonds by Section 208 hereof, plus a Certificate of the Finance and Internal Services Director of the City (in the form attached as Exhibit C hereto) certifying that, based upon necessary investigation, the Sales and Use Tax receipts transferred to the Trustee for deposit to the Revenue Fund during the most recent twelve (12) months were not less than (i) 125% of the maximum Annual Debt Service on all then Outstanding Bonds, 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. Notwithstanding anything herein to the contrary, no Additional Bonds shall be issued unless there is no default at the time of issuance under this Indenture. Section 213. Superior Obligations Prohibited. Except to the extent permitted in Section 212 hereof for the issuance of Additional Bonds, from and after the issuance of any of the Bonds and for so long as any of the Bonds are Outstanding, the City shall not create or permit the creation of any indebtedness, or issue any bonds, notes, warrants, certificates or other obligations or evidences of indebtedness payable in any manner from the Sales and Use Tax receipts or otherwise from the Trust Estate which (i) will in any way be superior to or rank on a parity with the Bonds, or (ii) will in any way be secured by a lien and charge on the Sales and Use Tax receipts or on the moneys deposited in or to be deposited in the Revenue Fund, prior to • or equal with the lien, pledge and charge created herein for the security of the Bonds, or (iii) will be payable prior to or equal with the payments to be made from the Sales and Use Tax receipts 4838-2657-8944.2 18 Sand the Revenue Fund into the Bond Fund, Debt Service Reserve Fund and Redemption Fund or from said Bond Fund, Debt Service Reserve Fund and Redemption Fund for the payment of the Bonds. Section 214. [RESERVED]. Section 215. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the City may execute, and upon the request of the City, the Trustee shall authenticate and deliver, subject to the provisions, limitations and conditions set forth herein, one or more Bonds in temporary form, whether printed, typewritten, lithographed or otherwise produced, substantially in the form of the definitive Bonds, with appropriate omissions, variations and insertions, and in authorized denominations. Until exchanged for Bonds in definitive form, such Bond in temporary form shall be entitled to the lien and benefit of this Indenture. Upon the presentation and surrender of any Bond or Bonds in temporary form, the City shall, without unreasonable delay, prepare, execute and deliver to the Trustee and the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds in definitive form. Such exchange shall be made by the Trustee without making any charge therefor to the Holder of such Bond in temporary form. Section 216. Book -Entry Bonds; Securities Depository. The Bonds shall initially be registered to Cede & Co., the nominee for The Depository Trust Company, New York, New York (the "Securities Depository"), and no Beneficial Owner will receive certificates representing their respective interests in the Bonds, except in the event the Trustee issues replacement bonds • as provided in this Section 216. It is anticipated that during the term of the Bonds, the Securities Depository will make book -entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Trustee authenticates and delivers replacement bonds to the Beneficial Owners as described in the following paragraph. If the City or the Trustee determines (A) that the Securities Depository is unable to properly discharge its responsibilities, or (B) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, or (C) that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, or (2) if the Trustee receives written notice from Participants representing interests in not less than 50% of the Bonds Outstanding, as shown on the records of the Securities Depository (and certified to such effect by the Securities Depository), that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, then the Trustee shall notify the Bondholders of such determination or such notice and of the availability of certificates to Bondholders requesting the same, and the Trustee shall register in the name of and authenticate and deliver replacement bonds to the Beneficial Owners or their nominees in principal amounts representing the interest of each; provided, that in the case of a determination under (A) or (B) of this paragraph, the City or the Trustee may select a successor securities depository in accordance with the following • paragraph to effect book -entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has 4838-2657-8944.2 19 • possession of at least one Bond. Upon the issuance of replacement bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such replacement bonds. If the Securities Depository resigns and the City, the Trustee or Bondholders are unable to locate a qualified successor of the Securities Depository in accordance with the following paragraph, then the Trustee shall authenticate and cause delivery of replacement bonds to Bondholders, as provided herein. The Trustee may rely conclusively on information from the Securities Depository and its Participants as to the names and addresses of the Beneficial Owners of the Bonds. The cost of printing, registration, authentication, and delivery of replacement bonds shall be paid for by the City. In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, the City may appoint a successor Securities Depository provided the Trustee receives written evidence satisfactory to the Trustee with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities and Exchange Act of 1934, as amended, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Trustee upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of Bonds to the successor Securities Depository in appropriate denominations and • form as provided herein. ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section 301. Redemption of the Bonds. (a) The Series 2005A Bonds shall be subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005A 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B 4838-2657-8944.2 20 • Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. (b) The Series 2005B Bonds shall be subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005B 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B • Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. Section 302. Notice. Notice of the call for any redemption, identifying the 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 the Securities Depository or its nominee is the sole registered owner of the Bonds, by any other means acceptable to the Securities Depository, including facsimile) to the registered owner of each such 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 Bond with respect to which no such failure or defect has occurred. Any notice mailed as provided in this Section 302 shall be conclusively presumed to have been duly given, whether or not the registered owner receives the notice. Section 303. Selection of Bonds to be Redeemed. If less than all of the Bonds of like series, maturity, interest rate and otherwise identical payment terms shall be called for redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected by lot by the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate; provided, however, that the portion of any Bond of a denomination of larger than the minimum denomination may be redeemed in the principal amount of such minimum denomination or a multiple thereof, and that for purposes of selection and redemption, any such Bond of a denomination larger than the minimum denomination shall be considered to be that number of • separate Bonds of such minimum denomination which is obtained by dividing the principal amount of such Bond by such minimum denomination. So long as the Securities Depository or 4838-2657-8944.2 21 • its nominee is the sole registered owner of a series of Bonds, the procedures established by the Securities Depository shall control with respect to the selection of the particular Bonds of such series to be redeemed. Section 304. Surrender of Bonds Upon Redemption. Notice having been given in the manner and under the conditions hereinabove provided, and moneys for payment of the redemption price being held by the Trustee as provided in this Indenture (i) the Bonds or portions of Bonds so called for redemption shall, on the date fixed for redemption designated in such notice, become due and payable at the redemption price provided for redemption of such Bonds, and interest on such Bonds or portions of Bonds so called for redemption shall cease to accrue, (ii) upon surrender of the Bonds or portions of Bonds so called for redemption in accordance with such notice, such Bonds or portions of Bonds shall be paid at the applicable redemption price, (iii) such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and (iv) the owners of said Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Section 305. Redemption in Part. Any Bond which is to be redeemed only in part shall be surrendered to the Trustee (with, if the City or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the City and the Trustee duly executed by, the owner thereof or his attorney duly authorized in writing), and the appropriate officials of the City shall execute and the Trustee shall authenticate and deliver to the owner of such Bond, • without service charge, a new Bond or Bonds of the same series, of any authorized denomination or denominations, having the same maturity and interest rate as requested by such owner, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. Section 306. Redemption of Additional Bonds. Additional Bonds may be made subject to optional, extraordinary and mandatory sinking fund redemption, in whole or in part, in such manner, at such times and at such prices as may be provided in the Supplemental Indenture providing for their issuance. ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest. The City covenants that it will promptly pay or cause to be paid the principal of and premium, if any, and interest on every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof. The principal, premium, if any, and interest (except interest paid from the proceeds from the sale of the Bonds and accrued interest) are payable solely from the Trust Estate which is hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Bonds or this Indenture should be considered as assigning or pledging any funds or assets of the City other than the Trust Estate. Anything in this Indenture to the contrary notwithstanding, it is understood that whenever the City makes any covenants involving • financial commitments it pledges no funds or assets other than the Trust Estate in the manner and 4838-2657-8944.2 22 • to the extent herein specified, but nothing herein shall be construed as prohibiting the City from using any other funds or assets. The City covenants to use due diligence in causing the collection of the Sales and Use Tax and the application of Sales and Use Tax receipts in the manner provided in this Indenture. Section 402. Performance of Covenants. The City covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all ordinances pertaining hereto. The City covenants that it is duly authorized under the Constitution and laws of the State of Arkansas, including particularly and without limitation Amendment 62 and the Act, to issue the Bonds authorized hereby and to execute this Indenture and to make the pledge of the Sales and Use Tax receipts and to make the covenants in the manner and to the extent herein set forth, that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken, and that the Bonds in the hands of the Holders and owners thereof are and will be valid and enforceable obligations of the City according to the import thereof. Section 403. 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 hereby pledged or assigned, or intended so to be, or which the City may become bound to pledge or assign. Section 404. Recordation and Filing. To the extent necessary, the City covenants that it will cause this Indenture, such security agreements, financing statements, and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve and protect the security of the owners of the Bonds and the rights of Trustee hereunder, and to perfect the security interest created by this Indenture. Section 405. Inspection of Books. The City shall keep proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the Project and the Funds and Accounts established by this Indenture. • Section 406. 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. 4838-2657-8944.2 23 • Section 407. Trustee's and Paying Agent's Fees and Expenses. Subject to the provisions of Section 902 hereof, the City hereby agrees and covenants to make payments for the fees, expenses and charges of the Trustee and Paying Agent, if any, as authorized and provided by this Indenture. The City is to make payments on statements rendered by the Trustee and Paying Agent either (i) directly to the Trustee and Paying Agent or (ii) pursuant to Section 503(b) hereof Section 408. Construction of Project; Certification of Completion Date. The City hereby covenants to use its best efforts to acquire, construct and equip each portion of the Project being partially financed with proceeds of the Bonds with all reasonable dispatch and to use its best efforts to cause the acquisition, construction and equipping of such portion of the Project to be completed as soon as may be practicable, but in any case within a period not to exceed three years after the issuance of the applicable series of Bonds, delays caused by force majeure only excepted, but if for any reason such acquisition, construction and equipping is not completed within said period, there shall be no diminution or postponement of payments required hereunder to be made by the City. Promptly after each such Completion Date, the City shall submit to the Trustee the certificate of a Qualified Engineer which shall specify the Completion Date and shall state that acquisition, construction and equipping of the portion of the Project being financed with a particular series of Bond proceeds has been completed and the Project Costs have been paid, except for any Project Costs which have been incurred but are not then due and payable, or the liability for the payment of which is being contested or disputed by the City, and for the • payment of which the Trustee is directed to retain specified amounts of moneys in the Project Fund. Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any rights against third parties which exist at the date thereof or which may subsequently come into being. Section 409. Encumbrances. The City covenants that it will not create or suffer to be created any lien or charge upon the Trust Estate, except in accordance with the provisions of this Indenture. Section 410. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of each Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture to the contrary, failure of the City or the Trustee to comply with the provisions of a Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee may (and at the request of the Original Purchaser of a series of Bonds, the owners of at least 25% in aggregate Outstanding principal amount of such series of Bonds, shall) or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Trustee, as the case may be, to comply with its obligations under this Section 410. For purposes of this Section 410 only, "Beneficial Owner" shall mean any Person which (a) 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, depositories or other intermediaries) or (b) is treated as the owner of Bonds for federal income tax purposes. • 4838-2657-8944.2 24 • ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts. (a) There are hereby created and established the following Funds and Accounts: (i) Project Fund, and a Series 2005A Account and a Series 2005B Account therein; (ii) Revenue Fund; (iii) Bond Fund, and a Series 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein; (iv) Redemption Fund; (v) Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein; (vi) Cost of Issuance Fund; and • (vii) Rebate Fund. (b) All Funds and Accounts shall be held by the Trustee, which shall hold and maintain said Funds and Accounts in trust, for the use and benefit of the Bondholders and the City, but subject to the permitted applications expressed herein. Section 502. Project Fund. (a) The Trustee shall deposit a portion of the proceeds of the Series 2005 Bonds to the credit of the Project Fund in accordance with the written directions of the City given as provided in Section 208 of this Indenture. (b) Moneys credited to the Project Fund shall be expended only as set forth in this Section 502. (c) Amounts in the Project Fund shall be expended and applied for the payment of Project Costs. Disbursements shall be made from the Project Fund on the basis of consecutively numbered Requisitions in the form attached hereto as Exhibit D signed by an Authorized Representative. Requisitions may be submitted to the Trustee by certified mail, first class mail or facsimile transmission. If the Trustee deems that a Requisition submitted by the City is sufficient pursuant to this Section 502, the amount requested thereunder shall be disbursed in payment of the Project Costs set forth therein, or in reimbursement of such Project Costs, within two (2) business days of the date of receipt of such Requisition by the Trustee. Moneys in the Series 2005A Account of the • Project Fund shall be fully disbursed prior to any disbursements from the Series 2005B Account of the Project Fund. Each Requisition shall specify: 4838-2657-89442 25 • (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. (d) The Trustee shall keep full and complete records concerning and reflecting all disbursements from the Project Fund and shall file an accounting of said disbursements if and when requested by the City. The Trustee shall only make payments from the Project Fund pursuant to and in accordance with Requisitions. In making payments from the Project Fund, the Trustee may rely on any Requisitions delivered to it pursuant to this Section 502, and the Trustee shall be relieved of all liability relating to payments made in accordance with such Requisitions and any supporting certificate or certificates requested by the Trustee without physical inspection of the Project. 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 Account of 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 the corresponding series of Bonds by redemption or purchase, as provided by Section 301(a)(i) and (b)(i) and Section 506 hereof. (e) Upon the occurrence and continuance of an Event of Default or the occurrence and continuance of an event which with notice or lapse of time or both would constitute an Event of Default, amounts on deposit in the Project Fund shall not be disbursed but shall instead be applied to the payment of Debt Service or the redemption price of the Bonds. Section 503. Revenue Fund. (a) There shall be deposited to the credit of the Revenue Fund, as and when received, all receipts derived from the Sales and Use Tax. For the purposes of financial reporting by the City with respect to the Sales and Use Tax, "receipts" and "revenues" shall have the same meaning. (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 December 31, 2005, there shall be transferred from the Revenue Fund, in the • following order, the amounts set forth below: 4838-2657-8944.2 26 FIRST: For deposit to the Interest Accounts 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; SECOND: For deposit to the Principal Accounts 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); 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; and SIXTH: All remaining moneys ("Surplus Tax Receipts") will be transferred to the Redemption Fund and shall be applied to call Bonds for redemption prior to maturity as provided in Section 301(a)(ii) and (b)(ii) and Section 506 hereof. • (c) Required deposits into Accounts of the Bond Fund and the Debt Service Reserve Fund shall be reduced by investment earnings, if any, in said Funds and Accounts and, with respect to required deposits to the Interest Accounts of the Bond Fund only, by any accrued interest deposited to the Interest Accounts of the. Bond Fund upon the initial sale of a series of Bonds. In the event there shall be insufficient moneys in the Revenue Fund in a particular month to make the required transfers described above, then any deficiencies shall be added to the required deposits during the next month. Section 504. Bond Fund. (a) There shall be deposited to the credit of the appropriate Account of the Bond Fund all moneys required to be transferred thereto pursuant to Sections 208, 503, 505, 506 and 508 of this Indenture and all other moneys received for said Fund. (b) Moneys credited to the Bond Fund shall be expended only as set forth in this Section 504. (c) (i) On each interest payment date for any of the Bonds Outstanding, the Trustee shall pay out of moneys credited to the appropriate Interest Account of the Bond Fund the amounts required for the payment of interest on the corresponding series of Bonds due on such date, and on each redemption date, the amounts required for the payment of accrued interest on Bonds then to be redeemed or purchased unless the payment of such accrued interest shall be otherwise provided for, and such amounts shall be applied to such payments. 4838-2657-8944.2 27 • (ii) On each principal payment or redemption date for any of the Bonds Outstanding, the Trustee shall pay out of moneys credited to the appropriate Principal Account of the Bond Fund the amounts required for the payment of principal and premium, if any, due on the corresponding series of Bonds on such date and such amounts shall be applied to such payments. (iii) If there shall be insufficient moneys in the Bond Fund to pay in full interest, principal or premium, if any, due on the Bonds on any interest or principal payment or redemption date, the Trustee shall, one day prior to such date, transfer an amount equal to the deficiency into the appropriate Account of the Bond Fund from the Funds indicated in the following order: FIRST: the Revenue Fund; SECOND: the Redemption Fund; and THIRD: the Debt Service Reserve Fund (for payment of principal and interest on any interest or principal payment date only). (d) All payments made pursuant to this Section 504 shall be made in immediately available funds. Section 505. Cost of Issuance Fund. There shall be deposited to the credit of the Cost of Issuance Fund all moneys received for said Fund pursuant to Section 208 hereof. 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 (and in any event not later than February 1, 2006 with respect to the Series 2005 Bonds), any remaining moneys in the Cost of Issuance Fund shall be transferred to the Series 2005A Interest Account and Series 2005B Interest Account of the Bond Fund on a pro rata basis based on the initial principal amounts of the Series 2005A Bonds and the Series 2005B Bonds. Section 506. Redemption Fund. (a) There shall be deposited to the credit of the Redemption Fund all moneys required to be transferred thereto pursuant to Section 502 and Section 503 of this Indenture. (b) Moneys credited to the Redemption Fund shall be expended only as set forth in this Section 506. (c) Moneys in the Redemption Fund shall be transferred to the Principal Accounts of the Bond Fund at such times as may be necessary to effectuate, on the first available date, redemptions of Bonds required by Section 301(a) and (b) of this Indenture. Notwithstanding any other provision of this Indenture to the contrary, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued • hereunder. 4838-2657-8944.2 28 • (d) The amounts accumulated in the Redemption Fund, if so directed by the City by means of a Certificate delivered to the Trustee, shall be applied by the Trustee to the purchase of Bonds of the maturities which would otherwise be redeemed pursuant to Section 301(a) and (b) and this Section 506 but for the provisions of this subsection (d), at prices directed by the City not exceeding the applicable redemption prices of the Bonds which would be redeemed but for the operation of this sentence. Interest accrued on the Bonds so purchased shall be paid from moneys credited to the appropriate Interest Account of the Bond Fund. Section 507. Rebate Fund. (a) The Trustee shall establish and maintain, separate and apart from any other Funds and Accounts established and maintained hereunder, a Fund to be designated as the Rebate Fund, which Fund is not pledged to the payment of any Bonds. Subject to the transfer provisions provided in subsection (c) below, all moneys at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (as defined in each Tax Regulatory Agreement), for payment to the United States of America, and neither the City nor the Owner of any Bond shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by this Section 507, by Section 406, and by each Tax Regulatory Agreement (which are incorporated herein by reference). (b) As provided in Section 503(b) hereof, there shall be deposited in the Rebate Fund the amount of all income or gain on moneys deposited in any of the Funds and Accounts established by this Indenture which is required to be rebated to the United States and is designated for deposit therein, as calculated by the City to be owing to the United States pursuant to the Tax Regulatory Agreement, which shall be delivered by the City concurrently with the issuance of a series of Bonds. (c) The Trustee, upon receipt of written instructions from the Mayor or Finance and Internal Services Director of the city, shall pay to the United States out of amounts in the Rebate Fund such amounts as are required pursuant to each Tax Regulatory Agreement. (d) Any moneys remaining in the Rebate Fund after payment to the United States, within sixty (60) days after the date on which the last Bond is redeemed, of one hundred percent (100%) of the rebate amount as described in Section 148(f)(2) of the Code, shall be transferred to the Revenue Fund. (e) The Trustee, as instructed by Certificate of the City, shall invest all amounts held in the Rebate Fund in Investment Securities, subject to the restrictions set forth in the applicable Tax Regulatory Agreement. Money shall not be transferred from the Rebate Fund except as provided in subsection (c). (f) Notwithstanding any other provision of this Indenture, the obligation to remit the Rebate Amount to the United States and to comply with all other requirements • of this Section 507, Section 406 and each Tax Regulatory Agreement shall survive the defeasance or payment in full of the Bonds. 4838-2657-8944.2 29 • Section 508. Debt Service Reserve Fund. As provided in Section 208(b)(2) and (c)(2) hereof, upon the issuance of each series of Bonds, there shall be deposited into the appropriate Account of the Debt Service Reserve Fund, from proceeds of the Bonds, an amount sufficient to cause the amounts on deposit therein to be equal to the Reserve Requirement. The Debt Service Reserve Fund shall be maintained in an amount equal to the Reserve Requirement. The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds for which there are no available funds in the Bond Fund to make such payments, as the same become due at maturity (including mandatory sinking fund redemption). If an Account of the Debt Service Reserve Fund, by virtue of any such payment, is reduced below the related Reserve Requirement, it shall be reimbursed in the amount of any such deficiency as provided in Section 503. Notwithstanding the above provisions of this Section 508, the amount on deposit in an Account of 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 related Outstanding Bonds. If an excess shall exist in an Account in the Debt Service Reserve Fund over and above the related Reserve Requirement, such excess shall be transferred to the corresponding Interest Account of the Bond Fund. Section 509. Cessation of Fund Deposits. When the moneys 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 and interest on all Bonds then Outstanding in accordance with Article VII of this Indenture, together with the required fees and expenses to be paid or • reimbursed to the Trustee and any Paying Agent, the City shall have no further obligation to make further payments into said Funds. Pursuant to Arkansas Code Annotated Section 14-164- 329(c)(2), the Sales and Use Tax shall be abolished on the first day of the calendar month subsequent to the expiration of thirty (30) days from the date there is filed with the Director of the Arkansas Department of Finance and Administration a written statement signed by the Mayor and the Trustee wherein either (a) the Trustee certifies that it has or will have sufficient funds on hand to pay the principal of and interest on the Bonds at maturity or upon redemption prior to maturity, and the Mayor certifies that the Sales and Use Tax is not pledged to any other indebtedness of the City, or (b) the Mayor certifies that there are no longer any Bonds outstanding payable from Sales and Use Tax receipts. Section 510. Separate Accounts Authorized. A Supplemental Indenture authorizing the issuance of Additional Bonds may provide for the creation of separate Accounts within the Bond Fund, Debt Service Reserve Fund, Project Fund, Costs of Issuance Fund and Rebate Fund for such series of Bonds and such other Accounts as the City may direct; provided, that the creation of such separate Accounts shall be solely for the ease of administration and shall in no event affect the equal and ratable security of the Bonds of each series. If any Supplemental Indenture authorizing the issuance of Additional Bonds provides for the establishment of separate Accounts for a series of Bonds, then such Supplemental Indenture shall require that the Sales and Use Tax receipts received by the City shall be deposited pursuant to written direction of the City into each of the Accounts within the Bond Fund and Debt Service Reserve Fund for each series of Bonds on the basis of the installments of principal, premium, if any, and interest on each series of Bonds and the amounts required to be deposited in the 4838-2657-8944.2 30 • Accounts within the Debt Service Reserve Fund during the applicable period, to the end that the Bonds of each series shall be equally and ratable secured by the Sales and Use Tax receipts. Any Supplemental Indenture authorizing the issuance of Additional Bonds may provide that any proceeds of such series of Bonds and investment earnings thereon remaining after some specified date, or after the construction of all facilities to be financed with the proceeds of such series of Bonds, shall be applied to the redemption of such series of Bonds. ARTICLE VI INVESTMENTS Section 601. Investment of Moneys. 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. Moneys in separate Funds or Accounts may be commingled for the purpose of investment. Section 602. Investment Earnings. Subject to the provisions of the Tax Regulatory Agreement and Article V hereof, Investment Securities purchased with moneys held in or attributable to any Fund or Account held by the Trustee under the provisions of this Indenture shall be deemed at all times to be a part of such Fund or Account and the income or interest earned, profits realized or losses suffered by a Fund or Account due to the investment thereof shall be retained in, credited or charged, as the case may be, to such Fund or Account unless otherwise provided pursuant to this Indenture. Section 603. Valuation of Funds. In determining the value of any Fund or Account held by the Trustee under this 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 hereunder 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 hereunder, and the Trustee shall not be liable for any loss resulting from any such sale. Section 604. 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. ARTICLE VII DISCHARGE OF LIEN• Section 701. Discharge of Lien. If the City shall pay or cause to be paid to the owners of the Bonds the principal, premium, if any, and interest to become due thereon at the times and 4838-2657-8944.2 31 • in the manner stipulated therein, and if the City shall keep, perform and observe all and singular the covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it on its part, then these presents and the estate and rights hereby granted shall cease, determine and be void, and thereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the City such instruments in writing as shall be requisite to satisfy the lien hereof, and reconvey to the City the estate hereby conveyed, and assign and deliver to the City any property at the time subject to the lien of this Indenture which may then be in its possession, except moneys or Government Securities held by it for the payment of the principal of and premium, if any, and interest on the Bonds. Section 702. Bonds Deemed Paid. Any Bond shall be deemed to be paid within the meaning of this Article VII when payment of the principal of and premium, if any, and interest on such Bond (whether at maturity or upon redemption as provided in this 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 amount 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. In the case of any defeasance of Bonds pursuant to subsection (ii) above, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable mandatory redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. Section 703. Non -Presentment of Bonds. In the event any Bonds shall not be presented for payment when the principal thereof becomes due, either at maturity or otherwise, or at the date fixed for redemption thereof, if there shall have been deposited with the Trustee for that purpose, or left in trust if previously so deposited, funds sufficient to pay the principal thereof, and premium, if any, together with all interest unpaid and due thereon, to the due date thereof, for the benefit of the Holder thereof, all liability of the City to the Holder thereof for the payment of the principal thereof, premium if any, and interest thereon, shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such fund or funds, without liability for interest thereon, for the benefit of the Holder of such Bonds, who shall thereafter be restricted exclusively to such fund or funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, the Bonds. • 4838-2657-8944.2 32 0 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 801. Events of Default. Each of the following events shall constitute and is referred to in this 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 this Indenture or the performance or observance of any other of the covenants, agreements or conditions contained in this Indenture, or in the Bonds issued hereunder, 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 Bondholders of not less than 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; (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 this 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 this Indenture or in the Bonds Outstanding hereunder, exclusive of any period of grace required to constitute a default an "Event of Default" as hereinabove provided. Section 802. 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 hereunder shall, by notice in writing delivered to the City, declare the principal of all Bonds then Outstanding, together with the interest accrued thereon, 4838-2657-8944.2 33 • immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Section 803. 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 hereunder. If an Event of Default shall have occurred, and if it shall have been requested so to do by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder and if it shall have been indemnified as provided in Section 901(1) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred upon it by this Section 803 as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. No remedy by the terms of this 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 hereunder 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 hereunder, 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. Section 804. Right of Bondholders to Direct Proceedings. Anything in this Indenture to the contrary notwithstanding, the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceeding hereunder; provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. Section 805. Appointment of Receiver. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled to the appointment of a receiver or receivers of the Trust Estate and of the tolls, rents, revenues, issues, earnings, income, products and profits thereof, including, without limitation, the Sales and Use Tax receipts, pending such proceedings with such powers as the court making such appointment shall confer. 4838-2657-8944.2 34 • Section 806. Waiver. In case of an Event of Default on its part, as aforesaid, to the extent that such rights may then lawfully be waived, neither the City nor anyone claiming through the City or under the City shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or thereafter in force, in order to prevent or hinder the enforcement of this Indenture, but the City, for itself and all who may claim through or under it, hereby waives, to the extent that it lawfully may do so, the benefit of all such laws and all right of appraisement and redemption to which it may be entitled under the laws of the State. Section 807. Application of Moneys. Available moneys remaining after discharge of costs, charges and liens prior to this Indenture shall be applied by the Trustee as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: First: To the payment to the Persons entitled thereto of all installments of interest then due, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or privilege; • Second: To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or privilege of any Bond over any other Bond and without preference or priority of principal over interest or of interest over principal; and Third: To the payment of the interest on and the principal of the Bonds, and to the redemption of Bonds, all in accordance with the provisions of Article V of this Indenture. (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied first to the payment of the interest then due and unpaid upon the Bonds, and then to the payment of the principal then due and unpaid upon the Bonds, in each case without preference or priority of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto. (c) If the principal of all the Bonds shall have been declared due and payable, • and if such declaration shall thereafter have been rescinded and annulled under the 4838-2657-8944.2 35 • provisions of this Article VIII then, subject to the provisions of paragraph (b) of this Section 807, in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section 807. Whenever moneys are to be applied by the Trustee pursuant to the provisions of this Section 807, such moneys shall be applied by it at such times, and from time to time, as it shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date and shall not be required to make payment to the Holder of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Section 808. Remedies Vested in Trustee. All rights of action (including the right to file proof of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be • brought in its name as Trustee, without the necessity of joining as plaintiffs or defendants any Bondholders hereby secured, and any recovery of judgment shall be for the equal benefit of the Holders of all Outstanding Bonds. Section 809. Rights and Remedies of Bondholders. No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other remedy hereunder, unless a default has occurred of which the Trustee has been notified as provided in subsection (g) of Section 901, or of which by said subsection 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 hereunder shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore 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 subsection (I) of Section 901, nor unless the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture or for the appointment of a receiver or for any other remedy hereunder; 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 this Indenture by action of the Holder or Holders or to enforce any right hereunder except in the manner herein provided, and that all proceedings at law • or in equity shall be instituted, held and maintained in the manner herein provided for the equal benefit of the Holders of all Bonds Outstanding hereunder. Nothing in this Indenture contained 4838-2657-8944.2 36 • 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 hereunder to the respective Holders thereof at the time and place in said Bonds expressed. Section 810. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the City and the Trustee shall be restored to their former positions and rights hereunder with respect. to the property herein conveyed, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken, except to the extent the Trustee is legally bound by such adverse determination. Section 811. Waivers of Events of Default. The Trustee may, and upon the written request of the Holders of not less than 51% in principal amount of all Bonds Outstanding hereunder shall, waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal; provided, however, there shall not be waived any Event of Default described in clause (a) or (b) of the first paragraph of Section 801 hereof, unless prior to such waiver or rescission all arrears of principal (due otherwise than by declaration) and interest, • and all expenses of the Trustee and Paying Agent, shall have been paid or provided for. In case of any such waiver or rescission the City, Trustee and the Bondholders shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right subsequent thereon. ARTICLE IX TRUSTEE AND PAYING AGENTS Section 901. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture and agrees to perform said trusts, but only upon and subject to the following expressed terns and conditions: (a) The Trustee may execute any of the trusts or powers hereof and perform any duties required of it by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trusts hereof and its duties hereunder, and may in all cases pay reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. Reimbursement of such compensation paid by the Trustee is subject to the provisions of Section 902 hereof. The Trustee may act upon the opinion or advice of any attorney, surveyor, engineer or accountant selected by it in the exercise of reasonable care, or, if selected or retained by the City prior to the occurrence of a default of which the Trustee has been notified as provided in subsection (g) of this Section 901, or of • which by said subsection the Trustee is deemed to have notice, approved by the Trustee 4838-2657-8944.2 37 • in the exercise of such care. The Trustee shall not be responsible for any loss or damage resulting from an action or nonaction in accordance with any such opinion or advice. (b) The Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the certificate of authentication of the Trustee endorsed on such Bonds), or for the validity of the execution by the City of this Indenture or of any Supplemental Indentures or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for the value of the title of the property herein conveyed or otherwise as to the maintenance of the security hereof; except that in the event the Trustee enters into possession of a part or all of the property herein conveyed pursuant to any provision of this Indenture, it shall use due diligence in preserving such property; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions and agreements aforesaid as to the condition of the property herein conveyed. (c) The Trustee may become the owner of Bonds secured hereby with the same rights which it would have if not Trustee. (d) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it, in the exercise of reasonable care, to be genuine and correct and to have been signed or sent . by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of the owner of any Bond secured hereby, shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (e) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a Certificate of the City signed by its Mayor and attested by the City Clerk as• sufficient evidence of the facts therein contained and, prior to the occurrence of a default of which it has been notified as provided in subsection (g) of this Section 901, or of which by that subsection it is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction, or action is necessary or expedient, but may at its discretion, at the reasonable expense of the City, in every case secure such further evidence as it may think necessary or advisable but shall in no case be bound to secure the same. The Trustee may accept a certificate of the City Clerk of the City under its seal to the effect that a resolution in the form therein set forth has been adopted by the City as conclusive evidence that such resolution has been duly adopted, and is in full force and effect. (f) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty of the Trustee, and the Trustee shall be answerable only for its own gross negligence or willful misconduct. (g) The Trustee shall not be required to take notice or be deemed to have • notice of any default hereunder (except for defaults under clause (a) or (b) of the first 4838-2657-89441 38 paragraph of Section 801 hereof as to which the Trustee shall be deemed to have notice) unless the Trustee shall be specifically notified in writing of such default by the City or by the Holders of at least 10% in aggregate principal amount of Bonds Outstanding hereunder, and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered to the principal corporate trust office of the Trustee, and in the absence of such notice so delivered, the Trustee may conclusively assume there is no such default except as aforesaid. (h) [Reserved]. (i) At any and all reasonable times the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right fully to inspect any and all of the property herein conveyed, including all books, papers and records of the City pertaining to the Sales and Use Tax receipts and the Bonds, and to take such memoranda from and in regard thereto as may be desired. 6) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (k) Notwithstanding anything elsewhere in this Indenture contained, the Trustee shall have the right, but shall not be required, to demand, in respect of the • authentication of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action by the Trustee, deemed desirable for the purpose of establishing the right of the City to the authentication of any Bonds, the withdrawal of any cash, the release of any property, or the taking of any other action by the Trustee. (1) Before taking such action hereunder, the Trustee may require that it be furnished an indemnity bond satisfactory to it for the reimbursement to it of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee, by reason of any action so taken by the Trustee. Section 902. Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's Prior Lien. (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 nerformance of its flowers and duties hereunder with recnnrt to tho • Series 2005 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. If the City shall fail 4838-2657-8944.2 39 • 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. (b) The City shall pay to the Trustee compensation for its services as described in Section 902(a), provided that such compensation, together with all expenses, charges and other disbursements of the Trustee and its attorneys, agents and employees and all reimbursements to the Trustee for all costs and other disbursements as described in Section 901(a) hereof shall not exceed $7,500 annually (not including the initial authentication fee) without the prior written approval of the City, which approval shall not be unreasonably withheld. If the Trustee wishes to consult with or retain counsel for any purpose hereunder whose anticipated fees, together with all other compensation, disbursements and reimbursements of the Trustee and its attorneys, agents and employees to be paid by the City hereunder, shall exceed $10,000 annually, then such counsel shall have to be acceptable to the City and such fees shall have to be approved by the City as described above. Section 903. Additional Duties of Trustee. (a) In addition to the other duties of the Trustee described in this Indenture, it shall be the duty of the Trustee, on or before the tenth day of each month after the month in which the Series 2005 Bonds are delivered, to file with the City • a statement setting forth in respect of the preceding calendar month: (i) the amount withdrawn or transferred by it and the amount deposited with it on account of each Fund and Account held by it under the provisions of this Indenture; (ii) the amount on deposit with it at the end of such month to the credit of each such Fund and Account; (iii) a brief description of all obligations held by it as an investment of moneys in each such Fund and Account; (iv) the amount applied to the purchase or redemption of Bonds under the provisions of this Indenture and a description of the Bonds or portions of Bonds so purchased or redeemed; and (v) any other information that the City may reasonably request, including, but not limited to, submittal of monthly statements of activity relating to the Bonds. Such information shall also be provided at the direction of the City to one additional designated entity. All records and files pertaining to each such Fund and Account in the custody of the Trustee hereunder shall be open at all reasonable times to the inspection of the City and its agents and representatives, and the City may make copies thereof. • (b) The Trustee additionally shall be responsible for the preparation and timely distribution of any and all forms and reports required by law to all Bondholders, the State and the 4838-2657-8944.2 40 • Internal Revenue Service in connection with the payment to the Bondholders of interest on the Bonds. Section 904. Notice to Bondholders of Default. If a default occurs of which the Trustee is pursuant to the provisions of Section 901(g) deemed to have or is given notice, the Trustee shall promptly make demand upon the City and give notice to each owner of Bonds then Outstanding. Section 905. Intervention by Trustee. In any judicial proceeding to which the City is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Holders of Bonds issued hereunder, the Trustee may intervene on behalf of Bondholders and shall do so if requested in writing by the Holders of at least 51% of the aggregate principal amount of Bonds Outstanding hereunder. The rights and obligations of the Trustee under this Section 905 are subject to the approval of the court having jurisdiction in the premises. Section 906. Merger or Consolidation of Trustee. Any bank or trust company to which the Trustee may be merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any bank or trust company resulting from any such sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor trustee hereunder and vested with all of the title to the whole property or Trust Estate and all the trusts, powers, discretions, immunities, privileges and • all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed, or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that such successor trustee shall have capital and surplus of at least $40 million. Section 907. Resignation any time resign from the trusts h Bondholders, and such resignation by the Bondholders or by the City. mail (to the City) or first class mail by Trustee. The Trustee and any successor trustee may at ereby created by giving written notice to the City and the shall take effect upon the appointment of a successor trustee Such notice may be served personally or sent by registered (to the Bondholders). Section 908. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the City, and signed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder. Section 909. Appointment of Successor Trustee. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by the court, a successor may be appointed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder, by an instrument or concurrent instruments in writing signed by such • Holders, or by their attorneys in fact, duly authorized; provided, nevertheless, that in case of such vacancy the City by an instrument executed and signed by its Mayor and attested by its City 4838-2657-8944.2 41 • Clerk under its seal, shall appoint a temporary trustee to fill such vacancy until a successor trustee shall be appointed by the Bondholders in the manner above provided. Any such temporary trustee appointed by the City shall immediately and without further act be superseded by the trustee appointed by such Bondholders. Every such temporary trustee and every such successor trustee shall be a trust company or bank in good standing, having capital and surplus of not less than $40 million. Section 910. Concerning Any Successor Trustee. Every successor or temporary trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the City an instrument in writing accepting such appointment hereunder, and thereupon such successor or temporary trustee, without any further act or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the City or of its successor trustee, execute and deliver an instrument transferring to such successor all the estate, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor trustee shall deliver all securities, moneys and any other property held by it as trustee hereunder to its successor. Should any instrument in writing from the City be required by any successor trustee for more fully and certainly vesting in such successor the estates, rights, powers and duties hereby vested or intended to be vested in the predecessor trustee, any and all such instruments in writing shall, on request, be executed, acknowledged, and delivered by the City. • Section 911. Reliance Upon Instruments. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted and relied upon by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for its actions taken hereunder. Section 912. Appointment of Co -Trustee. The City and the Trustee shall have power to appoint, and upon the request of the Trustee the City shall for such purpose join with the Trustee in the execution of all instruments necessary or proper to appoint, another corporation or one or more Persons approved by the Trustee, either to act as co -trustee or co -trustees jointly with the Trustee of all or any of the property subject to the lien hereof, with such powers as may be provided in the instrument of appointment and to vest in such corporation or Person or Persons as such co -trustee any property, title, right or power deemed necessary or desirable. In the event that the City shall not have joined in such appointment within fifteen (15) days after the receipt by it of a request so to do, the Trustee alone shall have the power to make such appointment. Should any deed, conveyance or instrument in writing from the City be required by the co -trustee so appointed for more fully and certainly vesting in and confirming to such co - trustee such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the City. Every such co -trustee shall, to the extent permitted by law, be appointed subject to the following provisions and conditions, namely: (1) The Bonds shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Trustee in respect of the custody of all money • and securities pledged or deposited hereunder, shall be exercised solely by the Trustee; and 4838-2657-8944.2 42 • (2) The Trustee, at any time by an instrument in writing, may remove any such separate Trustee or co -trustee. Every instrument, other than this Indenture, appointing any such co -trustee shall refer to this Indenture and the conditions of this Article IX expressed, and upon the acceptance in writing by such co -trustee, the co -trustee shall be vested with the estate or property specified in such instrument, jointly with the Trustee (except insofar as local law makes it necessary for any separate trustee to act alone), subject to all the trusts, conditions and provisions of this Indenture. Any such co -trustee may at any time, by an instrument in writing, constitute the Trustee as the co -trustee's agent or attorney -in -fact with full power and authority, to the extent authorized by law, to do all acts and things and exercise all discretion authorized or permitted by the co -trustee, for and on behalf of the co -trustee and in the co -trustee's name. In case any co -trustee shall die, become incapable of acting, resign or be removed, all the estate, properties, rights, powers, trusts, duties and obligations of said co -trustee shall vest in and be exercised by the Trustee until the appointment of a new trustee or a successor to such co -trustee. Section 913. Designation and Succession of Paying Agents. The Trustee and any other banks or trust companies designated as Paying Agent or Paying Agents in any Supplemental Indenture or in an instrument appointing a successor Trustee shall be the Paying Agent or Paying Agents for the Bonds. • Any bank or trust company with which or into which any Paying Agent may be merged or consolidated, or to which the assets and business of such Paying Agent may be sold, shall be deemed the successor of such Paying Agent for the purposes of this Indenture. If the position of Paying Agent shall become vacant for any reason, the City shall, within thirty (30) days thereafter, appoint such bank or trust company as shall be specified by the City as such Paying Agent to fill such vacancy; provided, however, that, if the City shall fail to appoint such Paying Agent within said period, the Trustee shall make such appointment. The Paying Agents shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Section 901 hereof with respect to the Trustee insofar as such provisions may be applicable. ARTICLE X SUPPLEMENTAL INDENTURES Section 1001. 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 this 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 4838-2657-89442 43 • to or inconsistent with this 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 this Indenture other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with this 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, this 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 this 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) of Section 1002 hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Section 1002. Supplemental Indentures Requiring Consent of Bondholders. Subject to the terms and provisions contained in this Section 1002, 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 this Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such indenture or indentures supplemental hereto 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 this Indenture or in any Supplemental Indenture; provided, however, that nothing herein contained 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 hereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Bond issued hereunder, or (c) the creation of any lien on the Trust Estate or any part thereof, except as hereinbefore expressly permitted, 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 hereby created on the Trust Estate. Nothing herein contained, • however, shall be construed as making necessary the approval of Bondholders of the execution of any Supplemental Indenture as provided in Section 1001 of this Article X. 4838-2657-8944.2 44 • If, at any time the City shall request the Trustee to enter into any Supplemental Indenture for any of the purposes of this Section, 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 in this Section 1002. 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 as herein provided, 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. Section 1003. Effect of Supplemental Indentures. Upon the execution of any Supplemental Indenture entered into pursuant to Section 1001 or 1002 hereof, this Indenture shall be deemed to be modified and amended in accordance therewith. ARTICLE XI • MISCELLANEOUS Section 1101. Consents, etc. of Bondholders. Any request, direction, objection or other instrument required by this Indenture to be signed and executed by the Bondholders may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondholders in person or by agent appointed in writing. Proof of the execution of any such request, direction, objection or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument, namely: (a) The fact and date of the execution by any Person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the Person signing such writing acknowledged before such officer the execution thereof, or by an affidavit of any witness to such execution. (b) The fact of ownership of Bonds and the amount or amounts, numbers, and other identification of such Bonds, and the date of holding the same shall be proved by the registration books of the City maintained by the Trustee, as Bond registrar. Section 1102. Notices. Except as otherwise provided in this Indenture, all notices, • certificates or other communications shall be sufficiently given and shall be deemed given when 4838-2657-8944.2 45 • mailed by registered or certified mail, postage prepaid, to the City or the Trustee. Notices, certificates or other communications shall be sent to the following addresses: City: City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 Attention: Mayor Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: Glenda L. Dean, Corporate Trust Either of the foregoing may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1103. Limitation of Rights. With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture, or the Bonds issued hereunder, is intended or shall be construed to give to any person or company other than the parties hereto, and the Holders of the Bonds secured by this Indenture any legal or equitable rights, remedy, or claim under or in respect to this Indenture or any covenants, conditions, and • provisions hereof being intended to be and being for the sole exclusive benefit of the parties hereto and the Holders of the Bonds hereby secured as herein provided. Section 1104. Severability. If any provisions of this 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. The invalidity of any one or more phrases, sentences, clauses or paragraphs in this Indenture contained shall not affect the remaining portions of this Indenture or any part thereof. Section 1105. Applicable Provisions of Law. This 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 1106. Counterparts. This 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. 4838-2657-8944.2 46 • Section 1107. Successors and Assigns. All the covenants, stipulations, provisions, agreements, rights, remedies and claims of the parties hereto in this Indenture contained shall bind and inure to the benefit of their successors and assigns. Section 1108. Captions. The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Indenture. Section 1109. Photocopies and Reproductions. A photocopy or other reproduction of this Indenture may be filed as a financing statement pursuant to the Uniform Commercial Code, although the signatures of the City and the Trustee in such reproduction are not original manual signatures. Section 1110. Bonds Owned by the City. In determining whether Bondholders of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the City shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to • such Bonds and that the pledgee is not the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] • 4838-2657-8944.2 47 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 Mayor ATTEST: City Clerk (SEAL) 40 • SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Title: ATTEST: By:_ Title: (SEAL) 4838-2657-8944.2 48 C 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, 2005. Notary Public • My Commission expires: (SEAL) • [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-8944.2 49 CI ACKNOWLEDGMENT STATE OF ARKANSAS ss. COUNTY OF JEFFERSON Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named 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, 2005. My Commission expires: (SEAL) Notary Public • [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-89442 50 • • EXHIBIT A TO TRUST INDENTURE Form of Series 2005A 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. R05A-_ REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: _% Date of Bond: November 1, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20 CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657-8944.2 A- I • "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 "Sales and Use Tax Refunding and Capital Improvement Bond, Series 2005A", is one of a series of bonds aggregating [Twenty -Six Million Two Hundred Thirty -Five Thousand Dollars ($26,235,000)] (the "Series 2005A Bonds"). The Series 2005A Bonds are being issued for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, (ii) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (iii) funding a debt service reserve, (iv) purchasing a policy of municipal bond insurance, and (v) paying the costs of issuance of the Series 2005A Bonds. The Series 2005A Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 1, 2005 (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 2005A Bonds, and the terms upon which the Series 2005A Bonds are issued and secured. • The Series 2005A 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. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October _, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005A Bonds is made on a parity basis with the pledge of such receipts securing the City's $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the `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 or incurred, such Additional Bonds will rank on a parity of security with the Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. • The 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 in the 4838-2657-89441 A-2 • Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. The holder of this Series 2005A 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 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 2005A 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. The Series 2005A 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 Bonds and any Additional Bonds, (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 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds or any series of Additional Bonds. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005A Bonds, the particular Series 2005A 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 2005A Bonds for redemption prior to maturity, in the case any outstanding Series 2005A Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005A Bond shall be treated as a separate Series 2005A Bond of the denomination of $5,000. In the event any of the Series 2005A 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 2005A 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 4838-2657-8944.2 A-3 proceedings for the redemption of any Series 2005A Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005A 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 2005A 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, 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 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 2005A 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 2005A Bonds may be exchanged for a like aggregate principal amount of Series 2005A 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 2005A Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005A Bonds or the Indenture against any past, IS 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 2005A Bonds. This 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 2005A 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 2005A 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 2005A Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. 0 4838-2657-8944.2 A-4 • IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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) (Form of Trustee's Certificate) S TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005A 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 Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Authorized Signature 0 4838-2657-8944.2 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. :f:R7:3Z.,$jFj Zr•10a A-6 0 • EXHIBIT B TO TRUST INDENTURE Form of Series 2005B 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. R05B-_ REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: % Date of Bond: November 1, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20 CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657-8944.2 B -I • 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 "Sales and Use Tax Capital Improvement Bond, Series 2005B", is one of a series of bonds aggregating Sixty -Five Million Dollars ($65,000,000) (the "Series 2005B Bonds"). The Series 2005B Bonds are being issued for the purpose of (i) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (ii) funding a debt service reserve, (iii) purchasing a policy of municipal bond insurance, and (iv) paying the costs of issuance of the Series 2005B Bonds. The Series 2005B Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 1, 2005 (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 2005B Bonds, and the terms upon which the Series 2005B Bonds are issued and secured. The Series 2005B 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 Rep!. & Supp. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October , 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005B Bonds is made on a parity basis with the pledge of such receipts securing the City's [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds," and together with the Series 2005B Bonds, the `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 or incurred, such Additional Bonds will rank on a parity of security with the Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. The 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 in the Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. 0 4838-2657-8944.2 B-2 • The holder of this Series 2005B 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 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 2005B 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. The Series 2005B 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 Bonds and any Additional Bonds, (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 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds or any series of Additional Bonds. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005B Bonds, the particular Series 2005B 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 2005B Bonds for redemption prior to maturity, in the case any outstanding Series 2005B Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005B Bond shall be treated as a separate Series 2005B Bond of the denomination of $5,000. In the event any of the Series 2005B 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 2005B 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 2005B Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005B 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 2005B Bond or Bonds so called for redemption will cease to bear 4838-2657-89442 B-3 • interest provided funds sufficient for their redemption have been deposited with the Trustee, and, 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 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 2005B 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 2005B Bonds may be exchanged for a like aggregate principal amount of Series 2005B 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 2005B Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005B 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 2005B Bonds. This 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 2005B 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 2005B 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 2005B Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. 4838-2657-8944.2 B-4 • IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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) (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005B 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 Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By: Authorized Signature 0 483&2657-8944.2 • (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 Cei�l_�:n�rra�l�7:)•il NOTICE: Signature(s) must be guaranteed by an institution satisfactory to the Trustee or other transfer agent. 4838-2657-8944.2 • EXHIBIT C TO TRUST INDENTURE COVERAGE CERTIFICATE City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds TO: Simmons First Trust Company, N.A., as Trustee This certificate is provided pursuant to the provisions of Section 212 of the Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, in connection with the proposed issuance of Additional Bonds. In connection with such issuance or drawdown, the undersigned certifies as follows: (a) Receipts of Sales and Use Tax by Trustee for preceding twelve (12) months: $ • (b) Maximum Annual Debt Service on all Outstanding Bonds, plus the proposed Additional Bonds: $ (c) (a) divided by (b) = % (which is greater than 125%) The undersigned hereby certifies that he is authorized to deliver this Certificate on behalf of the Issuer. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture. CITY OF FAYETTEVILLE, ARKANSAS By: Finance and Internal Services Director 4838-2657-8944.2 C -I • EXHIBIT D TO TRUST INDENTURE REQUISITION City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: Requisition No.: TO: Simmons First Trust Company, N.A., as Trustee Pursuant to the provisions of Section 502 of the Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, you are authorized to make the following described payment directly to the Payee named below from the Project Fund: Name and Address of Payee: • Amount of Payment: General Classification of the Expenditures: The undersigned hereby certifies that he is authorized to deliver this Requisition on behalf of the Issuer. The amount requested hereunder has not been the basis for any previous Requisition by the Issuer and is justly due and owing to the person(s) named herein as a proper payment or reimbursement of a Project Cost. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. CITY OF FAYETTEVILLE, ARKANSAS Authorized Representative 4838-2657-89442 D-1 0 • 0 KUTAK ROCK LLP DRAFT 09/27/05 CITY OF FAYETTEVILLE, ARKANSAS [s7 SIMMONS FIRST TRUST COMPANY, N.A. as Trustee TRUST INDENTURE Dated as of November 1, 2005 Providing for: [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,0000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Prepared by: Kutak Rock LLP 425 West Capitol Avenue, Suite 1100 Little Rock, Arkansas 72201 4838-2657-8944.2 me TABLE OF CONTENTS (This Table of Contents is not a part of the Trust Indenture and is only for convenience of reference.) Page No. Parties.............................................................................................................................................. 1 Recitals............................................................................................................................................ I GrantingClauses ............................................................................................................................. 2 ARTICLE I DEFINITIONS Section101. Definitions........................................................................................................ 4 Section102. Use of Words.................................................................................................11 ARTICLE II THE BONDS Section 201. Security for the Bonds................................................................................... 11 Section 202. Authorized Amount.......................................................................................12 Section 203. Details of the Bonds.......................................................................................12 Section 204. Forms......... 13 Section205. Payment.......................................................................................................... 13 • Section 206. Execution....................................................................................................... 14 Section207. Authentication................................................................................................ 14 Section 208. Delivery of the Bonds.................................................................................... I4 Section 209. Mutilated, Destroyed or Lost Bonds..............................................................16 Section 210. Registration and Transfer of Bonds............................................................... 17 Section211. Cancellation................................................................................................... 18 Section 212. Additional Bonds........................................................................................... 18 Section 213. Superior Obligations Prohibited.................................................................... 18 Section 214. [RESERVED]................................................................................................19 Section215. Temporary Bonds........................................................................................... 19 Section 216. Book -Entry Bonds; Securities Depository ..................................................... 19 C ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section Section302. Section 301. 303. Redemption of the Bonds............................................................................... Notice............................................................................................................. Selection of Bonds to be Redeemed.............................................................. 20 21 21 Section Section 304. 305. Surrender of Bonds Upon Redemption.......................................................... Redemption in Part........................................................................................ 22 22 Section 306. Redemption of Additional Bonds.................................................................. 22 ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest ..................................... 22 Section 402. Performance of Covenants............................................................................. 23 4838-2657-8944.2 i • Section 403. Instruments of Further Assurance.................................................................. 23 Section 404. Recordation and Filing................................................................................... 23 Section 405. Inspection of Books....................................................................................... 23 Section406. Tax Covenants............................................................................................... 23 Section 407. Trustee's and Paying Agent's Fees and Expenses ......................................... 24 Section 408. Construction of Project; Certification of Completion Date ........................... 24 Section409. Encumbrances................................................................................................ 24 Section 410. Continuing Disclosure................................................................................... 24 ARTICLE V FUNDS AND DEPOSITS Section 501. Section 502. Section 503. Section 504. Section 505. Section 506. Section 507. Section 508. Section 509. Section 510. • Creation of Funds and Accounts.................................................................... 25 ProjectFund................................................................................................... 25 RevenueFund................................................................................................ 26 BondFund...................................................................................................... 27 Cost of Issuance Fund.................................................................................... 28 RedemptionFund........................................................................................... 28 RebateFund................................................................................................... 29 Debt Service Reserve Fund............................................................................ 30 Cessation of Fund Deposits........................................................................... 30 Separate Accounts Authorized....................................................................... 30 ARTICLE VI INVESTMENTS Section 601. Investment of Moneys.................................................................................... 31 Section Section 602. 603. Investment Earnings*.............................................................................. Valuation of Funds......................................................................................... 31 31 Section 604. Responsibility of Trustee............................................................................... 31 ARTICLE VII DISCHARGE OF LIEN Section701. Section Section 702. 703. Discharge of Lien........................................................................................... Bonds Deemed Paid....................................................................................... Non -Presentment of Bonds............................................................................32 31 32 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section Section802. Section Section Section 801. 803. 804. 805. Events of Default........................................................................................... Acceleration................................................................................................... Other Remedies; Rights of Bondholders....................................................... Right of Bondholders to Direct Proceedings ................................................. Appointment of Receiver............................................................................... 33 33 34 34 34 Section806. Section 807. Waiver............................................................................................................ Application of Moneys.................................................................................. 35 35 Section 808. Remedies Vested in Trustee........................................................................... 36 4838-2657-8944.2 it V • Section 809. Rights and Remedies of Bondholders............................................................ 36 Section 810. Termination of Proceedings........................................................................... 37 Section 811. Waivers of Events of Default......................................................................... 37 ARTICLE IX TRUSTEE AND PAYING AGENTS Section 901. Acceptance of Trusts...................................................................................... 37 Section 902. Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's PriorLien....................................................................................................... 39 Section 903. Additional Duties of Trustee.......................................................................... 40 Section 904. Notice to Bondholders of Default.................................................................. 4I Section 905. Intervention by Trustee.................................................................................. 41 Section 906. Merger or Consolidation of Trustee............................................................... 41 Section 907. Resignation by Trustee..........................................................4.4.4..4................ 41 Section 908. Removal of Trustee........................................................................................ 41 Section 909. Appointment of Successor Trustee................................................................ 41 Section 910. Concerning Any Successor Trustee............................................................... 42 Section 911. Reliance Upon Instruments............................................................................ 42 Section 912. Appointment of Co-Trustee........................................................................... 42 Section 913. Designation and Succession of Paying Agents..............................................43 ARTICLE X • SUPPLEMENTAL INDENTURES Section 1001. Supplemental Indentures Not Requiring Consent of Bondholders................43 Section 1002. Supplemental Indentures Requiring Consent of Bondholders ....................... 44 Section 1003. Effect of Supplemental Indentures................................................................. 45 ARTICLE XI MISCELLANEOUS Section 1101. Consents, etc. of Bondholders....................................................................... 45 Section1102. Notices......................................................................................................0..0.45 Section 1103. Limitation of Rights.........................................................4...4..4.4.................... 46 Section1104. Severability.................................................................................................... 46 Section 1105. Applicable Provisions of Law..........................................4........4.4..4............... 46 Section1106. Counterparts....................................................................4........4................44... 46 Section 1107. Successors and Assigns..................................................................................47 Section1108. Captions..........................................................................4...4..4.4..................... 47 Section 1109. Photocopies and Reproductions..................................................................... 47 Section 1110. Bonds Owned by the City.............................................................................. 47 Exhibit A Form of Series 2005A Bond......................................................................... A -I Exhibit B Form of Series 2005B Bond.................................................4....................... B -I Exhibit C Form of Coverage Certificate............................................0...0......0............... C-1 • Exhibit D Requisition Form............................................................4...................0..0..0... D-1 4838-2657-8944.2 III • TRUST INDENTURE THIS TRUST INDENTURE, dated as of November 1, 2005, 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 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, the City Council of the City has determined that there is a great need for a source of revenue to finance all or 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 people of the State of Arkansas (the "State") by the adoption of Amendment No. 62 to the Constitution of the State, approved November 6, 1984 ("Amendment • 62"), have authorized cities and counties in the State to issue bonds, upon voter approval, to finance and refinance certain capital improvements of a public nature, and to secure said bonds by a pledge of the proceeds of certain taxes; and WHEREAS, the provisions of Amendment 62 have been implemented by the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq. (as from time to time amended, the "Act"); and WHEREAS, pursuant to the provisions of Ordinance No. 4327, duly adopted by the City Council of the City 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 principal amount of capital improvement bonds pursuant to Amendment 62 and the Act to finance the Project, 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 at the rate of three-quarters of one percent (0.75%) levied pursuant to the 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 aforementioned question approved the issuance of the capital improvement bonds and the corresponding levy of the Sales and Use Tax and pledge of Sales and Use Tax receipts to the payment of the capital improvement bonds; and WHEREAS, pursuant to ordinances of the City and in accordance with Amendment 62 and the Act, the City has previously issued (i) its $25,000,000 Sales and Use Tax Capital • Improvement Bonds, Series 2002 (the "Series 2002 Bonds"), and (ii) its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"); and 4838-2657-8944.2 WHEREAS, the Series 2002 Bonds have been redeemed in full from receipts of the Sales and Use Tax and the Series 2004 Bonds presently remain outstanding in the aggregate principal amount of [$26,235,000]; and WHEREAS, pursuant to the provisions of Ordinance No. of the City, adopted by the City Council on October _, 2005 (the "Authorizing Ordinance"), and in accordance with the provisions of Amendment 62 and the Act, the City proposes to issue (i) its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), in the aggregate principal amount of [$26,235,000], and (ii) its Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), in the aggregate principal amount of $65,000,000, in order to accomplish an advance refunding of the outstanding Series 2004 Bonds and to provide for the financing of a portion of the Project; and WHEREAS, the City has determined to enter into this Indenture to authorize the issuance of and to secure the Series 2005 Bonds by granting to the Trustee a pledge and assignment of the interests and other rights herein contained, and certain funds and accounts created hereby; and WHEREAS, the Series 2005 Bonds are to be dated, bear interest, mature and be subject • to redemption as hereinafter in this Indenture set forth in detail; and WHEREAS, provision is made in this Indenture for the issuance of Additional Bonds (hereinafter defined) upon compliance with certain conditions set forth herein; and WHEREAS, the execution and delivery of this Indenture and the issuance of the Series 2005 Bonds have been in all respects duly and validly confirmed, authorized and approved under the provisions of the Authorizing Ordinance; and WHEREAS, all things necessary to make the Series 2005 Bonds, when authenticated by the Trustee and issued as in this Indenture provided, the valid, binding and legal obligations of the City according to the import thereof, and to constitute this Indenture a valid pledge of the Sales and Use Tax receipts to the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds, as specified in and in accordance with the provisions hereof, have been done and performed, and the creation, execution and delivery of this Indenture and the creation, execution, issuance and delivery of the Series 2005 Bonds, subject to the terms hereof, have in all respects been duly authorized; NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS INDENTURE WITNESSETH: That the City, in consideration of the premises and the acceptance by the Trustee of the • trusts hereby created and of the purchase and acceptance of the Series 2005 Bonds by the Holders and owners thereof, and the sum of Ten Dollars ($10.00), lawful money of the United States of America, to it duly paid by the Trustee, at or before the execution and delivery of these 4838-2657-89442 2 • presents, and for other good and valuable consideration, the receipt of which is hereby acknowledged, and in order to secure the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds and all Additional Bonds (hereinafter defined), if any, according to their tenor and effect, and to secure the performance and observance by the City of all the covenants expressed or implied herein and in the Series 2005 Bonds and Additional Bonds (collectively, the "Bonds"), does hereby grant, bargain, sell, convey, mortgage, assign, transfer and pledge unto the Trustee, and unto its successor or successors in trust, and to them and their assigns forever, for the securing of the performance of the obligations of the City hereinafter set forth the following: Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, (i) the proceeds of the sale of the Bonds, (ii) all receipts from the Sales and Use Tax, which are hereby irrevocably assigned and pledged to secure all obligations under this Indenture, and (iii) the Revenue Fund, Bond Fund, Debt Service Reserve Fund (subject to the limitations set forth in Section 508 hereof), Project Fund and Redemption Fund established by this Indenture, including the investment earnings thereon, if any. 2. • Any and all other properties, rights and interests of every kind and nature from time to time which have been, are hereby, or hereafter are, by delivery or by writing or transfer of any kind, conveyed, mortgaged, pledged, assigned or transferred, as and for additional security hereunder, by the City or by any other Person, firm or corporation, or with the written consent of the City, to the Trustee, which is hereby authorized to receive any and all such properties, rights and interests at any time and at all times and to hold and apply the same subject to the terms hereof. TO HAVE AND TO HOLD all the same (the "Trust Estate") with all privileges and appurtenances hereby conveyed and assigned, or agreed or intended so to be, to the Trustee and its successors in said trusts and to them and their assigns forever; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all owners of the said Bonds issued under and secured by this Indenture without privilege, priority or distinction as to lien or otherwise of any of the Bonds over any of the other Bonds; provided, however, that if the City, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of, premium, if any, and interest due on the Bonds, at the times and in the manner provided in the Bonds, according to the true intent and meaning thereof, and shall make the payments as required under this Indenture or shall provide, as permitted hereby, for the payment thereof by depositing or causing to be deposited with the Trustee the entire amount due or to become due thereon, and shall well and truly keep, perform and observe all of the covenants and conditions pursuant to the terms of this • Indenture to be kept, and shall pay to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon such final payments or deposits this 4838-2657-8944.2 3 • Indenture and the lien and rights hereby granted shall cease, determine and be void; otherwise, this Indenture is to be and remain in full force and effect. THIS INDENTURE FURTHER WITNESSETH that, and it is expressly declared that, all Bonds issued and secured hereunder are to be issued, authenticated and delivered and all revenues and income hereby pledged are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the City has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective owners from time to time of the Bonds or any part thereof, as follows, that is to say: ARTICLE I DEFINITIONS Section 101. Definitions. In addition to the words and terms elsewhere defined in this Indenture, the following words and terms as used in this Indenture shall have the following meanings: "Account" means an Account established by Article V of this Indenture. • "Act" means the Local Government Bond Act of 1985, codified as Arkansas Code Annotated (1998 Repl. & Supp. 2005) Sections 14-164-301 et seq., as from time to time amended. "Additional Bonds" mean Bonds in addition to the Series 2005 Bonds which are issued under the provisions of Section 212 of this 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, 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 from sources other than Sales and Use Tax receipts. "Authorized Representative" means either the Mayor or the 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 _, 2005, which authorized the issuance of the Series 2005 Bonds pursuant to this 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 4838-2657.89442 4 • 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 Section 501 of this Indenture. "Bonds" mean the Series 2005 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 is limited to the extent described in Section 212 hereof. "Book -Entry System" means the book -entry system maintained by the Securities Depository described in Section 216 of this 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. "City Clerk" means the person holding the office and performing the duties of the City Clerk of the City. "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. "Completion Date" means the date upon which the Project (or portion thereof) is first ready for normal continuous operation, as determined by a Qualified Engineer. "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 4838-2657-8944.2 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 Section 501 of this Indenture. "Debt Service" means, with respect to all or any particular amount of Bonds, 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, 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 Section 501 of this 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 hereof. • "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 Article V of this 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 this Trust Indenture dated as of November 1, 2005, between the City and the Trustee, pursuant to which the Bonds are issued, and any amendments and supplements • hereto. 4838-2657-8944.2 6 • "Investment Securities" means, if and to the extent the same are at the time legal for investment of Funds and Accounts held under this 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 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; (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; and (f) other forms of investments approved in writing by [BOND INSURER], including the 2005A Surety Bond and the 2005B Surety Bond. "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 this 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; • 4838-2657-89442 • (b) Bonds deemed to be paid in accordance with Article VII of this Indenture; and (c) Bonds in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to this 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. "2005A Policy" means "2005B Policy" means "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 this 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; • (d) all other costs incurred in connection with, and properly allocable to, the acquisition, construction and equipping of the Project; and 4838-2657-89442 8 • (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 Section 501 of this Indenture. "Qualified Engineer" means an independent consulting engineer or firm of independent consulting engineers not in the regular employ of the City. "Rating Agency" means Moody's Investors Service, Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., or Fitch, Inc., and their 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 Section 501 of this 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 find by that name established in Section 501 of this 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, with respect to each series of Bonds, an amount equal to 5% of the original principal amount of such series of Bonds. For all purposes of this Indenture, • the Reserve Requirement may be satisfied by cash or by Investment Securities, including the 2005A Surety Bond and the 2005B Surety Bond. 4838-2657-8944.2 9 • "Revenue Fund" means the fund by that name created and established in Section 501 of this 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, or any other depository institution appointed by the City or the Trustee to act as depository for the Bonds in connection with the Book -Entry System. "Series 2004 Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2004, issued in the original aggregate principal amount of $35,000,000. The Series 2004 Bonds are being refunded in whole with a portion of the proceeds of the Series 2005A Bonds. "Series 2005 Bonds" means the Series 2005A Bonds and the Series 2005B Bonds. "Series 2005A Bonds" means the City's Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, issued under and secured by this Indenture in the original aggregate principal amount of [$26,235,000). • "Series 2005B Bonds" means the City's Sales and Use Tax Capital Improvement Bonds, Series 2005B, issued under and secured by this Indenture in the original aggregate principal amount of $65,000,000. "State" means the State of Arkansas. "Supplemental Indenture" means any indenture supplemental to or amendatory of this Indenture, adopted by the City in accordance with Article X hereof. ["2005A Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005A Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein.] ["2005B Surety Bond" means the surety bond issued by guaranteeing certain payments into the Series 2005B Account of the Debt Service Reserve Fund, as provided therein and subject to the limitations set forth therein.] "Surplus Tax Receipts" shall have the meaning ascribed to such term in Section 503 hereof. "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 4838-2657-8944.2 10 • 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 this Indenture. Section 102. Use of Words. Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond", "owner", "holder" and "person" shall include the plural, as well as the singular, number. ARTICLE II THE BONDS Section 201. Security for the Bonds. (a) The Bonds are special and limited obligations of the City payable as to principal, premium, if any, and interest solely out of the Trust Estate. The Trust Estate is hereby pledged, appropriated and assigned to the payment of the principal of, premium, if any, and interest on the Bonds, all in accordance with their terms and the provisions • of this Indenture. The Bonds do not constitute an indebtedness for which the faith and credit of the State of Arkansas or the City is pledged within the meaning of any Constitutional or statutory limitation. The Bonds shall never constitute an obligation of or a charge against the general credit or general taxing powers of the City. (b) The pledge, charge, lien, trusts and assignments made herein with respect to the Trust Estate shall be valid and binding, and shall be deemed continuously perfected from the time of issuance of the Series 2005 Bonds, and the Trust Estate shall thereupon be immediately subject to the pledge, charge, lien, trust and assignment created hereby upon receipt thereof by or for the City or by the Trustee or the Paying Agent hereunder, without any physical delivery, segregation thereof or further act, and such pledge, charge, lien, trust and assignment shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice thereof. (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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to the application of such Surplus Tax Receipts to the redemption of Bonds of other series prior to maturity. (d) So long as any Bonds are Outstanding under the provisions of this Indenture, all • receipts derived from the Sales and Use Tax shall be deemed to be necessary to accomplish the purposes of the City and shall be subject to the covenants and agreements set forth in this 4838-2657-8944.2 11 • Indenture, and no such revenues or receipts shall ever be used or deposited otherwise except as herein expressly permitted. (e) The City covenants, as permitted by the Act, that while any of the Bonds are Outstanding it will use due diligence in causing the collection of the Sales and Use Tax. Nothing herein shall prohibit the City from increasing any sales and use tax from time to time, to the extent permitted by law, and no part of the revenues or receipts derived by the City from any such increase shall become part of the receipts derived from the Sales and Use Tax unless authorized and pledged by a Supplemental Indenture. Section 202. Authorized Amount. There is hereby authorized the issuance of bonds of the City to be designated (1) "Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A" in the principal amount of [Twenty -Six Million Two Hundred Thirty -Five Thousand Dollars ($26,235,000)] (the "Series 2005A Bonds") and (2) "Sales and Use Tax Capital Improvement Bonds, Series 2005B" in the principal amount of Sixty -Five Million Dollars ($65,000,000) (the "Series 2005B Bonds"). No Bonds may be issued under the provisions of this Indenture except in accordance with this Article II. The total principal amount of Bonds that may be issued hereunder is hereby limited to the extent described in Section 212 hereof, except as provided in Section 209 and except for refunding bonds issued under the provisions of Section 212 hereof. • Section 203. Details of the Bonds. (a) The Series 2005A Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A," (ii) shall be in the aggregate principal amount of [$26,235,000], (iii) shall be dated as of November 1, 2005, (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, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05A-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 1 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 2005A Bonds: Year (December 1) Principal Amount Interest Rate 2006 $ % 2007 % 2008 % 2009 % 2010 (b) The Series 2005B Bonds (i) shall be designated "City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B," (ii) shall be in the aggregate • principal amount of $65,000,000, (iii) shall be dated as of November 1, 2005, (iv) shall bear interest from such date at the rates hereinafter provided until paid, payable semiannually on 4838-2657-8944.2 12 • June 1 and December 1 of each year, commencing June 1, 2006, (v) shall be issued in denominations of $5,000 each, or any integral multiple thereof, (vi) shall be numbered from R05B-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 1 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 2005B Bonds: Year (December 1) Principal Amount Interest Rate 2010 $ % 2011 % 2012 % 2013 % 2014 % 2015 % 2016 % 2017 % 2018 Section 204. Forms. (a) The Series 2005A 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 2005A Bonds, except upon the occurrence of the events described in Section 216 hereof. 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 2005A Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit A hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. (a) The Series 2005B Bonds shall be initially issued as fully registered Bonds, without coupons, in the form of nine 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 2005B Bonds, except upon the occurrence of the events described in Section 216 hereof. 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 2005B Bonds and the Trustee's certificate of authentication to be endorsed thereon shall be in substantially the form set forth in Exhibit B hereto, with appropriate variations, insertions and omissions as permitted or required by this Indenture. Section 205. Payment. The Bonds shall be payable, with respect to principal, premium, if any, and interest in any coin or currency of the United States of America which at • the time of payment is legal tender for the payment of public and private debts. The principal of and premium, if any, on the Bonds shall be payable upon surrender thereof at the principal 4838-2657-8944.2 13 • corporate trust office of the Trustee. Payment of interest on each Bond shall be made by check or draft mailed to the registered owner of such Bond as of the applicable Record Date at his address as it appears on the registration books maintained by the Trustee. For purposes of this Indenture, interest on the Bonds shall be deemed to accrue on the basis of a 360 -day year of twelve 30 -day months. So long as the Securities Depository or its nominee is the sole registered owner of the Bonds, payment of interest thereon shall be made by wire transfer of immediately available funds by the Paying Agent to the Securities Depository or its nominee. Section 206. Execution. The Bonds shall be executed on behalf of the City by the manual or facsimile signatures of its Mayor and City Clerk and shall have impressed or imprinted thereon the seal of the City. A facsimile signature shall have the same force and effect as if manually signed. In case any officer whose manual signature or a facsimile of whose signature shall appear on the Bonds shall cease to be such officer before the delivery of such Bonds, such signature or such facsimile shall nevertheless be valid and sufficient for all purposes, the same as if such official had remained in office until delivery. Section 207. Authentication. Only such Bonds as shall have endorsed thereon a certificate of authentication substantially in the form set forth in Exhibit A or Exhibit B attached hereto duly executed by the Trustee shall be entitled to any right or benefit under this Indenture. No Bond shall be valid and obligatory for any purpose unless and until such certificate of authentication shall have been duly executed by the Trustee, and such certificate of the Trustee upon any such Bond shall be conclusive evidence that such Bond has been authenticated and delivered under this Indenture. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed if signed by an authorized officer of the Trustee, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds issued hereunder. Section 208. Delivery of the Bonds. The City shall execute and deliver to the Trustee and the Trustee shall authenticate the Bonds of any series and deliver said Bonds to the Securities Depository as may be directed in this Section 208, in Section 212 hereof or in any Supplemental Indenture. (a) Prior to the delivery or original issuance by the Trustee of any authenticated Bonds of any series, there shall be delivered to the Trustee: (1) An original executed counterpart of this Indenture or, in the case of Additional Bonds, a Supplemental Indenture by and between the City and the Trustee setting forth the details concerning such Additional Bonds; (2) Original executed counterparts of the Continuing Disclosure Agreement and the Tax Regulatory Agreement applicable to such series of Bonds; (3) A Certificate directing the Trustee to authenticate the Bonds and containing instructions as to the delivery of the Bonds upon payment to the Trustee, for • the account of the City, of a sum specified in such Certificate; 4838-2657-8944.2 14 • (4) A copy, duly certified by the City Clerk, of the proceedings of the City authorizing the levy of the Sales and Use Tax and the issuance of the Bonds; (5) A written opinion of Bond Counsel approving the legality of the Bonds; (6) In the case of any series of Additional Bonds, a Certificate signed by the Mayor of the City certifying that (i) the City is not then in default in the performance of any of the covenants, conditions, agreements or provisions contained in this Indenture, and (ii) the City is current as to all required deposits at that time in all the Funds and Accounts described in Article V of this Indenture or hereafter created by Supplemental Indentures, or if the City is in default or is not so current, certifying in the case of (i) or (ii) as to that fact and that, upon the application of the proceeds of the sale of such Additional Bonds as provided in the Supplemental Indenture authorizing the issuance thereof, the City will not be in default or will be current thereafter; (7) In the case of any series of Additional Bonds, a written opinion of Bond Counsel to the effect that the exemption from federal income tax of the interest on the Series 2005 Bonds and any Additional Bonds theretofore issued will not be adversely affected by the issuance of the Additional Bonds being issued; and (8) Such further documents and certificates as may be required by the • Original Purchaser of such series of Bonds. (b) Simultaneously with the delivery of the Series 2005A Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005A Bonds shall be deposited in the Series 2005A Account of the Bond Fund; (2) $ shall be transferred to [BOND INSURER] in order to purchase the 2005A Surety Bond, which shall be deposited in the Series 2005A Account of the Debt Service Reserve Fund; (3) $ shall be transferred to [BOND INSURER] in payment of the premium on the 2005A Policy; (4) An amount equal to $ shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) An amount sufficient, together with moneys held by Simmons First Trust Company, N.A., as trustee for the Series 2004 Bonds, in funds and accounts created by the trust indenture securing the Series 2004 Bonds, to refund the Series 2004 Bonds shall be deposited in Trust with Simmons First Trust Company, N.A., as escrow trustee (the 2004 Escrow Trustee"), in accordance with the provisions of an Escrow Deposit • Agreement to be dated as of the date of delivery of the Series 2005A Bonds (the "2004 Escrow Agreement"), by and between the City and the 2004 Escrow Trustee. The 2004 Escrow Agreement shall provide for the investment of the funds, to the extent feasible, in 4838-2657-89442 15 • Government Securities which will mature and bear interest at such times and in such amounts as will, together with any uninvested moneys held by the 2004 Escrow Trustee, provide sufficient moneys to pay as due at maturity and upon redemption prior to maturity as provided in the 2004 Escrow Agreement, all principal of and premium, if any, and interest on the Series 2004 Bonds. The 2004 Escrow Agreement will provide for the giving of notice of redemption prior to maturity of the Series 2004 Bonds, for the payment of required trustee and paying agent fees on the Series 2004 Bonds, and for the release of all claims of the Series 2004 Bonds on the Trust Estate; and (6) The balance of said proceeds, in the amount of $ , shall be deposited in the Series 2005A Account of the Project Fund. (c) . Simultaneously with the delivery of the Series 2005B Bonds, the Trustee shall apply the proceeds thereof as follows: (1) The amount, if any, received as accrued interest on the Series 2005B Bonds shall be deposited in the Series 2005B Account of the Bond Fund; (2) $ shall be transferred to [BOND INSURER] in order to purchase the 2005B Surety Bond, which shall be deposited in the Series 2005B Account of the Debt Service Reserve Fund; • (3) $ shall be transferred to [BOND INSURER] in payment of the premium on the 2005B Policy; (4) An amount equal to $ shall be deposited in the Costs of Issuance Fund for payment of Costs of Issuance as directed by a Certificate of the City; (5) The balance of said proceeds, in the amount of $ , shall be deposited in the Series 2005B Account of the Project Fund. Section 209. Mutilated, Destroyed or Lost Bonds. In case any Bond issued hereunder shall become mutilated or be destroyed or lost, the City shall, if not then prohibited by law, cause to be executed and the Trustee may authenticate and deliver a new Bond of like series, date, number, maturity and tenor in exchange and substitution for and upon cancellation of such mutilated Bond, or in lieu of and in substitution for such Bond destroyed or lost, upon the Holder's paying the reasonable expenses and charges of the City and the Trustee in connection therewith, and, in the case of a Bond destroyed or lost, filing by the Holder with the Trustee evidence satisfactory to the Trustee that such Bonds were destroyed or lost, and of the Holder's ownership thereof, and furnishing the City and Trustee with indemnity satisfactory to them. The Trustee is hereby authorized to authenticate any such new Bond. In the event any such Bonds shall have matured, instead of issuing a new Bond, the City may pay the same without the surrender thereof Upon the issuance of a new Bond under this Section 209, the City may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the • Trustee) connected therewith. 4838-2657-89442 16 • Section 210. Registration and Transfer of Bonds. The City hereby constitutes and appoints the Trustee as Bond registrar of the City, and as Bond registrar the Trustee shall keep books for the registration and for the transfer of the Bonds as provided in this Indenture at the principal corporate trust office of the Trustee. The person in whose name any Bond shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes and payment of or on account of the principal of and interest on any such Bond shall be made only to or upon the order of the registered owner thereof, or the owner's legal representative, and neither the City, the Trustee nor the Bond registrar shall be affected by any notice to the contrary, but such registration may be changed as herein provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. 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. Bonds may be exchanged at the principal corporate trust office of the Trustee for an equal • aggregate principal amount of Bonds of any other authorized denomination or denominations of the same series with corresponding maturities. The City shall execute and the Trustee shall authenticate and deliver Bonds which the Bondholder making the exchange is entitled to receive, bearing numbers not contemporaneously then outstanding. The execution by the City of any Bond of any denomination shall constitute full and due authorization of such denomination and the Trustee shall thereby be authorized to authenticate and deliver such Bond. Such 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. If the Securities Depository or its nominee is the sole registered owner of the Bonds, transfers of ownership and exchanges shall be effected on the records of the Securities Depository and its Participants pursuant to rules and procedures established by the Securities Depository and its Participants. In such case, the Trustee shall deal with the Securities Depository as representative of the Beneficial Owners of the Bonds for purposes of exercising the rights of Bondholders hereunder, and the rights of the Beneficial Owners of such Bonds held by the Securities Depository or its nominee shall be limited to those established by law and • agreements between such Beneficial Owners and the Securities Depository and its Participants. 4838.2657.8944.2 17 • Requests, consents and directions from, and votes of, the Securities Depository or its nominee as representative shall not be deemed inconsistent if they are made with respect to different Participants or Beneficial Owners. Section 211. Cancellation. All Bonds surrendered for payment, redemption, transfer or exchange, if surrendered to the Trustee, shall be promptly cancelled by it, and, if surrendered to any person other than the Trustee, shall be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The City may at any time deliver to the Trustee for cancellation any Bonds previously authenticated and delivered hereunder, which the City may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Trustee. All cancelled Bonds held by the Trustee shall be disposed of as directed by the City. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee may, upon the written request of the City, in lieu of such cancellation and delivery, destroy such Bonds in the presence of any officer of the City (but only if the City shall so require), and deliver a certificate of such destruction to the City. Section 212. Additional Bonds. 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 acquisition, construction, reconstruction, extension, improving or equipping of the Project, (ii) refunding the Series 2005 Bonds or any series of Additional Bonds, in whole or in part, or (iii) any combination thereof. Additional Bonds shall be secured equally and ratably with the • Series 2005 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 this 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 a particular series of Bonds. Before any Additional Bonds are authenticated, there shall be delivered to the Trustee the items required for the issuance of Bonds by Section 208 hereof, plus a Certificate of the Finance and Internal Services Director of the City (in the form attached as Exhibit C hereto) certifying that, based upon necessary investigation, the Sales and Use Tax receipts transferred to the Trustee for deposit to the Revenue Fund during the most recent twelve (12) months were not less than (i) 125% of the maximum Annual Debt Service on all then Outstanding Bonds, 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. Notwithstanding anything herein to the contrary, no Additional Bonds shall be issued unless there is no default at the time of issuance under this Indenture. Section 213. Superior Obligations Prohibited. Except to the extent permitted in Section 212 hereof for the issuance of Additional Bonds, from and after the issuance of any of the Bonds and for so long as any of the Bonds are Outstanding, the City shall not create or permit the creation of any indebtedness, or issue any bonds, notes, warrants, certificates or other obligations or evidences of indebtedness payable in any manner from the Sales and Use Tax receipts or otherwise from the Trust Estate which (i) will in any way be superior to or rank on a panty with the Bonds, or (ii) will in any way be secured by a lien and charge on the Sales and Use Tax receipts or on the moneys deposited in or to be deposited in the Revenue Fund, prior to • or equal with the lien, pledge and charge created herein for the security of the Bonds, or (iii) will be payable prior to or equal with the payments to be made from the Sales and Use Tax receipts 4838-2657-8944.2 18 • and the Revenue Fund into the Bond Fund, Debt Service Reserve Fund and Redemption Fund or from said Bond Fund, Debt Service Reserve Fund and Redemption Fund for the payment of the Bonds. Section 214. [RESERVED]. Section 215. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the City may execute, and upon the request of the City, the Trustee shall authenticate and deliver, subject to the provisions, limitations and conditions set forth herein, one or more Bonds in temporary form, whether printed, typewritten, lithographed or otherwise produced, substantially in the form of the definitive Bonds, with appropriate omissions, variations and insertions, and in authorized denominations. Until exchanged for Bonds in definitive form, such Bond in temporary form shall be entitled to the lien and benefit of this Indenture. Upon the presentation and surrender of any Bond or Bonds in temporary form, the City shall, without unreasonable delay, prepare, execute and deliver to the Trustee and the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds in definitive form. Such exchange shall be made by the Trustee without making any charge therefor to the Holder of such Bond in temporary form. Section 216. Book -Entry Bonds; Securities Depository. The Bonds shall initially be registered to Cede & Co., the nominee for The Depository Trust Company, New York, New York (the "Securities Depository"), and no Beneficial Owner will receive certificates representing • their respective interests in the Bonds, except in the event the Trustee issues replacement bonds as provided in this Section 216. It is anticipated that during the term of the Bonds, the Securities Depository will make book -entry transfers among its Participants and receive and transmit payment of principal of, premium, if any, and interest on, the Bonds to the Participants until and unless the Trustee authenticates and delivers replacement bonds to the Beneficial Owners as described in the following paragraph. If the City or the Trustee determines (A) that the Securities Depository is unable to properly discharge its responsibilities, or (B) that the Securities Depository is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, or (C) that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, or (2) if the Trustee receives written notice from Participants representing interests in not less than 50% of the Bonds Outstanding, as shown on the records of the Securities Depository (and certified to such effect by the Securities Depository), that the continuation of a Book -Entry System to the exclusion of any Bonds being issued to any Bondholder other than Cede & Co. is no longer in the best interests of the Beneficial Owners of the Bonds, then the Trustee shall notify the Bondholders of such determination or such notice and of the availability of certificates to Bondholders requesting the same, and the Trustee shall register in the name of and authenticate and deliver replacement bonds to the Beneficial Owners or their nominees in principal amounts representing the interest of each; provided, that in the case of a determination under (A) or (B) of this paragraph, the City or the Trustee may select a successor securities depository in accordance with the following • paragraph to effect book -entry transfers. In such event, all references to the Securities Depository herein shall relate to the period of time when the Securities Depository has 4838-2657-89442 19 • possession of at least one Bond. Upon the issuance of replacement bonds, all references herein to obligations imposed upon or to be performed by the Securities Depository shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such replacement bonds. If the Securities Depository resigns and the City, the Trustee or Bondholders are unable to locate a qualified successor of the Securities Depository in accordance with the following paragraph, then the Trustee shall authenticate and cause delivery of replacement bonds to Bondholders, as provided herein. The Trustee may rely conclusively on information from the Securities Depository and its Participants as to the names and addresses of the Beneficial Owners of the Bonds. The cost of printing, registration, authentication, and delivery of replacement bonds shall be paid for by the City. In the event the Securities Depository resigns, is unable to properly discharge its responsibilities, or is no longer qualified to act as a securities depository and registered clearing agency under the Securities and Exchange Act of 1934, as amended, the City may appoint a successor Securities Depository provided the Trustee receives written evidence satisfactory to the Trustee with respect to the ability of the successor Securities Depository to discharge its responsibilities. Any such successor Securities Depository shall be a securities depository which is a registered clearing agency under the Securities and Exchange Act of 1934, as amended, or other applicable statute or regulation that operates a securities depository upon reasonable and customary terms. The Trustee upon its receipt of a Bond or Bonds for cancellation shall cause the delivery of Bonds to the successor Securities Depository in appropriate denominations and • form as provided herein. ARTICLE III REDEMPTION OF BONDS BEFORE MATURITY Section 301. Redemption of the Bonds. (a) The Series 2005A Bonds shall be subject to redemption prior to maturity as follows: (i) The Series 2005A 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 moneys in the Series 2005A Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005A 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B 4838-2657-8944.2 20 • Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. (b) The Series 2005B Bonds shall be subject to redemption prior to maturity as follows: (i) The Series 2005B 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 moneys in the Series 2005B Account of the Project Fund in excess of the amount needed to complete the Project, which moneys shall be transferred to the Redemption Fund pursuant to Section 502 hereof. (ii) The Series 2005B 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, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B • Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued hereunder. Section 302. Notice. Notice of the call for any redemption, identifying the 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 the Securities Depository or its nominee is the sole registered owner of the Bonds, by any other means acceptable to the Securities Depository, including facsimile) to the registered owner of each such 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 Bond with respect to which no such failure or defect has occurred. Any notice mailed as provided in this Section 302 shall be conclusively presumed to have been duly given, whether or not the registered owner receives the notice. Section 303. Selection of Bonds to be Redeemed. If less than all of the Bonds of like series, maturity, interest rate and otherwise identical payment terms shall be called for redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected by lot by the Trustee in such manner as the Trustee in its discretion may deem fair and appropriate; provided, however, that the portion of any Bond of a denomination of larger than the minimum denomination may be redeemed in the principal amount of such minimum denomination or a multiple thereof, and that for purposes of selection and redemption, any such Bond of a denomination larger than the minimum denomination shall be considered to be that number of • separate Bonds of such minimum denomination which is obtained by dividing the principal amount of such Bond by such minimum denomination. So long as the Securities Depository or 4838-2657-8944.2 21 • its nominee is the sole registered owner of a series of Bonds, the procedures established by the Securities Depository shall control with respect to the selection of the particular Bonds of such series to be redeemed. Section 304. Surrender of Bonds Upon Redemption. Notice having been given in the manner and under the conditions hereinabove provided, and moneys for payment of the redemption price being held by the Trustee as provided in this Indenture (i) the Bonds or portions of Bonds so called for redemption shall, on the date fixed for redemption designated in such notice, become due and payable at the redemption price provided for redemption of such Bonds, and interest on such Bonds or portions of Bonds so called for redemption shall cease to accrue, (ii) upon surrender of the Bonds or portions of Bonds so called for redemption in accordance with such notice, such Bonds or portions of Bonds shall be paid at the applicable redemption price, (iii) such Bonds or portions of Bonds shall cease to be entitled to any lien, benefit or security under this Indenture, and (iv) the owners of said Bonds or portions of Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Section 305. Redemption in Part. Any Bond which is to be redeemed only in part shall be surrendered to the Trustee (with, if the City or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the City and the Trustee duly executed by, the owner thereof or his attorney duly authorized in writing), and the appropriate officials of the City shall execute and the Trustee shall authenticate and deliver to the owner of such Bond, • without service charge, a new Bond or Bonds of the same series, of any authorized denomination or denominations, having the same maturity and interest rate as requested by such owner, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. Section 306. Redemption of Additional Bonds. Additional Bonds may be made subject to optional, extraordinary and mandatory sinking fund redemption, in whole or in part, in such manner, at such times and at such prices as may be provided in the Supplemental Indenture providing for their issuance. ARTICLE IV GENERAL COVENANTS AND REPRESENTATIONS Section 401. Payment of Principal, Premium, if any, and Interest. The City covenants that it will promptly pay or cause to be paid the principal of and premium, if any, and interest on every Bond issued under this Indenture at the place, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof. The principal, premium, if any, and interest (except interest paid from the proceeds from the sale of the Bonds and accrued interest) are payable solely from the Trust Estate which is hereby specifically pledged to the payment thereof in the manner and to the extent herein specified, and nothing in the Bonds or this Indenture should be considered as assigning or pledging any funds or assets of the City other than the Trust Estate. Anything in this Indenture to the contrary • notwithstanding, it is understood that whenever the City makes any covenants involving financial commitments it pledges no funds or assets other than the Trust Estate in the manner and 4838-2657-8944.2 22 • to the extent herein specified, but nothing herein shall be construed as prohibiting the City from using any other funds or assets. The City covenants to use due diligence in causing the collection of the Sales and Use Tax and the application of Sales and Use Tax receipts in the manner provided in this Indenture. Section 402. Performance of Covenants. The City covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in any and every Bond executed, authenticated and delivered hereunder, and in all ordinances pertaining hereto. The City covenants that it is duly authorized under the Constitution and laws of the State of Arkansas, including particularly and without limitation Amendment 62 and the Act, to issue the Bonds authorized hereby and to execute this Indenture and to make the pledge of the Sales and Use Tax receipts and to make the covenants in the manner and to the extent herein set forth, that all action on its part for the issuance of the Bonds and the execution and delivery of this Indenture has been duly and effectively taken, and that the Bonds in the hands of the Holders and owners thereof are and will be valid and enforceable obligations of the City according to the import thereof. Section 403. 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 hereby pledged or assigned, or intended so to be, or which the City may become bound to pledge or assign. Section 404. Recordation and Filing. To the extent necessary, the City covenants that it will cause this Indenture, such security agreements, financing statements, and all supplements thereto and other instruments as may be required from time to time to be kept, to be recorded and filed in such manner and in such places as may be required by law in order to fully preserve and protect the security of the owners of the Bonds and the rights of Trustee hereunder, and to perfect the security interest created by this Indenture. Section 405. Inspection of Books. The City shall keep proper books of record and account (separate from all other records and accounts) in which complete and correct entries shall be made of its transactions relating to the Project and the Funds and Accounts established by this Indenture. Section 406. 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. 4838-2657-89442 23 • Section 407. Trustee's and Paying Agent's Fees and Expenses. Subject to the provisions of Section 902 hereof, the City hereby agrees and covenants to make payments for the fees, expenses and charges of the Trustee and Paying Agent, if any, as authorized and provided by this Indenture. The City is to make payments on statements rendered by the Trustee and Paying Agent either (i) directly to the Trustee and Paying Agent or (ii) pursuant to Section 503(b) hereof. Section 408. Construction of Project; Certification of Completion Date. The City hereby covenants to use its best efforts to acquire, construct and equip each portion of the Project being partially financed with proceeds of the Bonds with all reasonable dispatch and to use its best efforts to cause the acquisition, construction and equipping of such portion of the Project to be completed as soon as may be practicable, but in any case within a period not to exceed three years after the issuance of the applicable series of Bonds, delays caused by force majeure only excepted, but if for any reason such acquisition, construction and equipping is not completed within said period, there shall be no diminution or postponement of payments required hereunder to be made by the City. Promptly after each such Completion Date, the City shall submit to the Trustee the certificate of a Qualified Engineer which shall specify the Completion Date and shall state that acquisition, construction and equipping of the portion of the Project being financed with a particular series of Bond proceeds has been completed and the Project Costs have been paid, except for any Project Costs which have been incurred but are not then due and payable, or the liability for the payment of which is being contested or disputed by the City, and for the • payment of which the Trustee is directed to retain specified amounts of moneys in the Project Fund. Notwithstanding the foregoing, such certificate may state that it is given without prejudice to any rights against third parties which exist at the date thereof or which may subsequently come into being. Section 409. Encumbrances. The City covenants that it will not create or suffer to be created any lien or charge upon the Trust Estate, except in accordance with the provisions of this Indenture. Section 410. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of each Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture to the contrary, failure of the City or the Trustee to comply with the provisions of a Continuing Disclosure Agreement shall not be considered an Event of Default hereunder; however, the Trustee may (and at the request of the Original Purchaser of a series of Bonds, the owners of at least 25% in aggregate Outstanding principal amount of such series of Bonds, shall) or any Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Trustee, as the case may be, to comply with its obligations under this Section 410. For purposes of this Section 410 only, "Beneficial Owner" shall mean any Person which (a) 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, depositories or other intermediaries) or (b) is treated as the owner of Bonds for federal income tax purposes. • 4838-2657-8944.2 24 ARTICLE V FUNDS AND DEPOSITS Section 501. Creation of Funds and Accounts. (a) There are hereby created and established the following Funds and Accounts: (i) Project Fund, and a Series 2005A Account and a Series 2005B Account therein; (ii) Revenue Fund; (iii) Bond Fund, and a Series 2005A Interest Account, a Series 2005B Interest Account, a Series 2005A Principal Account and a Series 2005B Principal Account therein; (iv) Redemption Fund; (v) Debt Service Reserve Fund, and a Series 2005A Account and a Series 2005B Account therein; (vi) Cost of Issuance Fund; and (vii) Rebate Fund. (b) All Funds and Accounts shall be held by the Trustee, which shall hold and maintain said Funds and Accounts in trust, for the use and benefit of the Bondholders and the City, but subject to the permitted applications expressed herein. Section 502. Project Fund. (a) The Trustee shall deposit a portion of the proceeds of the Series 2005 Bonds to the credit of the Project Fund in accordance with the written directions of the City given as provided in Section 208 of this Indenture. (b) Moneys credited to the Project Fund shall be expended only as set forth in this Section 502. (c) Amounts in the Project Fund shall be expended and applied for the payment of Project Costs. Disbursements shall be made from the Project Fund on the basis of consecutively numbered Requisitions in the form attached hereto as Exhibit D signed by an Authorized Representative. Requisitions may be submitted to the Trustee by certified mail, first class mail or facsimile transmission. If the Trustee deems that a Requisition submitted by the City is sufficient pursuant to this Section 502, the amount requested thereunder shall be disbursed in payment of the Project Costs set forth therein, or in reimbursement of such Project Costs, within two (2) business days of the date of receipt of such Requisition by the Trustee. Moneys in the Series 2005A Account of the • Project Fund shall be fully disbursed prior to any disbursements from the Series 2005B Account of the Project Fund. Each Requisition shall specify: 4838-2657-8944.2 25 • (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. (d) The Trustee shall keep full and complete records concerning and reflecting all disbursements from the Project Fund and shall file an accounting of said disbursements if and when requested by the City. The Trustee shall only make payments from the Project Fund pursuant to and in accordance with Requisitions. In making payments from the Project Fund, the Trustee may rely on any Requisitions delivered to it pursuant to this Section 502, and the Trustee shall be relieved of all liability relating to payments made in accordance with such Requisitions and any supporting certificate or certificates requested by the Trustee without physical inspection of the Project. 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 Account of 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 the corresponding series of Bonds by redemption or purchase, as provided by Section 301(a)(i) and (b)(i) and Section 506 hereof. (e) Upon the occurrence and continuance of an Event of Default or the occurrence and continuance of an event which with notice or lapse of time or both would constitute an Event of Default, amounts on deposit in the Project Fund shall not be disbursed but shall instead be applied to the payment of Debt Service or the redemption price of the Bonds. Section 503. Revenue Fund. (a) There shall be deposited to the credit of the Revenue Fund, as and when received, all receipts derived from the Sales and Use Tax. For the purposes of financial reporting by the City with respect to the Sales and Use Tax, "receipts" and "revenues" shall have the same meaning. (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 December 31, 2005, there shall be transferred from the Revenue Fund, in the • following order, the amounts set forth below: 4838-2657-8944.2 26 • FIRST: For deposit to the Interest Accounts 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; SECOND: For deposit to the Principal Accounts 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); 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; and SIXTH: All remaining moneys ("Surplus Tax Receipts") will be transferred to the Redemption Fund and shall be applied to call Bonds for redemption prior to maturity as provided in Section 301(a)(ii) and (b)(ii) and Section 506 hereof. • (c) Required deposits into Accounts of the Bond Fund and the Debt Service Reserve Fund shall be reduced by investment earnings, if any, in said Funds and Accounts and, with respect to required deposits to the Interest Accounts of the Bond Fund only, by any accrued interest deposited to the Interest Accounts of the Bond Fund upon the initial sale of a series of Bonds. In the event there shall be insufficient moneys in the Revenue Fund in a particular month to make the required transfers described above, then any deficiencies shall be added to the required deposits during the next month. Section 504. Bond Fund. (a) There shall be deposited to the credit of the appropriate Account of the Bond Fund all moneys required to be transferred thereto pursuant to Sections 208, 503, 505, 506 and 508 of this Indenture and all other moneys received for said Fund. (b) Moneys credited to the Bond Fund shall be expended only as set forth in this Section 504. (c) (i) On each interest payment date for any of the Bonds Outstanding, the Trustee shall pay out of moneys credited to the appropriate Interest Account of the Bond Fund the amounts required for the payment of interest on the corresponding series of Bonds due on such date, and on each redemption date, the amounts required for the payment of accrued interest on Bonds then to be redeemed or purchased unless the payment of such accrued interest shall be otherwise provided for, and such amounts shall • be applied to such payments. 4838-2657-8944.2 27 • (ii) On each principal payment or redemption date for any of the Bonds Outstanding, the Trustee shall pay out of moneys credited to the appropriate Principal Account of the Bond Fund the amounts required for the payment of principal and premium, if any, due on the corresponding series of Bonds on such date and such amounts shall be applied to such payments. (iii) If there shall be insufficient moneys in the Bond Fund to pay in full interest, principal or premium, if any, due on the Bonds on any interest or principal payment or redemption date, the Trustee shall, one day prior to such date, transfer an amount equal to the deficiency into the appropriate Account of the Bond Fund from the Funds indicated in the following order: FIRST: the Revenue Fund; SECOND: the Redemption Fund; and THIRD: the Debt Service Reserve Fund (for payment of principal and interest on any interest or principal payment date only). (d) All payments made pursuant to this Section 504 shall be made in immediately available funds. • Section 505. Cost of Issuance Fund. There shall be deposited to the credit of the Cost of Issuance Fund all moneys received for said Fund pursuant to Section 208 hereof. 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 (and in any event not later than February 1, 2006 with respect to the Series 2005 Bonds), any remaining moneys in the Cost of Issuance Fund shall be transferred to the Series 2005A Interest Account and Series 2005B Interest Account of the Bond Fund on a pro rata basis based on the initial principal amounts of the Series 2005A Bonds and the Series 2005B Bonds. Section 506. Redemption Fund. (a) There shall be deposited to the credit of the Redemption Fund all moneys required to be transferred thereto pursuant to Section 502 and Section 503 of this Indenture. (b) Moneys credited to the Redemption Fund shall be expended only as set forth in this Section 506. (c) Moneys in the Redemption Fund shall be transferred to the Principal Accounts of the Bond Fund at such times as may be necessary to effectuate, on the first available date, redemptions of Bonds required by Section 301(a) and (b) of this Indenture. Notwithstanding any other provision of this Indenture to the contrary, Surplus Tax Receipts shall be applied to the redemption of the Series 2005B Bonds prior to their application for redemption prior to maturity of any other series of Bonds issued • hereunder. 4838-2657-8944.2 • (d) The amounts accumulated in the Redemption Fund, if so directed by the City by means of a Certificate delivered to the Trustee, shall be applied by the Trustee to the purchase of Bonds of the maturities which would otherwise be redeemed pursuant to Section 301(a) and (b) and this Section 506 but for the provisions of this subsection (d), at prices directed by the City not exceeding the applicable redemption prices of the Bonds which would be redeemed but for the operation of this sentence. Interest accrued on the Bonds so purchased shall be paid from moneys credited to the appropriate Interest Account of the Bond Fund. Section 507. Rebate Fund. (a) The Trustee shall establish and maintain, separate and apart from any other Funds and Accounts established and maintained hereunder, a Fund to be designated as the Rebate Fund, which Fund is not pledged to the payment of any Bonds. Subject to the transfer provisions provided in subsection (c) below, all moneys at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (as defined in each Tax Regulatory Agreement), for payment to the United States of America, and neither the City nor the Owner of any Bond shall have any rights in or claim to such money. All amounts deposited into or on deposit in the Rebate Fund shall be governed by this Section 507, by Section 406, and by each Tax Regulatory Agreement (which are incorporated herein by reference). (b) As provided in Section 503(b) hereof, there shall be deposited in the • Rebate Fund the amount of all income or gain on moneys deposited in any of the Funds and Accounts established by this Indenture which is required to be rebated to the United States and is designated for deposit therein, as calculated by the City to be owing to the United States pursuant to the Tax Regulatory Agreement, which shall be delivered by the City concurrently with the issuance of a series of Bonds. (c) The Trustee, upon receipt of written instructions from the Mayor or Finance and Internal Services Director of the City, shall pay to the United States out of amounts in the Rebate Fund such amounts as are required pursuant to each Tax Regulatory Agreement. (d) Any moneys remaining in the Rebate Fund after payment to the United States, within sixty (60) days after the date on which the last Bond is redeemed, of one hundred percent (100%) of the rebate amount as described in Section 148(f)(2) of the Code, shall be transferred to the Revenue Fund. (e) The Trustee, as instructed by Certificate of the City, shall invest all amounts held in the Rebate Fund in Investment Securities, subject to the restrictions set forth in the applicable Tax Regulatory Agreement. Money shall not be transferred from the Rebate Fund except as provided in subsection (c). (f) Notwithstanding any other provision of this Indenture, the obligation to remit the Rebate Amount to the United States and to comply with all other requirements • of this Section 507, Section 406 and each Tax Regulatory Agreement shall survive the defeasance or payment in full of the Bonds. 4838-2657-8944.2 29 • Section 508. Debt Service Reserve Fund. As provided in Section 208(b)(2) and (c)(2) hereof, upon the issuance of each series of Bonds, there shall be deposited into the appropriate Account of the Debt Service Reserve Fund, from proceeds of the Bonds, an amount sufficient to cause the amounts on deposit therein to be equal to the Reserve Requirement. The Debt Service Reserve Fund shall be maintained in an amount equal to the Reserve Requirement. The Debt Service Reserve Fund shall be used solely to pay the principal of and interest on Outstanding Bonds for which there are no available funds in the Bond Fund to make such payments, as the same become due at maturity (including mandatory sinking fund redemption). If an Account of the Debt Service Reserve Fund, by virtue of any such payment, is reduced below the related Reserve Requirement, it shall be reimbursed in the amount of any such deficiency as provided in Section 503. Notwithstanding the above provisions of this Section 508, the amount on deposit in an Account of 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 related Outstanding Bonds. If an excess shall exist in an Account in the Debt Service Reserve Fund over and above the related Reserve Requirement, such excess shall be transferred to the corresponding Interest Account of the Bond Fund. Section 509. Cessation of Fund Deposits. When the moneys 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 and interest on all Bonds then Outstanding in accordance with Article VII of this Indenture, together with the required fees and expenses to be paid or • reimbursed to the Trustee and any Paying Agent, the City shall have no further obligation to make further payments into said Funds. Pursuant to Arkansas Code Annotated Section 14-164- 329(c)(2), the Sales and Use Tax shall be abolished on the first day of the calendar month subsequent to the expiration of thirty (30) days from the date there is filed with the Director of the Arkansas Department of Finance and Administration a written statement signed by the Mayor and the Trustee wherein either (a) the Trustee certifies that it has or will have sufficient funds on hand to pay the principal of and interest on the Bonds at maturity or upon redemption prior to maturity, and the Mayor certifies that the Sales and Use Tax is not pledged to any other indebtedness of the City, or (b) the Mayor certifies that there are no longer any Bonds outstanding payable from Sales and Use Tax receipts. Section 510. Separate Accounts Authorized. A Supplemental Indenture authorizing the issuance of Additional Bonds may provide for the creation of separate Accounts within the Bond Fund, Debt Service Reserve Fund, Project Fund, Costs of Issuance Fund and Rebate Fund for such series of Bonds and such other Accounts as the City may direct; provided, that the creation of such separate Accounts shall be solely for the ease of administration and shall in no event affect the equal and ratable security of the Bonds of each series. If any Supplemental Indenture authorizing the issuance of Additional Bonds provides for the establishment of separate Accounts for a series of Bonds, then such Supplemental Indenture shall require that the Sales and Use Tax receipts received by the City shall be deposited pursuant to written direction of the City into each of the Accounts within the Bond Fund and Debt Service Reserve Fund for each series of Bonds on the basis of the installments of principal, premium, if • any, and interest on each series of Bonds and the amounts required to be deposited in the 4838-2657-8944.2 30 • Accounts within the Debt Service Reserve Fund during the applicable period, to the end that the Bonds of each series shall be equally and ratable secured by the Sales and Use Tax receipts. Any Supplemental Indenture authorizing the issuance of Additional Bonds may provide that any proceeds of such series of Bonds and investment earnings thereon remaining after some specified date, or after the construction of all facilities to be financed with the proceeds of such series of Bonds, shall be applied to the redemption of such series of Bonds. ARTICLE VI INVESTMENTS Section 601. Investment of Moneys. 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. Moneys in separate Funds or Accounts may be commingled for the purpose of investment. Section 602. Investment Earnings. Subject to the provisions of the Tax Regulatory Agreement and Article V hereof, Investment Securities purchased with moneys held in or attributable to any Fund or Account held by the Trustee under the provisions of this Indenture • shall be deemed at all times to be a part of such Fund or Account and the income or interest earned, profits realized or losses suffered by a Fund or Account due to the investment thereof shall be retained in, credited or charged, as the case may be, to such Fund or Account unless otherwise provided pursuant to this Indenture. Section 603. Valuation of Funds. In determining the value of any Fund or Account held by the Trustee under this 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 hereunder 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 hereunder, and the Trustee shall not be liable for any loss resulting from any such sale. Section 604. 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. ARTICLE VII DISCHARGE OF LIEN Section 701. Discharge of Lien. If the City shall pay or cause to be paid to the owners of the Bonds the principal, premium, if any, and interest to become due thereon at the times and 4838-2657-8944.2 31 • in the manner stipulated therein, and if the City shall keep, perform and observe all and singular the covenants and promises in the Bonds and in this Indenture expressed as to be kept, performed and observed by it on its part, then these presents and the estate and rights hereby granted shall cease, determine and be void, and thereupon the Trustee shall cancel and discharge the lien of this Indenture, and execute and deliver to the City such instruments in writing as shall be requisite to satisfy the lien hereof, and reconvey to the City the estate hereby conveyed, and assign and deliver to the City any property at the time subject to the lien of this Indenture which may then be in its possession, except moneys or Government Securities held by it for the payment of the principal of and premium, if any, and interest on the Bonds. Section 702. Bonds Deemed Paid. Any Bond shall be deemed to be paid within the meaning of this Article VII when payment of the principal of and premium, if any, and interest on such Bond (whether at maturity or upon redemption as provided in this 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 amount 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. In the case of any defeasance of Bonds pursuant to subsection (ii) above, the dates of redemption of such Bonds and the principal amounts and maturities of Bonds to be redeemed on such dates will be determined by taking into consideration the applicable mandatory redemption requirements with respect to the Bonds to be defeased and the Sales and Use Tax receipts for the most recent twelve months. Section 703. Non -Presentment of Bonds. In the event any Bonds shall not be presented for payment when the principal thereof becomes due, either at maturity or otherwise, or at the date fixed for redemption thereof, if there shall have been deposited with the Trustee for that purpose, or left in trust if previously so deposited, funds sufficient to pay the principal thereof, and premium, if any, together with all interest unpaid and due thereon, to the due date thereof, for the benefit of the Holder thereof, all liability of the City to the Holder thereof for the payment of the principal thereof, premium if any, and interest thereon, shall forthwith cease, determine and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such fund or funds, without liability for interest thereon, for the benefit of the Holder of such Bonds, who shall thereafter be restricted exclusively to such fund or funds, for any claim of whatever nature on his part under this Indenture or on, or with respect to, the Bonds. L 4838-2657-8944.2 32 • ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE AND BONDHOLDERS Section 801. Events of Default. Each of the following events shall constitute and is referred to in this 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 this Indenture or the performance or observance of any other of the covenants, agreements or conditions contained in this Indenture, or in the Bonds issued hereunder, 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 Bondholders of not less than 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; (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 this 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 this Indenture or in the Bonds Outstanding hereunder, exclusive of any period of grace required to constitute a default an "Event of Default" as hereinabove provided. Section 802. 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 hereunder shall, by notice in writing delivered to the City, declare the principal of all Bonds then Outstanding, together with the interest accrued thereon, 4838-2657-8944.2 33 • immediately due and payable, and such principal and interest shall thereupon become and be immediately due and payable. Section 803. 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 hereunder. If an Event of Default shall have occurred, and if it shall have been requested so to do by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder and if it shall have been indemnified as provided in Section 901(1) hereof, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred upon it by this Section 803 as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. No remedy by the terms of this 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 hereunder 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 hereunder, 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. Section 804. Right of Bondholders to Direct Proceedings. Anything in this Indenture to the contrary notwithstanding, the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder shall have the right, at any time, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Indenture, or for the appointment of a receiver or any other proceeding hereunder; provided that such direction shall not be otherwise than in accordance with the provisions of law and of this Indenture. Section 805. Appointment of Receiver. Upon the occurrence of an Event of Default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bondholders under this Indenture, the Trustee shall be entitled to the appointment of a receiver or receivers of the Trust Estate and of the tolls, rents, revenues, issues, earnings, income, products and profits thereof, including, without limitation, the Sales and Use Tax receipts, pending such proceedings with such powers as the court making such appointment • shall confer. 4838-2657-8944.2 34 • Section 806. Waiver. In case of an Event of Default on its part, as aforesaid, to the extent that such rights may then lawfully be waived, neither the City nor anyone claiming through the City or under the City shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption laws now or thereafter in force, in order to prevent or hinder the enforcement of this Indenture, but the City, for itself and all who may claim through or under it, hereby waives, to the extent that it lawfully may do so, the benefit of all such laws and all right of appraisement and redemption to which it may be entitled under the laws of the State. Section 807. Application of Moneys. Available moneys remaining after discharge of costs, charges and liens prior to this Indenture shall be applied by the Trustee as follows: (a) Unless the principal of all the Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: First: To the payment to the Persons entitled thereto of all installments of interest then due, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the Persons entitled thereto, without any discrimination or privilege; • Second: To the payment to the Persons entitled thereto of the unpaid principal of any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of this Indenture), in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due, and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or privilege of any Bond over any other Bond and without preference or priority of principal over interest or of interest over principal; and Third: To the payment of the interest on and the principal of the Bonds, and to the redemption of Bonds, all in accordance with the provisions of Article V of this Indenture. (b) If the principal of all the Bonds shall have become due or shall have been declared due and payable, all such moneys shall be applied first to the payment of the interest then due and unpaid upon the Bonds, and then to the payment of the principal then due and unpaid upon the Bonds, in each case without preference or priority of any Bond over any other Bond, ratably, according to the amounts due respectively for principal and interest, to the Persons entitled thereto. (c) If the principal of all the Bonds shall have been declared due and payable, • and if such declaration shall thereafter have been rescinded and annulled under the 4838-2657-8944.2 35 • provisions of this Article VIII then, subject to the provisions of paragraph (b) of this Section 807, in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section 807. Whenever moneys are to be applied by the Trustee pursuant to the provisions of this Section 807, such moneys shall be applied by it at such times, and from time to time, as it shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such dates shall cease to accrue. The Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date and shall not be required to make payment to the Holder of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Section 808. Remedies Vested in Trustee. All rights of action (including the right to file proof of claim) under this Indenture or under any of the Bonds may be enforced by the Trustee without the possession of any of the Bonds or the production thereof in any trial or other proceeding relating thereto, and any such suit or proceeding instituted by the Trustee shall be • brought in its name as Trustee, without the necessity of joining as plaintiffs or defendants any Bondholders hereby secured, and any recovery of judgment shall be for the equal benefit of the Holders of all Outstanding Bonds. Section 809. Rights and Remedies of Bondholders. No Bondholder shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of this Indenture or for the execution of any trust hereof or for the appointment of a receiver or any other remedy hereunder, unless a default has occurred of which the Trustee has been notified as provided in subsection (g) of Section 901, or of which by said subsection 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 hereunder shall have made written request to the Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers hereinbefore 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 subsection (1) of Section 901, nor unless the Trustee shall thereafter fail or refuse to exercise the powers hereinbefore granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the powers and trusts of this Indenture, and to any action or cause of action for the enforcement of this Indenture or for the appointment of a receiver or for any other remedy hereunder; 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 this Indenture by action of the Holder or Holders or to • enforce any right hereunder except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, held and maintained in the manner herein provided for the equal benefit of the Holders of all Bonds Outstanding hereunder. Nothing in this Indenture contained 4838-2657-8944.2 36 • 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 hereunder to the respective Holders thereof at the time and place in said Bonds expressed. Section 810. Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the City and the Trustee shall be restored to their former positions and rights hereunder with respect to the property herein conveyed, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken, except to the extent the Trustee is legally bound by such adverse determination. Section 811. Waivers of Events of Default. The Trustee may, and upon the written request of the Holders of not less than 51% in principal amount of all Bonds Outstanding hereunder shall, waive any Event of Default hereunder and its consequences and rescind any declaration of maturity of principal; provided, however, there shall not be waived any Event of Default described in clause (a) or (b) of the first paragraph of Section 801 hereof, unless prior to such waiver or rescission all arrears of principal (due otherwise than by declaration) and interest, • and all expenses of the Trustee and Paying Agent, shall have been paid or provided for. In case of any such waiver or rescission the City, Trustee and the Bondholders shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right subsequent thereon. ARTICLE IX TRUSTEE AND PAYING AGENTS Section 901. Acceptance of Trusts. The Trustee hereby accepts the trusts imposed upon it by this Indenture and agrees to perform said trusts, but only upon and subject to the following expressed terms and conditions: (a) The Trustee may execute any of the trusts or powers hereof and perform any duties required of it by or through attorneys, agents, receivers or employees, and shall be entitled to advice of counsel concerning all matters of trusts hereof and its duties hereunder, and may in all cases pay reasonable compensation to all such attorneys, agents, receivers and employees as may reasonably be employed in connection with the trusts hereof. Reimbursement of such compensation paid by the Trustee is subject to the provisions of Section 902 hereof. The Trustee may act upon the opinion or advice of any attorney, surveyor, engineer or accountant selected by it in the exercise of reasonable care, or, if selected or retained by the City prior to the occurrence of a default of which the Trustee has been notified as provided in subsection (g) of this Section 901, or of • which by said subsection the Trustee is deemed to have notice, approved by the Trustee 4838-2657-8944.2 • in the exercise of such care. The Trustee shall not be responsible for any loss or damage resulting from an action or nonaction in accordance with any such opinion or advice. (b) The Trustee shall not be responsible for any recital herein, or in the Bonds (except in respect to the certificate of authentication of the Trustee endorsed on such Bonds), or for the validity of the execution by the City of this Indenture or of any Supplemental Indentures or instruments of further assurance, or for the sufficiency of the security for the Bonds issued hereunder or intended to be secured hereby, or for the value of the title of the property herein conveyed or otherwise as to the maintenance of the security hereof; except that in the event the Trustee enters into possession of a part or all of the property herein conveyed pursuant to any provision of this Indenture, it shall use due diligence in preserving such property; and the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any covenants, conditions and agreements aforesaid as to the condition of the property herein conveyed. (c) The Trustee may become the owner of Bonds secured hereby with the same rights which it would have if not Trustee. (d) The Trustee shall be protected in acting upon any notice, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it, in the exercise of reasonable care, to be genuine and correct and to have been signed or sent • by the proper person or persons. Any action taken by the Trustee pursuant to this Indenture upon the request or authority or consent of the owner of any Bond secured hereby, shall be conclusive and binding upon all future owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. (e) As to the existence or nonexistence of any fact or as to the sufficiency or validity of any instrument, paper or proceeding, the Trustee shall be entitled to rely upon a Certificate of the City signed by its Mayor and attested by the City Clerk as sufficient evidence of the facts therein contained and, prior to the occurrence of a default of which it has been notified as provided in subsection (g) of this Section 901, or of which by that subsection it is deemed to have notice, shall also be at liberty to accept a similar certificate to the effect that any particular dealing, transaction, or action is necessary or expedient, but may at its discretion, at the reasonable expense of the City, in every case secure such further evidence as it may think necessary or advisable but shall in no case be bound to secure the same. The Trustee may accept a certificate of the City Clerk of the City under its seal to the effect that a resolution in the form therein set forth has been adopted by the City as conclusive evidence that such resolution has been duly adopted, and is in full force and effect. (f) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty of the Trustee, and the Trustee shall be answerable only for its own gross negligence or willful misconduct. (g) The Trustee shall not be required to take notice or be deemed to have • notice of any default hereunder (except for defaults under clause (a) or (b) of the first 483&2657-8944.2 38 • paragraph of Section 801 hereof as to which the Trustee shall be deemed to have notice) unless the Trustee shall be specifically notified in writing of such default by the City or by the Holders of at least 10% in aggregate principal amount of Bonds Outstanding hereunder, and all notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered to the principal corporate trust office of the Trustee, and in the absence of such notice so delivered, the Trustee may conclusively assume there is no such default except as aforesaid. (h) [Reserved]. (i) At any and all reasonable times the Trustee, and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right fully to inspect any and all of the property herein conveyed, including all books, papers and records of the City pertaining to the Sales and Use Tax receipts and the Bonds, and to take such memoranda from and in regard thereto as may be desired. 0) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises. (k) Notwithstanding anything elsewhere in this Indenture contained, the Trustee shall have the right, but shall not be required, to demand, in respect of the authentication of any Bonds, the withdrawal of any cash, the release of any property, or • any action whatsoever within the purview of this Indenture, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that by the terms hereof required as a condition of such action by the Trustee, deemed desirable for the purpose of establishing the right of the City to the authentication of any Bonds, the withdrawal of any cash, the release of any property, or the taking of any other action by the Trustee. (1) Before taking such action hereunder, the Trustee may require that it be furnished an indemnity bond satisfactory to it for the reimbursement to it of all expenses to which it may be put and to protect it against all liability, except liability which is adjudicated to have resulted from the gross negligence or willful misconduct of the Trustee, by reason of any action so taken by the Trustee. Section 902. Fees, Charges and Expenses of Trustee and Paying Agents; Trustee's Prior Lien. (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 nerformance of its nnwerc and rintiee hereunder with recnart tn tha Series 2005 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. If the City shall fail 4838-2657-8944.2 39 • 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. (b) The City shall pay to the Trustee compensation for its services as described in Section 902(a), provided that such compensation, together with all expenses, charges and other disbursements of the Trustee and its attorneys, agents and employees and all reimbursements to the Trustee for all costs and other disbursements as described in Section 901(a) hereof shall not exceed $7,500 annually (not including the initial authentication fee) without the prior written approval of the City, which approval shall not be unreasonably withheld. If the Trustee wishes to consult with or retain counsel for any purpose hereunder whose anticipated fees, together with all other compensation, disbursements and reimbursements of the Trustee and its attorneys, agents and employees to be paid by the City hereunder, shall exceed $10,000 annually, then such counsel shall have to be acceptable to the City and such fees shall have to be approved by the City as described above. Section 903. Additional Duties of Trustee. (a) In addition to the other duties of the Trustee described in this Indenture, it shall be the duty of the Trustee, on or before the tenth day of each month after the month in which the Series 2005 Bonds are delivered, to file with the City • a statement setting forth in respect of the preceding calendar month: (i) the amount withdrawn or transferred by it and the amount deposited with it on account of each Fund and Account held by it under the provisions of this Indenture; (ii) the amount on deposit with it at the end of such month to the credit of each such Fund and Account; (iii) a brief description of all obligations held by it as an investment of moneys in each such Fund and Account; (iv) the amount applied to the purchase or redemption of Bonds under the provisions of this Indenture and a description of the Bonds or portions of Bonds so purchased or redeemed; and (v) any other information that the City may reasonably request, including, but not limited to, submittal of monthly statements of activity relating to the Bonds. Such information shall also be provided at the direction of the City to one additional designated entity. All records and files pertaining to each such Fund and Account in the custody of the Trustee hereunder shall be open at all reasonable times to the inspection of the City and its agents and representatives, and the City may make copies thereof. • (b) The Trustee additionally shall be responsible for the preparation and timely distribution of any and all forms and reports required by law to all Bondholders, the State and the 483&2657-8944.2 40 • Internal Revenue Service in connection with the payment to the Bondholders of interest on the Bonds. Section 904. Notice to Bondholders of Default. If a default occurs of which the Trustee is pursuant to the provisions of Section 901(g) deemed to have or is given notice, the Trustee shall promptly make demand upon the City and give notice to each owner of Bonds then Outstanding. Section 905. Intervention by Trustee. In any judicial proceeding to which the City is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of Holders of Bonds issued hereunder, the Trustee may intervene on behalf of Bondholders and shall do so if requested in writing by the Holders of at least 51% of the aggregate principal amount of Bonds Outstanding hereunder. The rights and obligations of the Trustee under this Section 905 are subject to the approval of the court having jurisdiction in the premises. Section 906. Merger or Consolidation of Trustee. Any bank or trust company to which the Trustee may be merged, or with which it may be consolidated, or to which it may sell or transfer its trust business and assets as a whole or substantially as a whole, or any bank or trust company resulting from any such sale, merger, consolidation or transfer to which it is a party, ipso facto, shall be and become successor trustee hereunder and vested with all of the title to the • whole property or Trust Estate and all the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed, or conveyance on the part of any of the parties hereto, anything herein to the contrary notwithstanding; provided, however, that such successor trustee shall have capital and surplus of at least $40 million. Section 907. Resignation by Trustee. The Trustee and any successor trustee may at any time resign from the trusts hereby created by giving written notice to the City and the Bondholders, and such resignation shall take effect upon the appointment of a successor trustee by the Bondholders or by the City. Such notice may be served personally or sent by registered mail (to the City) or first class mail (to the Bondholders). Section 908. Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing delivered to the Trustee and to the City, and signed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder. Section 909. Appointment of Successor Trustee. In case the Trustee hereunder shall resign or be removed, or be dissolved, or shall be in course of dissolution or liquidation, or otherwise become incapable of acting hereunder, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by the court, a successor may be appointed by the Holders of not less than 51% in aggregate principal amount of Bonds Outstanding hereunder, by an instrument or concurrent instruments in writing signed by such . Holders, or by their attorneys in fact, duly authorized; provided, nevertheless, that in case of such vacancy the City by an instrument executed and signed by its Mayor and attested by its City 4838-2657-8944.2 41 • Clerk under its seal, shall appoint a temporary trustee to fill such vacancy until a successor trustee shall be appointed by the Bondholders in the manner above provided. Any such temporary trustee appointed by the City shall immediately and without further act be superseded by the trustee appointed by such Bondholders. Every such temporary trustee and every such successor trustee shall be a trust company or bank in good standing, having capital and surplus of not less than $40 million. Section 910. Concerning Any Successor Trustee. Every successor or temporary trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor and also to the City an instrument in writing accepting such appointment hereunder, and thereupon such successor or temporary trustee, without any further act or conveyance, shall become fully vested with all the estates, properties, rights, powers, trusts, duties and obligations of its predecessor; but such predecessor shall, nevertheless, on the written request of the City or of its successor trustee, execute and deliver an instrument transferring to such successor all the estate, properties, rights, powers and trusts of such predecessor hereunder; and every predecessor trustee shall deliver all securities, moneys and any other property held by it as trustee hereunder to its successor. Should any instrument in writing from the City be required by any successor trustee for more fully and certainly vesting in such successor the estates, rights, powers and duties hereby vested or intended to be vested in the predecessor trustee, any and all such instruments in writing shall, on request, be executed, acknowledged, and delivered by the City. • Section 911. Reliance Upon Instruments. The resolutions, opinions, certificates and other instruments provided for in this Indenture may be accepted and relied upon by the Trustee as conclusive evidence of the facts and conclusions stated therein and shall be full warrant, protection and authority to the Trustee for its actions taken hereunder. Section 912. Appointment of Co -Trustee. The City and the Trustee shall have power to appoint, and upon the request of the Trustee the City shall for such purpose join with the Trustee in the execution of all instruments necessary or proper to appoint, another corporation or one or more Persons approved by the Trustee, either to act as co -trustee or co -trustees jointly with the Trustee of all or any of the property subject to the lien hereof, with such powers as may be provided in the instrument of appointment and to vest in such corporation or Person or Persons as such co -trustee any property, title, right or power deemed necessary or desirable. In the event that the City shall not have joined in such appointment within fifteen (15) days after the receipt by it of a request so to do, the Trustee alone shall have the power to make such appointment. Should any deed, conveyance or instrument in writing from the City be required by the co -trustee so appointed for more fully and certainly vesting in and confirming to such co - trustee such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments in writing shall, on request, be executed, acknowledged and delivered by the City. Every such co -trustee shall, to the extent permitted by law, be appointed subject to the following provisions and conditions, namely: (1) The Bonds shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Trustee in respect of the custody of all money • and securities pledged or deposited hereunder, shall be exercised solely by the Trustee; and 4838-2657-8944.2 42 • (2) The Trustee, at any time by an instrument in writing, may remove any such separate Trustee or co -trustee. Every instrument, other than this Indenture, appointing any such co -trustee shall refer to this Indenture and the conditions of this Article IX expressed, and upon the acceptance in writing by such co -trustee, the co -trustee shall be vested with the estate or property specified in such instrument, jointly with the Trustee (except insofar as local law makes it necessary for any separate trustee to act alone), subject to all the trusts, conditions and provisions of this Indenture. Any such co -trustee may at any time, by an instrument in writing, constitute the Trustee as the co -trustee's agent or attorney -in -fact with full power and authority, to the extent authorized by law, to do all acts and things and exercise all discretion authorized or permitted by the co -trustee, for and on behalf of the co -trustee and in the co -trustee's name. In case any co -trustee shall die, become incapable of acting, resign or be removed, all the estate, properties, rights, powers, trusts, duties and obligations of said co -trustee shall vest in and be exercised by the Trustee until the appointment of a new trustee or a successor to such co -trustee. Section 913. Designation and Succession of Paying Agents. The Trustee and any other banks or trust companies designated as Paying Agent or Paying Agents in any Supplemental Indenture or in an instrument appointing a successor Trustee shall be the Paying Agent or Paying Agents for the Bonds. • Any bank or trust company with which or into which any Paying Agent may be merged or consolidated, or to which the assets and business of such Paying Agent may be sold, shall be deemed the successor of such Paying Agent for the purposes of this Indenture. If the position of Paying Agent shall become vacant for any reason, the City shall, within thirty (30) days thereafter, appoint such bank or trust company as shall be specified by the City as such Paying Agent to fill such vacancy; provided, however, that, if the City shall fail to appoint such Paying Agent within said period, the Trustee shall make such appointment. The Paying Agents shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Section 901 hereof with respect to the Trustee insofar as such provisions may be applicable. ARTICLE X SUPPLEMENTAL INDENTURES Section 1001. 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 this 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 4838-2657-89442 43 • to or inconsistent with this 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 this Indenture other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary to or inconsistent with this 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, this 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 this 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) of Section 1002 hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee. Section 1002. Supplemental Indentures Requiring Consent of Bondholders. Subject to the terms and provisions contained in this Section 1002, 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 this Indenture to the contrary notwithstanding, to consent to and approve the execution by the City and the Trustee of such indenture or indentures supplemental hereto 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 this Indenture or in any Supplemental Indenture; provided, however, that nothing herein contained 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 hereunder, or (b) a reduction in the principal amount of or redemption premium or rate of interest on any Bond issued hereunder, or (c) the creation of any lien on the Trust Estate or any part thereof, except as hereinbefore expressly permitted, 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 hereby created on the Trust Estate. Nothing herein contained, • however, shall be construed as making necessary the approval of Bondholders of the execution of any Supplemental Indenture as provided in Section 1001 of this Article X. 4838.2657-8944.2 44 • If, at any time the City shall request the Trustee to enter into any Supplemental Indenture for any of the purposes of this Section, 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 in this Section 1002. 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 as herein provided, 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. Section 1003. Effect of Supplemental Indentures. Upon the execution of any Supplemental Indenture entered into pursuant to Section 1001 or 1002 hereof, this Indenture shall be deemed to be modified and amended in accordance therewith. ARTICLE XI • MISCELLANEOUS Section 1101. Consents, etc. of Bondholders. Any request, direction, objection or other instrument required by this Indenture to be signed and executed by the Bondholders may be in any number of concurrent writings of similar tenor and may be signed or executed by such Bondholders in person or by agent appointed in writing. Proof of the execution of any such request, direction, objection or other instrument or of the writing appointing any such agent and of the ownership of Bonds, if made in the following manner, shall be sufficient for any of the purposes of this Indenture, and shall be conclusive in favor of the Trustee with regard to any action taken by it under such request or other instrument, namely: (a) The fact and date of the execution by any Person of any such writing may be proved by the certificate of any officer in any jurisdiction who by law has power to take acknowledgments within such jurisdiction that the Person signing such writing acknowledged before such officer the execution thereof, or by an affidavit of any witness to such execution. (b) The fact of ownership of Bonds and the amount or amounts, numbers, and other identification of such Bonds, and the date of holding the same shall be proved by the registration books of the City maintained by the Trustee, as Bond registrar. Section 1102. Notices. Except as otherwise provided in this Indenture, all notices, • certificates or other communications shall be sufficiently given and shall be deemed given when 4838-2657-89442 45 • mailed by registered or certified mail, postage prepaid, to the City or the Trustee. Notices, certificates or other communications shall be sent to the following addresses: City: City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 Attention: Mayor Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: Glenda L. Dean, Corporate Trust Either of the foregoing may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1103. Limitation of Rights. With the exception of rights herein expressly conferred, nothing expressed or mentioned in or to be implied from this Indenture, or the Bonds issued hereunder, is intended or shall be construed to give to any person or company other than the parties hereto, and the Holders of the Bonds secured by this Indenture any legal or equitable rights, remedy, or claim under or in respect to this Indenture or any covenants, conditions, and • provisions hereof being intended to be and being for the sole exclusive benefit of the parties hereto and the Holders of the Bonds hereby secured as herein provided. Section 1104. Severability. If any provisions of this 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. The invalidity of any one or more phrases, sentences, clauses or paragraphs in this Indenture contained shall not affect the remaining portions of this Indenture or any part thereof. Section 1105. Applicable Provisions of Law. This 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 1106. Counterparts. This 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. • 4838-2657-89442 46 • Section 1107. Successors and Assigns. All the covenants, stipulations, provisions, agreements, rights, remedies and claims of the parties hereto in this Indenture contained shall bind and inure to the benefit of their successors and assigns. Section 1108. Captions. The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Indenture. Section 1109. Photocopies and Reproductions. A photocopy or other reproduction of this Indenture may be filed as a financing statement pursuant to the Uniform Commercial Code, although the signatures of the City and the Trustee in such reproduction are not original manual signatures. Section 1110. Bonds Owned by the City. In determining whether Bondholders of the requisite aggregate principal amount of the Bonds have concurred in any direction, consent or waiver under this Indenture, Bonds which are owned by the City shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Bonds which the Trustee knows are so owned shall be so disregarded. Bonds so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to • such Bonds and that the pledgee is not the City. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4838-2657-8944.2 47 • 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: City Clerk (SEAL) S • SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By:_ Title: ATTEST: By:_ Title: (SEAL) 4838-2657-8944.2 48 u 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, 2005. • My Commission expires: (SEAL) Notary Public [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-8944.2 49 • ACKNOWLEDGMENT STATE OF ARKANSAS ss. COUNTY OF JEFFERSON Before me a Notary Public, duly commissioned, qualified and acting within and for the State and county aforesaid, appeared in person the within named 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, 2005. My Commission expires: (SEAL) Notary Public • [ACKNOWLEDGEMENT TO TRUST INDENTURE] 4838-2657-8944.2 50 • • l*:4:at3rr':01IIIa1&101011manu:tja] 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. R05A- REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX REFUNDING AND CAPITAL IMPROVEMENT BOND SERIES 2005A Interest Rate: _% Maturity Date: December 1, 20 Date of Bond: November 1, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657-8944.2 A-1 "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 "Sales and Use Tax Refunding and Capital Improvement Bond, Series 2005A", is one of a series of bonds aggregating [Twenty -Six Million Two Hundred Thirty -Five Thousand Dollars ($26,235,000)] (the "Series 2005A Bonds"). The Series 2005A Bonds are being issued for the purpose of (i) refunding all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, (ii) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (iii) funding a debt service reserve, (iv) purchasing a policy of municipal bond insurance, and (v) paying the costs of issuance of the Series 2005A Bonds. The Series 2005A Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 1, 2005 (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 2005A Bonds, and the terms upon which the Series 2005A Bonds are issued and secured. • The Series 2005A 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 Rep!. & Supp. 2005) §§14-164-301 et seq. (as from time to time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October _, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005A Bonds is made on a parity basis with the pledge of such receipts securing the City's $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the `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 or incurred, such Additional Bonds will rank on a parity of security with the Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. • The 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 in the 4838-2657-89441 A-2 • Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. The holder of this Series 2005A 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 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 2005A 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. The Series 2005A 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 Bonds and any Additional Bonds, (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 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds or any series of Additional Bonds. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005A Bonds, the particular Series 2005A 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 2005A Bonds for redemption prior to maturity, in the case any outstanding Series 2005A Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005A Bond shall be treated as a separate Series 2005A Bond of the denomination of $5,000. In the event any of the Series 2005A 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 2005A 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 4838-2657-8944.2 A-3 • proceedings for the redemption of any Series 2005A Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005A 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 2005A 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, 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 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 2005A 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 2005A Bonds may be exchanged for a like aggregate principal amount of Series 2005A 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 2005A Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005A 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 2005A Bonds. This 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 2005A 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 2005A 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 2005A Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. • 4838-2657-8944.2 A-4 • IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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) (Form of Trustee's Certificate) • TRUSTEE'S CERTIFICATE OF AUTHENTICATION This bond is one of the Series 2005A 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 Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By:, Authorized Signature i 4838-2657-8944.2 A-5 • (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. • 4838-2657-89442 A-6 • • EXHIBIT B TO TRUST INDENTURE Form of Series 2005B 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. R05B-_ REGISTERED UNITED STATES OF AMERICA STATE OF ARKANSAS CITY OF FAYETTEVILLE, ARKANSAS SALES AND USE TAX CAPITAL IMPROVEMENT BOND SERIES 2005B Interest Rate: _% Date of Bond: November 1, 2005 Registered Owner: CEDE & CO. Principal Amount: KNOW ALL MEN BY THESE PRESENTS: Maturity Date: December 1, 20 CUSIP: DOLLARS 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 1 and December 1 of each year, commencing June 1, 2006, 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 4838-2657-89442 B -I • 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 "Sales and Use Tax Capital Improvement Bond, Series 2005B", is one of a series of bonds aggregating Sixty -Five Million Dollars ($65,000,000) (the "Series 2005B Bonds"). The Series 2005B Bonds are being issued for the purpose of (i) financing a portion of the costs of acquiring, constructing, reconstructing, extending, improving and equipping wastewater treatment plants, sewerage and related facilities (collectively the "Project"), (ii) funding a debt service reserve, (iii) purchasing a policy of municipal bond insurance, and (iv) paying the costs of issuance of the Series 2005B Bonds. The Series 2005B Bonds are issued under and are secured by and entitled to the protection of a Trust Indenture dated as of November 1, 2005 (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 2005B Bonds, and the terms upon which the Series 2005B Bonds are issued and secured. The Series 2005B 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. 2005) §§14-164-301 et seq. (as from time to • time amended, the "Local Government Bond Act"), Ordinance No. of the City adopted October _, 2005, 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 Bonds (as hereinafter defined). 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 Bonds. The pledge of the receipts of the Sales and Use Tax (collectively, the "Tax Receipts") securing the Series 2005B Bonds is made on a parity basis with the pledge of such receipts securing the City's [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds," and together with the Series 2005B Bonds, the `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 or incurred, such Additional Bonds will rank on a parity of security with the Bonds and be equally and ratably secured by and entitled to the protection of the Indenture. The 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 in the Indenture. In no event shall the Bonds constitute an indebtedness of the City within the meaning of any constitutional or statutory limitation. • 4838-2657-8944.2 B-2 • The holder of this Series 2005B 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 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 2065B 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. The Series 2005B 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 Bonds and any Additional Bonds, (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 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 2005B Bonds prior to their application for redemption prior to maturity of the Series 2005A Bonds or any series of Additional Bonds. Notwithstanding the foregoing, so long as DTC or its nominee is the sole registered owner of the Series 2005B Bonds, the particular Series 2005B 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 2005B Bonds for redemption prior to maturity, in the case any outstanding Series 2005B Bond is in a denomination greater than $5,000, each $5,000 of face value of such Series 2005B Bond shall be treated as a separate Series 2005B Bond of the denomination of $5,000. In the event any of the Series 2005B 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 2005B 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 2005B Bond with respect to which no such failure or defect has occurred. Each notice shall identify the Series 2005B 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 2005B Bond or Bonds so called for redemption will cease to bear 4838-2657-8944.2 B-3 • interest provided funds sufficient for their redemption have been deposited with the Trustee, and, 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 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 2005B 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 2005B Bonds may be exchanged for a. like aggregate principal amount of Series 2005B 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 2005B Bonds or for any claim based thereon or upon any obligation, covenant or agreement contained in the Series 2005B 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 2005B Bonds. • This 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 2005B 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 2005B 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 2005B Bonds as the same become due and payable will be sufficient in amount for that purpose. This 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. 11 4838-2657-8944.2 B-4 • IN WITNESS WHEREOF, the City of Fayetteville, Arkansas has caused this 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 Mayor ATTEST: By: City Clerk (SEAL) (Form of Trustee's Certificate) TRUSTEE'S CERTIFICATE OF AUTHENTICATION • This bond is one of the Series 2005B 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 Bonds. SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Authorized Signature • 4838-2657-8944.2 B-5 • (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. • 4838-2657-8944.2 B-6 • EXHIBIT C TO TRUST INDENTURE COVERAGE CERTIFICATE City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: TO: Simmons First Trust Company, N.A., as Trustee This certificate is provided pursuant to the provisions of Section 212 of the Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, in connection with the proposed issuance of Additional Bonds. In connection with such issuance or drawdown, the undersigned certifies as follows: (a) Receipts of Sales and Use Tax by Trustee for preceding twelve (12) months: • (b) Maximum Annual Debt Service on all Outstanding Bonds, plus the proposed Additional Bonds: (c) (a) divided by (b) = % (which is greater than 125%) The undersigned hereby certifies that he is authorized to deliver this Certificate on behalf of the Issuer. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. All capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture. CITY OF FAYETTEVILLE, ARKANSAS Finance and Internal Services Director • 4838-2657-89441 C -I • EXHIBIT D TO TRUST INDENTURE REQUISITION City of Fayetteville, Arkansas Series 2005 Sales and Use Tax Capital Improvement Bonds Date: Requisition No.: TO: Simmons First Trust Company, N.A., as Trustee Pursuant to the provisions of Section 502 of the Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City of Fayetteville, Arkansas (the "Issuer") and you, as trustee, you are authorized to make the following described payment directly to the Payee named below from the Project Fund: Name and Address of Payee: • Amount of Payment: $ General Classification of the Expenditures: The undersigned hereby certifies that he is authorized to deliver this Requisition on behalf of the Issuer. The amount requested hereunder has not been the basis for any previous Requisition by the Issuer and is justly due and owing to the person(s) named herein as a proper payment or reimbursement of a Project Cost. No Event of Default exists under the Indenture and, to the knowledge of the undersigned, no event has occurred and continues which with notice or lapse of time or both would constitute an Event of Default under the Indenture. CITY OF FAYETTEVILLE, ARKANSAS By:. Authorized Representative 4838-2657-8944.2 D -I • BOND PURCHASE AGREEMENT KUTAK ROCK LLP DRAFT 09/27/05 November _, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B • 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. 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 (i) [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $ (equal to the par amount of the Series 2005A Bonds [plus][less] a net reoffering [premium][discount] of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2005, to the Closing Date (hereinafter defined), and (ii) $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase • Price," and together with the 2005A Purchase Price, the "Purchase Price") of $ (equal to the par amount of the Series 2005B Bonds [plus][less] a net reoffering 4843-9700-4288.2 • [premium][discount] of $ and less underwriter's discount of $ ) plus accrued interest, if any, from November 1, 2005, to the Closing Date. The Series 2005 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. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 1, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by [BOND INSURER] contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. • of the City which was adopted by the City Council on October _, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), [(iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds,] and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, [(ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds,] and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the "Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized • (along with other available moneys) to redeem the Series 2004 Bonds at the times and in the amounts provided in the Escrow Agreement. The City will undertake, pursuant to a Continuing 4843-9700-4288.2 2 • Disclosure Agreement to be dated as of the date of delivery of the Series 2005 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 2005 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 2005 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 November _, 2005, relating to the Series 2005 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-I2(b)(1) (the "Rule"). 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 November _, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. • 4843.9700-0288.2 3 • 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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) to pledge irrevocably the receipts of theSales and Use Tax to the payment of the principal of, premium, if any, and interest on the Series 2005 Bonds, and (viii) 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 2005 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. (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 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 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 Series 2005 • 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 4843-9700-4288.2 4 • 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 fmal 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, • the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843-9700-4288.2 5 • 0) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (1) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 Bonds to be includable in gross income for federal income tax purposes. City's Covenants. The City covenants with the Underwriter as follows: (a) The City will cooperate with the Underwriter in qualifying the Series 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. L 4843-9700.4288.2 6 (b) Section 3(d) (ii) 25 days information condition ax request. Prior to the earlier of (i) receipt of notice from the Underwriter pursuant to hereof that final Official Statements are no longer required under the Rule or after the Closing Date, the City shall provide the Underwriter with such regarding the City, Sales and Use Tax receipts, and the current financial �d ongoing operations of the City, all as the Underwriter may reasonably 6. Closing. At 10:00 a.m. Fayetteville, Arkansas time on November _, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 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 indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 • 2005 Bonds; or 4843-9700-4288.2 7 . (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-9700-4288.2 8 • 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 psrchase the Series 2005 Bonds shall be subject (a) to the performance by the City of its o,ligation 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 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall have occurred, nor shall any development involving a prospective and material adverse 4143-9700-4288.2 I • 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; • (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) [The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by together with such supporting certificates of and an opinion of counsel to as shall be satisfactory to Bond Counsel]; (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of"_____ which ratings shall be in effect as of the Closing Date; (9) [The surety bond for deposit in the Series 2005A Account of the Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for • deposit in the Series 2005B Account of the Debt Service Reserve Fund (the "2005B Surety Bond"), each issued by , together with such 4843-9700-4288.2 10 • supporting certificates of and an opinion of counsel to as shall be satisfactory to Bond Counsel]; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in • any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 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 4843.9700-0288.2 11 • 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; (x) to the best of his knowledge, no event affecting 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; (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, • the Authorizing Ordinance, the Election 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 4843-9700-4288.2 12 • 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 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 Series 2005 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 4843-9700-4288.2 13 • 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees • charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any 4843-9700-42882 14 • fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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 2005 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 p.m. on the date first above written: CITY OF FAYETTEVILLE, ARKANSAS • Ty: Title: Mayor 4843-9700-4288.2 15 • FtL'ITHBUW01 MATURITY SCHEDULE [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $ % % 2007 % % % 2008 % % % 2009 % % % 2010 % % % $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2010 $ % % % 2011 % 2012 % % % 2013 % % % 2014 % % % 2015 % % % 2016 % % % 2017 % % % 2018 % % % (with accrued interest on all Bonds from November 1, 2005) 4843-9700-42882 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 , 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§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 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 1, • 2005 (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 4843-9700-42882 B-1 • supplemental thereto for the provisions, among others, with respect to the nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 4843-9700-4288.2 B-2 • 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4843-9700-4288.2 B-3 0 EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November _, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas [BOND INSURER] [$26,235,000] City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A 17ki $65,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4843.9700-4288.2 C-1 • (a) An executed counterpart of the Bond Purchase Agreement dated November _, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November _, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November _, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November _, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and (e) Portions of the Official Statement dated November _, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 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 • MATTERS," 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 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 4843-9700-4288.2 C-2 • 5. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 6. The issuance of the Series 2005 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 2004 (the "Series 2004 Bonds"), and will not cause the Series 2004 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 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, n LI 4843-9700-4288.2 C-3 KUTAK ROCK LLP DRAFT 09/27/05 • CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement dated as of November _, 2005 (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 (i) the City's [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) the City's $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, 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 __ 2005 (the "Authorizing Ordinance"), and a Trust Indenture dated as of November 1, 2005 (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 tern 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 15B(b)(1) of the 1934 Act. 4848-7096-0896.2 • "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, 2006, 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: • 4848-7096-0896.2 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; CI 4848.7096-0896.2 a- • (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)(l), (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 a] • 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 • 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 • 0 Title: Mayor SIMMONS FIRST TRUST COMPANY, N.A., as Trustee By:_ Title: 6 • EXHIBIT A NOTICE TO REPOSITORIES REGARDING FINANCIAL INFORMATION NAME OF ISSUER: City of Fayetteville, Arkansas NAME OF BOND ISSUES: [$26,235,000] Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and $65,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B DATE OF ISSUANCE: November _, 2005 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_, 2005, between the City and Simmons First Trust Company, N.A., as trustee. [The City anticipates that the Annual Financial Information will be filed by .] Dated: • 0 SIMMONS FIRST TRUST COMPANY, N.A., as Trustee cc: City of Fayetteville Stephens Inc. 4848-7096-0896.2 A- I • 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 ham://www.sec.gov/info/municipal/nrmsir.htm. Bloomberg Municipal Repository 100 Business Park Drive Skillman, NJ 08558 Phone: (609) 279-3225 Fax: (609) 279-5962 http://www.bloomberg.com/markets/rates/municontacts.html E-mail: Munis@Bloomberg.com DPC Data Inc. One Executive Drive • Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 http://www.dpcdata.com E-mail: nrmsir@dpedata.com FT Interactive Data Attn: NRMSIR 100 William Street, 15th Floor New York, NY 10038 Phone: (212) 771-6999; 800-689-8466 Fax: (212) 771-7390 http://www.ftid.com Email: NRMSIRQinteractivedata.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 www.jjkenny.com/jjkenny/pser_descrip_data_rep.html Email: nrmsir_repository@sandp.com • B-1 r KUTAK ROCK LLP DRAFT 09/27/05 • ESCROW DEPOSIT AGREEMENT THIS ESCROW DEPOSIT AGREEMENT (this "Agreement") dated November_, 2005, by and between the City of Fayetteville, Arkansas, a political subdivision of the State of Arkansas (the "City"), and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, a national banking association organized and existing by virtue of the laws of the United States of America, as escrow trustee for the hereinafter defined Prior Bonds (the "Escrow Trustee"). WITNESSETH: WHEREAS, the City has heretofore issued its $35,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2004, dated as of November 1, 2004, of which [$26,235,000] aggregate principal amount remain outstanding and are stated to mature on December 1, 2005 to December 1, 20_, inclusive (the "Prior Bonds"); and WHEREAS, the terms of and the security for the Prior Bonds are prescribed by that certain Trust Indenture dated as of June 1, 2002, as amended and supplemented by a First Supplemental Trust Indenture dated as of November 1, 2004 (the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., as trustee (the "Prior Trustee"); and WHEREAS, Article VII of the Prior Indenture provides under certain circumstances that • the Prior Bonds shall be deemed paid within the meaning of the Prior Indenture if there shall be on deposit with the Prior Trustee moneys or certain types of investment obligations described therein maturing on or prior to the maturity or redemption dates of the Prior Bonds and sufficient to pay when due the principal of, premium, if any, and interest on the Prior Bonds to the maturity date or redemption date, as the case may be; and • WHEREAS, the City, pursuant to an ordinance adopted by its City Council on October _, 2005, and the Constitution and laws of the State of Arkansas, has authorized the issuance of [$26,235,000] aggregate principal amount of its Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Refunding Bonds"), a portion of the proceeds of which are to be used, together with other available funds, to refund all of the Prior Bonds; and WHEREAS, the City has made arrangements for deposit with the Escrow Trustee of moneys and investment obligations derived from and purchased with (a) a portion of the proceeds derived from the sale of the Refunding Bonds, (b) amounts released from the Bond Fund for the Prior Bonds, and (c) amounts released from the Debt Service Reserve Fund for the Prior Bonds, which in the aggregate will provide sufficient immediately available funds to enable the Escrow Trustee to pay the principal of and interest on the Prior Bonds upon maturity and upon redemption prior to maturity, all as set forth on Schedule 1 hereto; and WHEREAS, the City has entered into this Agreement with the Escrow Trustee in order to ensure that the procedures required for discharging the Prior Bonds will be followed; 4848-2069-4784.2 V • NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants hereinafter set forth, and in order to provide for the redemption of the Prior Bonds and to set forth the obligations of the parties hereto, the parties hereto agree as follows: Section 1. Establishment of Escrow Fund. There is hereby created and established with the Escrow Trustee a special, segregated and irrevocable escrow account designated "City of Fayetteville, Arkansas - 2004 Refunding Escrow Fund" (the "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 Prior Bonds, separate and apart from other funds of the City and the Escrow Trustee. Section 2. Deposit to Escrow Fund: Application of Moneys. Simultaneously with the execution of this Agreement, the City has sold and delivered the Refunding Bonds. From the proceeds of the sale of the Refunding Bonds, the City has delivered to the Escrow Trustee for deposit in the Escrow Fund immediately available moneys in the amount of $ . The Escrow Trustee, in its role as Prior Trustee, is hereby directed to liquidate all investments in the Bond Fund and Debt Service Reserve Fund established under the Prior Indenture and applicable to the Prior Bonds, and to transfer such moneys (viz., the sum of $ ) to the Escrow Fund. The Escrow Trustee has purchased, from and as an investment of moneys in the Escrow Fund, at the prices indicated, the direct noncallable obligations of the United States of America identified in Schedule 2 attached hereto (the "Government Obligations"). Accordingly, the Escrow Trustee now holds (or has the right to receive principal and interest on) the Governmental Obligations and $ in uninvested cash. • Section 3. Deposit to Escrow Fund Irrevocable. The deposit of the moneys and Governmental Obligations in the Escrow Fund shall constitute an irrevocable deposit of said moneys and Governmental Obligations exclusively for the benefit of the owners of the Prior Bonds, and such moneys and Governmental Obligations shall be held in escrow and shall be applied solely to the payment of the principal of and interest on the Prior Bonds through and including the redemption and maturity dates shown on Schedule 1. Subject to the requirements set forth herein for the use of the Escrow Fund and the moneys therein, the City covenants and agrees that the Escrow Trustee shall have full and complete control and authority over and with respect to the Escrow Fund and the moneys and Governmental Obligations deposited therein. Section 4. Use of Moneys. The Escrow Trustee shall apply the moneys and Governmental Obligations deposited in the Escrow Fund, together with any interest or income earned thereon, in accordance with the provisions hereof. The Escrow Trustee shall withdraw from the Escrow Fund immediately available funds for application to the payment of the principal of and interest on the Prior Bonds in the amounts and at the times necessary in accordance with Schedule I attached hereto. Schedule 3 attached hereto shows the availability and application of moneys in the Escrow Fund necessary to meet the requirements set forth in Section 1. The Escrow Trustee shall not sell, transfer, otherwise dispose of or cause to be redeemed prior to maturity, any Government Obligations, except as authorized by Section 5 hereof. The Escrow Trustee shall make no further investment or reinvestment except as expressly authorized • by Section 5. The liability of the Escrow Trustee for the payment of the amounts to be paid hereunder shall be limited to the moneys available for such purposes in the Escrow Fund. 4848-2069-0784.2 2 • Subject to the provisions of Section 5 hereof, any amounts held as cash in the Escrow Fund shall be held in cash without any investment thereof, not as a deposit with any bank or other depository. The Escrow Trustee shall not have any duty with respect to calculating or verifying the mathematical sufficiency of the moneys in the Escrow Fund to be utilized to pay the principal of and interest on the Prior Bonds as the same shall become due and payable. Section 5. Investment of Escrow Fund Moneys. (a) The Escrow Trustee may from time to time sell, cause the redemption of, or otherwise dispose of any Government Obligations in the Escrow Fund upon the substitution of other direct or fully guaranteed and noncallable obligations of the United States of America, provided: (1) The Escrow Trustee shall have previously obtained an opinion of an independent certified public accountant that the substitution will not adversely affect the availability of moneys in the Escrow Fund at times and in amounts sufficient to meet the required payments on the Prior Bonds provided in Schedule I attached hereto; and (2) The Escrow Trustee shall receive an unqualified opinion of recognized attorneys in the field of tax-exempt municipal bonds to the effect that, if such substitution had been reasonably expected on the date of issuance of the Prior Bonds, such substitution would not have caused any of the Prior Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations of the U.S. Treasury thereunder proposed or in effect at the • time of such substitution and applicable to obligations issued on the date of issuance of the Prior Bonds, so as to adversely affect the exemption from Federal income taxation of the interest on the Prior Bonds or the Refunding Bonds; and (3) The City shall have given the Escrow Trustee its written consent to the substitution. All substituted obligations shall become a part of the Escrow Fund and shall be "Government Obligations" for all purposes of this Agreement. (b) Notwithstanding any other provision of this Agreement, the City and the Escrow Trustee hereby covenant that no part of the proceeds of the moneys in the Escrow Fund shall be used, at any time, directly or indirectly, in such a manner which, if such use had been reasonably anticipated on the date of issuance of the Refunding Bonds, would have caused any of the Refunding Bonds to be an "arbitrage bond" under Section 148 of the Code and the regulations of the U.S. Treasury thereunder proposed or in effect at the time of such use and applicable to obligations issued on the date of issuance of the Refunding Bonds. Section 6. Redemption and Defeasance. (a) The City hereby calls the Prior Bonds for redemption prior to maturity on 1, 20_, 1, 20. and 1, 20as follows: [INSERT CHART SHOWING REDEMPTION DATES] • 4848-2069-4784.2 • The instructions to the Escrow Trustee to redeem portions of the Prior Bonds on 1, 20__, 1, 20 and 1, 20 are hereby declared to be irrevocable. Except as set forth above, the Prior Bonds will be redeemed at their respective maturity dates. (b) The Escrow Trustee is hereby irrevocably instructed to give notice of the call for redemption to the registered owners of those Prior Bonds to be redeemed prior to maturity. Such notice shall be given by first class mail, postage prepaid, in the form attached hereto as Exhibit A, at least thirty (30) days prior to the applicable redemption date. (c) As soon as practicable after receipt of these instructions, the Escrow Trustee shall mail by first class mail, postage prepaid, to all of the registered owners of the Prior Bonds, a notice of defeasance in the form attached hereto as Exhibit B. Section 7. Remaining Moneys in Escrow Fund. Upon the retirement of the Prior Bonds, any amounts remaining in the Escrow Fund shall be deposited in the bond fund for the Refunding Bonds, free and clear of the trust created by the Prior Indenture and this Agreement. Section 8. Rights of Owners of Prior Bonds. The escrow created hereby shall be irrevocable and the owners of the Prior Bonds shall have a beneficial interest and a first, prior and paramount lien and claim on all moneys in the Escrow Fund until paid out, used and applied in accordance with this Agreement. Section 9. Fees of Escrow Trustee. In consideration of all services to be rendered by the Escrow Trustee under this Agreement, the City has made arrangements satisfactory to the Escrow Trustee for payment of its reasonable fees and expenses, and the Escrow Trustee hereby acknowledges that it shall have no lien whatsoever upon any moneys in the Escrow Fund for payment of such fees and expenses. The Escrow Trustee agrees to remain in office until all of the Prior Bonds have been redeemed. Except to the extent arising from their gross negligence or willful misconduct, the Escrow Trustee and its respective successors, assigns, agents and servants shall not be held to any liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Agreement, the establishment of the Escrow Fund, the acceptance of the moneys and Governmental Obligations deposited therein, or by reason of any act, omission or error of the Escrow Trustee made in good faith in the conduct of its duties. The Escrow Trustee makes no representations or warranties as to whether the Escrow Fund is adequate or sufficient to defease or redeem the Prior Bonds and shall not be responsible or liable for any inadequacy or insufficiency. The Escrow Trustee shall be entitled to the immunities, powers, privileges and protections set forth in the Prior Indenture for the benefit of the Trustee as if set forth herein in their entirety. Section 10. Enforcement. The City and the owners of the Prior Bonds shall have the • right to take all actions available under law or equity to enforce this Agreement or the terms hereof. 4848-2069-0784.2 4 • Section 11. Successors Bound. All covenants, promises and agreements in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the City, the Escrow Trustee and the owners of the Prior Bonds, whether so expressed or not. Section 12. Arkansas Law Governing. This Agreement shall be governed by the applicable laws of the State of Arkansas. Section 13. Termination. This Agreement shall terminate when all of the Prior Bonds have been paid as aforesaid and any remaining moneys have been transferred as provided in Section 7 hereof. Section 14. Severability. 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 covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Section 15. Counterparts. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be one and the same instrument. Section 16. No Recourse Against City Officers and Employees. No recourse shall be had for the payment of the principal of or interest on any of the Prior Bonds or for any claim based thereon or upon any obligation, covenant or agreement in this Agreement contained against any past, present or future officer, member, alderman or employee of the City or of 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 officers, members, aldermen or employees, as such, is hereby expressly waived and released as a condition of and consideration for the execution of this Agreement. Section 17. Notices. Unless otherwise provided, any notice, demand, direction, request or other instrument authorized or required by this Agreement to be given to or filed with the City or the Escrow Trustee shall be in writing and shall be addressed as follows: To the City: City of Fayetteville, Arkansas 113 West Mountain Fayetteville, Arkansas 72701 Attention: Finance & Internal Services Director To the Escrow Trustee: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: • 4848-2069-4784.2 I • IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be executed by their duly authorized officers as of the date first above written. CITY OF FAYETTEVILLE, ARKANSAS By: Mayor SIMMONS FIRST TRUST COMPANY, N.A. By:_ Title: • [SIGNATURE PAGE TO ESCROW AGREEMENT] • 4848-2069-4784.2 LI • • SCHEDULE1 REQUIREMENTS TO PAY AND REDEEM THE PRIOR BONDS Principal Redemption Payment Date Principal Due Redeemed Premium Interest Due Total Due 12-1-05 $ $ $ 6-1-06 12-1-06 6-1-07 12-1-07 6-1-08 12-1-08 4848-2069-4784.2 S-1 • SCHEDULE2 DESCRIPTION OF GOVERNMENT OBLIGATIONS Type Maturity Date Principal Amount Coupon Rate U.S. Treasury Securities - SLGS $ % • S-2 4848-20694784.2 • SCHEDULE3 SCHEDULE OF AVAILABILITY AND APPLICATION OF ESCROW FUND Cash Balance at Receipts from Debt Service Requirement Cash Balance at Period Ending Beginning of Period Government Obligations to Retire Prior Bonds End of Period Il-_-05 $ - 12-1-05 6-1-06 12-1-06 6-1-07 12-1-07 6-1-08 12-1-08 10 • S-3 4848-2069-4784.2 I EXHIBIT A • • NOTICE OF REDEMPTION City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN by Simmons First Trust Company, N.A., Pine Bluff, Arkansas, the trustee (the "Trustee") for the Sales and Use Tax Capital Improvement Bonds, Series 2004, of the City of Fayetteville, Arkansas (the "City"), dated November 1, 2004 (the "Bonds"), that $ principal amount of the outstanding Bonds maturing on December 1, 20 [and December 1, 201 are hereby called for redemption and prepayment on 1, 20_. The outstanding Bonds called for redemption mature, bear interest and have been assigned CUSIP numbers as follows: Maturity Date (December 1) Principal Amount Interest Rate CUSIP $ No representation is made as to the accuracy of the CUSIP numbers set forth above, and the redemption of the Bonds shall not be affected by any defect in or omission of such numbers. Each of the Bonds so called for redemption and prepayment shall be redeemed and prepaid at a redemption price of 100.0% of the principal amount thereof plus accrued interest to the date of redemption. The Bonds shall cease to bear interest as of 1, 20 The Bonds so called for redemption shall be payable at the corporate trust office of the Trustee and shall be presented as follows: Simmons First Trust Company, N.A. 501 Main Street Pine Bluff, Arkansas 71601 Attention: 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 , 200_. SIMMONS FIRST TRUST COMPANY, N.A. as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails no later than 1,20 4848-2069-47841 • EXHIBIT B NOTICE OF DEFEASANCE City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2004 NOTICE IS HEREBY GIVEN THAT, pursuant to the provisions 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 (the "Indenture"), under which the bonds referenced above (the "Bonds") were issued and secured, there has been deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as Trustee for the Bonds, moneys and direct noncallable obligations of the United States of America, sufficient in amount to pay at maturity and upon redemption, all of the outstanding Bonds. [INSERT CHART SHOWING REDEMPTION DATES] The Bonds called for redemption shall be redeemed at a price of 100% of the principal amount thereof, together with accrued interest to the date of redemption. On and after the applicable redemption dates, interest on the Bonds so called for redemption shall cease to accrue. As a result of the deposit with the Trustee of the moneys and direct noncallable obligations of the • United States of America described above, the Bonds are deemed to have been paid in accordance with Article VII of the Indenture. For further inquiries, contact Simmons First Trust Company, N.A., 501 Main Street, Pine Bluff, Arkansas 71601, Attn: Glenda Dean, phone (870) 541-1424. Date of mailing: December , 2005 SIMMONS FIRST TRUST COMPANY, N.A., as Trustee Instructions: Mail by first class mail, postage prepaid to the registered owner of each Bond to be • redeemed, addressed to such registered owner at the owner's registered address, and placed in the mails as soon as possible after December 1, 2005. B -I 4848-2069-4784.2 500 North Akard Street STANDARD Lincoln Plaza, Suite 3200 Dallas, TX 75201 • &POOR'S el 214 871-1402 reference nno.: 743812 October 19, 2005 OCT 272005 City of Fayetteville C; 113 W. Mountain Is.aYn,3 Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director Re: US$26,235,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, dated: November 1, 2005, due: December 1, 2010 Dear Mr. Davis: Pursuant to your request for a Standard & Poor's rating on the above -referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA-". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. • The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would . facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on Mr. Steve Davis Page 2 October 19, 2005 • CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nypublicfmance@standardandpoors.com. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosures cc: Mr. Dennis R. Hunt Mr. Gordon M. Wilbourn • • STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To U.S. Public Finance Ratings Request for a rating. Standard & Poor's issues public finance ratings for a fee upon request from an issuer, or from an underwriter, financial advisor, investor, insurance company, or other entity, provided that the obligor and issuer (if different from the obligor) each has knowledge of the request. The term "issuer/obligor" in these Terms and Conditions means the issuer and the obligor if the obligor is different from the issuer. Agreement to Accept Terms and Conditions. Standard & Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard & Poor's public finance rating constitutes agreement to comply in all respects with the terms and conditions contained herein and in the rating letter and acknowledges the issuer/obligor's understanding of the scope and limitations of the Standard & Poor's rating as stated herein and in the rating letter. Fees and expenses. In consideration of our analytic review and issuance of the rating, the issuer/obligor agrees to pay Standard & Poor's a rating fee. Payment of the fee is not conditioned on Standard & Poor's issuance of any particular rating. In most cases an annual surveillance fee will be charged for so long as we maintain the rating. The issuer/obligor will reimburse Standard & Poor's for reasonable travel and legal expenses if such expenses are not included in the fee. Should the rating not be issued, the issuer/obligor agrees to compensate Standard & Poor's based on the time, effort, and charges incurred through the date upon which it is determined that the rating will not be issued. • Scope of Rating. The issuer/obligor understands and agrees that (i) an issuer rating reflects Standard & Poor's current opinion of the issuer/obligor's overall financial capacity to pay its financial obligations as they come due, (ii) an issue rating reflects Standard & Poor's current opinion of the likelihood that the issuer/obligor will make payments of principal and interest on a timely basis in accordance with the terms of the obligation, (iii) a rating is an opinion and is not a verifiable statement of fact, (iv) ratings are based on information supplied to Standard & Poor's by the issuer/obligor or by its agents and upon other information obtained by Standard & Poor's from other sources it considers reliable, (v) Standard & Poor's does not perform an audit in connection with any rating and a rating does not represent an audit by Standard & Poor's. (vi) Standard & Poor's relies on the issuer/obligor, its accountants, counsel, and other experts for the accuracy and completeness of the information submitted in connection with the rating and surveillance process, (vii) Standard & Poor's undertakes no duty of due diligence or independent verification of any information, (viii) Standard & Poor's does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information, (ix) Standard & Poor's may raise, lower, suspend, place on CreditWatch, or withdraw a rating at any time, in Standard & Poor's sole discretion, and (x) a rating is not a "market" rating nor a recommendation to buy, hold, or sell any financial obligation. Publication. Standard & Poor's reserves the right to publish, disseminate, or license others to publish or disseminate the rating and the rationale for the rating unless the issuer/obligor specifically requests that the rating be assigned and maintained on a confidential basis. If a confidential rating subsequently becomes public through disclosure by the issuer/obligor or a third party other than Standard & Poor's, Standard & Poor's reserves the right to publish it. Standard & Poor's may publish explanations of Standard & Poor's ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Standard & Poor's ability to modify or refine Standard & Poor's criteria at any time as Standard & Poor's deems appropriate. Information to be Provided by the Issuer/obligor. The issuer/obligor shall meet with Standard & Poor's for an analytic review at any reasonable time Standard & Poor's requests. The issuer/obligor also agrees to provide Standard & Poor's promptly with all information relevant to the rating and surveillance of the rating including information on • material changes to information previously supplied to Standard & Poor's. The rating may be affected by Standard & Poor's opinion of the accuracy, completeness, timeliness, and reliability of information received from the issuer/obligor or its agents. Standard & Poor's undertakes no duty of due diligence or independent verification of information provided by the issuer/obligor or its agents. Standard & Poor's reserves the right to withdraw the rating if the issuer/obligor or its agents fails to provide Standard & Poor's with accurate, complete, timely, or reliable information. • Standard & Poor's Not an Advisor, Fiduciary, or Expert. The issuer/obligor understands and agrees that Standard & Poor's is not acting as an investment, financial, or other advisor to the issuer/obligor and that the issuer/obligor should not and cannot rely upon the rating or any other information provided by Standard & Poor's as investment or financial advice. Nothing in this Agreement is intended to or should be construed as creating a fiduciary relationship between Standard & Poor's and the issuer/obligor or between Standard & Poor's and recipients of the rating. The issuer/obligor understands and agrees that Standard & Poor's has not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the U.S. Securities Act of 1933. Limitation on Damages. The issuer/obligor agrees that Standard & Poor's, its officers, directors, shareholders, and employees shall not be liable to the issuer/obligor or any other person for any actions, damages, claims, liabilities, costs, expenses, or losses in any way arising out of or relating to the rating or the related analytic services provided for in an aggregate amount in excess of the aggregate fees paid to Standard & Poor's for the rating, except for Standard & Poor's gross negligence or willful misconduct. In no event shall Standard & Poor's, its officers, directors, shareholders, or employees be liable for consequential, special, indirect, incidental, punitive or exemplary damages, costs, expenses, legal fees, or losses (including, without limitation, lost profits and opportunity costs). In furtherance and not in limitation of the foregoing, Standard & Poor's will not be liable in respect of any decisions made by the issuer/obligor or any other person as a result of the issuance of the rating or the related analytic services provided by Standard & Poor's hereunder or based on anything that appears to be advice or recommendations. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. The issuer/obligor acknowledges and agrees that Standard & Poor's does not waive any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Term. This Agreement shall terminate when the ratings are withdrawn. Notwithstanding the foregoing, the paragraphs above, "Standard & Poor's Not an Advisor, Fiduciary, or Expert" and "Limitation on Damages", shall survive the termination of this Agreement or any withdrawal of a rating. • Third Parties. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary to this Agreement or to the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Complete Agreement. This Agreement constitutes the complete agreement between the parties with respect to its subject matter. This Agreement may not be modified except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties agree that the state and federal courts of New York shall be the exclusive forums for any dispute arising out of this Agreement and the parties hereby consent to the personal jurisdiction of such courts. • , STANDARD &POOR'S October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North Akard Street Lincoln Plaza, Suite 3200 Dallas, TX 75201 let 214 871-1402 reference no.: 743820 Re: US$65,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B, dated: November 1, 2005, due: December 1, 2018 Dear Mr. Davis: Pursuant to your request for a Standard & Poor's rating on the above -referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA-". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. • The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial • information and the documents. Standard & Poor's may change, suspend, withdraw, or place on Mr. Steve Davis Page 2 October 19, 2005 • CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nypublicfinance@standardandpoors.com. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosures cc: Mr. Dennis R. Hunt Mr. Gordon M. Wilbourn • CJ STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To U.S. Public Finance Ratings Request for a rating. Standard & Poor's issues public finance ratings for a fee upon request from an issuer, or from an underwriter, financial advisor, investor, insurance company, or other entity, provided that the obligor and issuer (if different from the obligor) each has knowledge of the request. The term "issuer/obligor" in these Terms and Conditions means the issuer and the obligor if the obligor is different from the issuer. Agreement to Accept Terms and Conditions. Standard & Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard & Poor's public finance rating constitutes agreement to comply in all respects with the terms and conditions contained herein and in the rating letter and acknowledges the issuer/obligor's understanding of the scope and limitations of the Standard & Poor's rating as stated herein and in the rating letter. Fees and expenses. In consideration of our analytic review and issuance of the rating, the issuer/obligor agrees to pay Standard & Poor's a rating fee. Payment of the fee is not conditioned on Standard & Poor's issuance of any particular rating. In most cases an annual surveillance fee will be charged for so long as we maintain the rating. The issuer/obligor will reimburse Standard & Poor's for reasonable travel and legal expenses if such expenses are not included in the fee. Should the rating not be issued, the issuer/obligor agrees to compensate Standard & Poor's based on the time, effort, and charges incurred through the date upon which it is determined that the rating will not be issued. • Scope of Rating. The issuer/obligor understands and agrees that (i) an issuer rating reflects Standard & Poor's current opinion of the issuer/obligor's overall financial capacity to pay its financial obligations as they come due, (ii) an issue rating reflects Standard & Poor's current opinion of the likelihood that the issuer/obligor will make payments of principal and interest on a timely basis in accordance with the terns of the obligation, (iii) a rating is an opinion and is not a verifiable statement of fact, (iv) ratings are based on information supplied to Standard & Poor's by the issuer/obligor or by its agents and upon other information obtained by Standard & Poor's from other sources it considers reliable, (v) Standard & Poor's does not perform an audit in connection with any rating and a rating does not represent an audit by Standard & Poor's, (vi) Standard & Poor's relies on the issuer/obligor, its accountants, counsel, and other experts for the accuracy and completeness of the information submitted in connection with the rating and surveillance process, (vii) Standard & Poor's undertakes no duty of due diligence or independent verification of any information, (viii) Standard & Poor's does not and cannot guarantee the accuracy, completeness, or timeliness of the information relied on in connection with a rating or the results obtained from the use of such information, (ix) Standard & Poor's may raise, lower, suspend, place on CreditWatch, or withdraw a rating at any time, in Standard & Poor's sole discretion, and (x) a rating is not a "market" rating nor a recommendation to buy, hold, or sell any financial obligation. Publication. Standard & Poor's reserves the right to publish, disseminate, or license others to publish or disseminate the rating and the rationale for the rating unless the issuer/obligor specifically requests that the rating be assigned and maintained on a confidential basis. If a confidential rating subsequently becomes public through disclosure by the issuer/obligor or a third party other than Standard & Poor's, Standard & Poor's reserves the right to publish it. Standard & Poor's may publish explanations of Standard & Poor's ratings criteria from time to time and nothing in this Agreement shall be construed as limiting Standard & Poor's ability to modify or refine Standard & Poor's criteria at any time as Standard & Poor's deems appropriate. Information to be Provided by the Issuer/obligor. The issuer/obligor shall meet with Standard & Poor's for an analytic review at any reasonable time Standard & Poor's requests. The issuer/obligor also agrees to provide Standard & Poor's promptly with all information relevant to the rating and surveillance of the rating including information on • material changes to information previously supplied to Standard & Poor's. The rating may be affected by Standard & Poor's opinion of the accuracy, completeness, timeliness, and reliability of information received from the issuer/obligor or its agents. Standard & Poor's undertakes no duty of due diligence or independent verification of information provided by the issuer/obligor or its agents. Standard & Poor's reserves the right to withdraw the rating if the issuer/obligor or its agents fails to provide Standard & Poor's with accurate, complete, timely, or reliable information. • Standard & Poor's Not an Advisor, Fiduciary, or Expert. The issuer/obligor understands and agrees that Standard & Poor's is not acting as an investment, financial, or other advisor to the issuer/obligor and that the issuer/obligor should not and cannot rely upon the rating or any other information provided by Standard & Poor's as investment or financial advice. Nothing in this Agreement is intended to or should be construed as creating a fiduciary relationship between Standard & Poor's and the issuer/obligor or between Standard & Poor's and recipients of the rating. The issuer/obligor understands and agrees that Standard & Poor's has not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the U.S. Securities Act of 1933. Limitation on Damages. The issuer/obligor agrees that Standard & Poor's, its officers, directors, shareholders, and employees shall not be liable to the issuer/obligor or any other person for any actions, damages, claims, liabilities, costs, expenses, or losses in any way arising out of or relating to the rating or the related analytic services provided for in an aggregate amount in excess of the aggregate fees paid to Standard & Poor's for the rating, except for Standard & Poor's gross negligence or willful misconduct. In no event shall Standard & Poor's, its officers, directors, shareholders, or employees be liable for consequential, special, indirect, incidental, punitive or exemplary damages, costs, expenses, legal fees, or losses (including, without limitation, lost profits and opportunity costs). In furtherance and not in limitation of the foregoing, Standard & Poor's will not be liable in respect of any decisions made by the issuer/obligor or any other person as a result of the issuance of the rating or the related analytic services provided by Standard & Poor's hereunder or based on anything that appears to be advice or recommendations. The provisions of this paragraph shall apply regardless of the form of action, damage, claim, liability, cost, expense, or loss, whether in contract, statute, tort (including, without limitation, negligence), or otherwise. The issuer/obligor acknowledges and agrees that Standard & Poor's does not waive any protections, privileges, or defenses it may have under law, including but not limited to, the First Amendment of the Constitution of the United States of America. Term. This Agreement shall terminate when the ratings are withdrawn. Notwithstanding the foregoing, the paragraphs above, "Standard & Poor's Not an Advisor, Fiduciary, or Expert" and "Limitation on Damages", shall survive the termination of this Agreement or any withdrawal of a rating. • Third Parties. Nothing in this Agreement, or the rating what issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary to this Agreement or to the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Complete Agreement. This Agreement constitutes the complete agreement between the parties with respect to its subject matter. This Agreement may not be modified except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties agree that the state and federal courts of New York shall be the exclusive forums for any dispute arising out of this Agreement and the parties hereby consent to the personal jurisdiction of such courts. • IThe McGraw-Hill Companies STANDARD &POOR'S October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North Akard Street Lincoln Plaza, Suite 3200 Dallas, TX 75201 tel 214 871-1402 reference no.: 40128707 Re: City of Fayetteville, Arkansas, Outstanding Sales and Use Tax Bonds, Various Series Dear Mr. Davis: Standard & Poor's has reviewed the rating on the above -referenced obligations. After such review, we have affirmed the "AA-" rating and stable outlook. A copy of the rationale supporting the rating and outlook is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but • does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Mr. Steve Davis Page 2 October 19, 2005 • Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 If you have any questions, or if we can be of help in any other way, please feel free to call or contact us at nypublicfinance(astandardandpoors.com. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. We appreciate the opportunity to work with you and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. CJ th enclosure • Li Publication date: 20.Oct-2005 Reprinted from RatingsDirect City of Fayetteville, Arkansas Primary Credit Analyst: Wendy Wippennan, Dallas (1)214-871-1421; wendy_wipperman©standardandpoors.com Secondary Credit Analyst: Horatio Aldrete-Sanchez, Dallas (1)21 4-871-1426; horacio_adrete@standardandpoors.com Credit Profile US$26.235 mil Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A did 11/01/2005 due 12/01/2010 AA - Sale date: 01-NOV-2005 US$65. mil Sales and Use Tax Capital Improvement Bonds, Series 2005B did 11/01/2005 due 12101/2018 AA - Sale date: 01-NOV-2005 AFFIRMED Outstanding Sales and Use Tax Bonds, Various Series AA - Rationale Standard & Poor's Ratings Services assigned its 'AA-' rating, and stable outlook, to Fayetteville, Ark.'s series 2005A sales and use tax refunding and capital improvement bonds and series 2005B sales and use tax capital improvement bonds. The rating reflects the city's: • Stable economic base, anchored by University of Arkansas; • Strong legal provisions, including a capped lien and mandatory use of surplus sales tax revenues for principal prepayment; • Solid debt service coverage; and • Healthy historical growth of the pledged revenue stream. OUTLOOK: A pledge of a dedicated 0.75% citywide sales and use tax, which was STABLE authorized by the electorate on Nov. 6, 2001, secures the bonds. University of Arkansas and the poultry industry anchor Fayetteville's expanding economy. With a fall 2005 student enrollment of roughly 17,800, the university accounts for about 30% of the city's 2000 U.S. Census - population of 58,047. Population growth, which has increased by 38% since 1990, has been solid. Due mainly to the large student population, per capita median income levels are below the nation's 88% average but are higher than the state's 107% average. Per capita retail sales are 91% of the nation's average and an estimated 11% above the state's average. The city's unemployment rate averaged 3.4% in 2005, well below state and national rates. Fiscal 2004 pledged sales tax revenues provided 1.17x maximum annual debt service (MADS) coverage. For the most recent 12 -month period ending Sept. 30, 2005, sales tax collections generated 1.24x MADS coverage. Pledged sales tax revenues, which have grown by a cumulative 22.5% since 2000, reflect healthy growth. Fiscal 2005 year-to-date sales tax revenues exceed collections for the same period in 2004 by a strong 9.2%. Legal provisions are exceptionally strong due to state statutory requirements, which require that tax receipts can be used solely to pay principal, interest, and administrative fees. Any surplus revenues must be used to redeem bonds before maturity in inverse order of maturity. In fact, the pledged revenue stream's strong performance will allow for the early amortization of the series 2002 sales and use tax bonds. Management expects the series 2005B bonds, which mature in 2018, to be redeemed by 2014. A debt service reserve funded at 5% of the principal amount outstanding being financed from bond proceeds provides additional bondholder security. The additional bonds test requires that pledged sales tax revenues provide a minimum 1.25x MADS coverage. City officials will use bond proceeds to refund series 2004 sales and use tax capital improvement bonds outstanding and finance the construction of a new • 10 -million -gallons -per -day wastewater treatment plant. Outlook The stable outlook reflects Fayetteville's stable and expanding economy and Standard & Poor's expectation that the pledged sales tax revenue stream will provide solid debt service coverage in the future and rapid principal retirement. Economy University of Arkansas, the city's leading employer with about 2,867 employees, as well as a student enrollment of about 17,800, and the poultry industry anchor Fayetteville's economy. University officials are projecting student enrollment to increase to 20,000 by 2010. City officials estimate population growth at 3% annually. Additional leading employers include: • Pinnacle Foods Corp.; • Tyson Foods Inc., which produces its entree and Mexican food lines in the city; • Wal-Mart Stores Inc.; and • Superior Industries International Inc. Property tax base growth, which has increased by an average of 15% annually since 1994, has been healthy. The university has been undergoing a $642 million capital improvement program (CIP) over the past several years. Commercial and residential construction activity remains strong; nearly $165 million in building permits were issued in 2004. A Sam's Club store is currently • Under construction with an expected opening date in 2006; city officials expect the store to increase sales tax collections. CIP Fayetteville currently owns a single wastewater treatment plant, and it contracts privately for the plant's operation. The plant, which has a capacity of 12 million gallons per day (mgd), is designed to meet the city's needs through 2005. Service area population growth and excess wet -weather flows have resulted in the city's need to increase its wastewater system's capacity. The city completed a comprehensive CIP that identified the necessary system upgrades, expansions, and replacements to meet the service area's needs for a 20 -year design period. The $178 million CIP includes the construction of additional sewer interceptor lines, force mains and pump stations, renovations to the existing wastewater treatment plant, and the construction of a new 10- mgd wastewater treatment plant. This issuance will fund the construction of a new 10-mgd wastewater treatment plant and other wastewater infrastructure improvements. The construction of the second wastewater treatment facility is scheduled to begin in the first quarter of 2006 with projected completion in the third quarter of 2008. Officials have previously funded roughly $59 million of total project costs with the issuance of the city's series 2002 and 2004 sales and use tax bonds. Management plans to finance the remaining CIP costs through the issuance of bonds secured by the city's water and sewer system revenues and state soil and water conservation loans. • n Published by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. Executive offices: 1221 Avenue of the Americas, New York, NY 10020. Editorial offices: 55 Water Street, New York, NY 10041. Subscriber services: (1) 212-438-7280. Copyright 2005 by The McGraw-Hill Companies, Inc. Reproduction in whole or in part prohibited except by permission. All rights reserved. Information has been obtained by Standard & Poor's from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Standard & Poor's or others, Standard & Poor's does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or the result obtained from the use of such information. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. • LJ • 4768 1. Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A — Wastewater Treatment: An ordinance authorizing the issuance and sale of the City's not to exceed (1) $27,000,000 of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and (2) $65,000,000 of Sales and Use Tax Capital Improvement Bonds, Series 2005B, for the purpose of Refunding the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, and 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 Trust Indenture pursuant to which the Series 2005 Bonds will be issued and secured; authorizing the execution and delivery of an Official Statement pursuant to which the Series 2005 Bonds will be offered; authorizing the execution and delivery of a Bond Purchase Agreement providing for the sale of the Series 2005 Bonds; authorizing the execution and delivery of a Continuing Disclosure Agreement; authorizing the execution and delivery of an Escrow Deposit Agreement providing for the Defeasance and Redemption of the Series 20( • • • BOND PURCHASE AGREEMENT EXECUTION COPY November 3, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. 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 (i) $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $27,165,790.95 (equal to the par amount of the Series 2005A Bonds plus a net reoffering premium of $341,290.95 and less underwriter's discount of $175,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date (hereinafter defined), and (ii) $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase Price," and together with the 2005A Purchase Price, the "Purchase Price") of $44,900,946.35 (equal to the par amount of the Series 2005B Bonds plus a net reoffering premium of $193,446.35 and less underwriter's • discount of $292,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date. 4843-9700-4288.2 • The Series 2005 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. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by MBIA Insurance Corporation contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. 4768 of the City which was adopted by the City Council on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). • The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), (iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds, and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, (ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds, and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the "Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Series 2004 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 Series 2005 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 4843-9700-4288.2 2 • (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 2005 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 2005 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 27, 2005, relating to the Series 2005 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 "Rule"). 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 November 3, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. • 4843-9700-4288.2 3 • 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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) 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 2005 Bonds, and (viii) 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 • 2005 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. (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 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 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 Series 2005 • 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 4843-97004288.2 4 • 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, • the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843-9700-4288.2 5 • (j) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (1) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 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 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. • 4843-9700-4288.2 (b) . Section 3(d) (ii) 25 days information condition ar request. Prior to the earlier of (i) receipt of notice from the Underwriter pursuant to hereof that final Official Statements are no longer required under the Rule or after the Closing Date, the City shall provide the Underwriter with such regarding the City, Sales and Use Tax receipts, and the current financial id ongoing operations of the City, all as the Underwriter may reasonably 6. Closing. At 10:00 a.m. Fayetteville, Arkansas time on November 29, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 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 Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 • 2005 Bonds; or 4847-97004288.2 7 • (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-9700-4288.2 • 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 2005 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 Series 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall • have occurred, nor shall any development involving a prospective and material adverse 4843-97004288.2 9 • 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; • (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by MBIA Insurance Corporation ("MBIA"), together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of "AA-", which ratings shall be in effect as of the Closing Date; (9) The surety bond for deposit in the Series 2005A Account of the • Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for deposit in the Series 2005B Account of the Debt Service Reserve Fund (the 4843-9700-4288.2 10 • "2005B Surety Bond"), each issued by MBIA, together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in • any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 Bonds as provided in this Bond Purchase Agreement, and to carry out and consummate all other transactions contemplated by this Bond Purchase 4843.9700-4288.2 11 • Agreement, the Authorizing Ordinance, the Election 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; (x) to the best of his knowledge, no event affecting 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; . (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the . Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory 4843-9700-4288.2 12 • 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 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 Series 2005 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. is 4843-9700-4288.2 13 • 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case, any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees 4843-9700-4288.2 14 • charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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. Non assign ability. 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 2005 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: Authorize Representative Accepted and agreed to as of 3q. ° p.m. on the date first above written: CITY OF FAYETTEVILLE, ARKANSAS • ny: nY.J^ Title: Mayor 4843-9700-4288.2 15 • EXHIBIT A MATURITY SCHEDULE $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $4,415,000 3.500% 3.150% 100.343% 2006 1,975,000 3.150% 3.150% 100.000% 2007 5,940,000 4.000% 3.250% 101.444% 2007 800,000 3.250% 3.250% 100.000% 2008 6,110,000 4.000% 3.350% 101.843% 2008 900,000 3.350% 3.350% 100.000% 2009 6,260,000 4.000% 3.450% 102.041% 2009 600,000 3.450% 3.450% 100.000% $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2009 $ 430,000 4.000% 3.450% 102.041% 2010 6,655,000 4.000% 3.650% 101.587% 2010 925,000 3.650% 3.650% 100.000% 2011 7,430,000 4.000% 3.800% 101.064% 2011 455,000 3.800% 3.800% 100.000% 2012* 8,200,000 4.000% 4.000% 100.000% 2013* 8,530,000 4.000% 4.000% 100.000% 2014* 8,870,000 4.000% 4.000% 100.000% 2015 3,505,000 4.000% 4.000% 100.000% (with accrued interest on all Bonds from November 15, 2005) • * Mandatory sinking fund redemption. 4843-9700-4288.2 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 , 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§14-164-301 et seq. (as from time to time amended, the • "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4843-9700-4288.2 B-1 • 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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: . 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 4843-97004288.2 B-2 • 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds • and the enforceability of the Series 2005 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, 4843-9700-4288.2 B-3 • EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November , 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds • Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: • 4843-9700-4288.2 C-1 (a) An executed counterpart of the Bond Purchase Agreement dated • November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and (e) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "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 MATTERS," 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: 1. 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 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 4843-9700-4288.2 C-2 • 5. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 6. The issuance of the Series 2005 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 2004 (the "Series 2004 Bonds"), and will not cause the Series 2004 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 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, I 4843-9700-4288.2 C-3 MBVA • Capital Strength. Triple -A Performance. VIA COURIER November 8, 2005 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mbia.com REOE rvraD NOV 092005 CITY OF FAYEF 1 zVILLE Steve Davis MAYOR'S OFFICE City of Fayetteville 1 13 W. Mountain Fayetteville, Arkansas 72701 RE: $27,000,000 City of Fayetteville, Arkansas. Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use "fax Capital Improvement Bonds, Series 2005B Dear Mr. Davis: Enclosed please find the following documents for the referenced issues: Two revised Commitments for the Financial Guaranty Insurance Policy (the °a' p "Policy") and two revised Commitments for the Debt Service Reserve Fund Surety Bond (the "Surety Bond"). Please execute each document and return one of the original Commitments for the Policy and the Surety Bond to our offices in the enclosed self-addressed stamped envelope. The second set of original Commitments should be retained for your files: 2. Disclosure language and a form of the Financial Guaranty Insurance Policy (the "Policy") for inclusion in the Official Statement; 3. A form of our Statement of Insurance for printing on the Obligations; and 4. A form of our "Payments Under the Policy/Other Required Provisions" for inclusion in your authorizing document. In the event the authorizing document is completed prior to choosing MBIA as the insurer, please have the Issuer and Paying Agent sign the attached "Schedule A". Please note that all of the conditions to the Commitment must be met prior to the Policy being released by MBIA. All materials and questions regarding the conditions should be directed to the attention of Karen Wagner, whose direct dial telephone number is (914) 765-3213. I • November 8, 2005 Steve Davis City of Fayetteville Page Two In addition, under no circumstances should any changes be made to Items 2, 3 and 4, nor should any other versions of these materials be used on any financing unless you have direct confirmation from MBIA as to the acceptability of such changes. Confirmation regarding items 2 and 3 may come only from our Documentation and Closing Department or our Legal Department and may be written or verbal. Confirmation regarding item 4 should come from Karen Wagner. Since the responsibility for this information remains with us, please send us drafts prior to the printing of any of these documents for our approval. The following payments will be due at the closing of the issue. The premium payments in the amount of .224% of total debt service and 1.6% of total surety bond amount, for the Policy and Surety Bond, respectively, should be wired to MBIA's account number 910-2-721728 at JP Morgan Chase Bank, New York, New York on the day of closing. Chase's ABA number is 021000021. MBIA's claims paying ability is rated triple A by Fitch IBCA, Inc., Moody's Investors Service and the Standard and Poor's Rating Group. Inquiries related to ratings on • transactions, fees and billing matters should be addressed to the appropriate rating agency. We would like to thank you for sending a copy of the final debt service schedule for this issue. We would also appreciate receiving three copies of the final Official Statement and three executed unbound copies of the closing transcripts within 60 days of the closing. Thank you for your cooperation concerning these matters. If you have any questions, please contact our offices. Sincerely, Sandra R. Lisanti Associate Documentation and Closing Dept. Phone: (914) 765-3651 Fax: (914) 765-3161/3162 Sandra.Lisanti@mbia.com fl /LABIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-004 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville; Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the • following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $36,000 [1.6% @remium rate) of $2,250,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain • any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. CITY i By: Title: r L • WV —1W • (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms • Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category by A.M. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, MBIA • available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: I • (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-003 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the • following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $22,000 [1.6% (premium rate) of $1,350,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain • any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. A1BIA 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. CITY OF FAYUTTEVILLE By: Title: • 0 AlBIA • (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms • Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category by A.M. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, • there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, AIBIA • available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: • CI (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-002 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $130,000 [.224% (premium rate) of $58,156,168.17 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. • 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; and b. List of Permissble Investments for Indentured Funds. Dated this 8th day of November, 2005. • MBIA ance Co o ation By Assistant Secretary CITY By: Title: • ►A A Lu j VA I • GENERAL DOCUMENT PROVISIONS E. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. F. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. G. Supplemental Legal Document. If the basic legal document provides fora supplemental legal document to be issued for reasons other than (I) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. H. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: • 5. the issuer/obligor fails to pay principal when due; 6. the issuer/obligor fails to pay interest when due; 7. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 8. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: 7. Cash 8. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 9. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 10. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 11. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. M8IA • 12. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. g. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership h. Farmers Home Administration (FmHA) Certificates of beneficial ownership i. Federal Financing Bank j. General Services Administration Participation certificates k. U.S. Maritime Administration Guaranteed Title XI financing I. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing • notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. • /LABIA C LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates • 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title X1 financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A -I" or better by S&P. I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of • the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A-1" or "A" or better by S&P. L. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. • MBIA 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (I) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity • a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. • MBIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-001 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the • Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $67,000 [.224% (premium rate) of $29,697,586.94 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. /LABIA 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; b. List of Permissible Investments for Indentured Funds; and c. Standard Conditions for Refunding. • Dated this 8th day of November, 2005. CITY OF FAYETTEVILLE By: Title: • MB1A I GENERAL DOCUMENT PROVISIONS A. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. B. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. C. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than (1) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. D. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: . I. the issuer/obligor fails to pay principal when due; 2. the issuer/obligor fails to pay interest when due; 3. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 4. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: I. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIORS and similar securities 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry • form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. AIBIA 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. CI AIBIA LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (Fml-IA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates • 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations MBIA 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, AaI or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAW. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A -l" or better by S&P. I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of • the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - 1" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. K. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. • G:1= F- 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (I) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer batik or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: • a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. • /LABIA STANDARD CONDITIONS FOR REFUNDINGS A. Receipt by the Insurer of the final debt service schedule on the issue within three business days from the sale date. B. Receipt, satisfactory review and subsequent oral approval by the Insurer at least ten days in advance of closing of draft copies of: 1. a verification by an independent CPA firm of the sufficiency of the escrow to timely retire the refunded bonds; 2. the escrow securities purchase contracts of SLG subscription forms or open market confirmations; and, 3. the escrow agreement Final and signed copies of all the above documents to be sent via overnight mail from closing. An independent CPA firm is defined as a licensed CPA firm acting at arms length of the transaction on behalf of the bondholders. It may not be the underwriter, bond counsel or financial adviser for the refunding issue. The firm must carry errors and omissions insurance. The Insurer reserves the right to review the provider of the verification on a deal by deal basis. C. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel (or Special Tax Counsel) to the effect that the refunding bonds are being issued in compliance with state law and that the interest on the refunding bonds is tax-exempt. D. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel stating that the refunded bonds have been legally defeased. (This condition is only applicable in those situations where the refunding issue is legally defeasing the refunded issue.) Final executed copies of items C and D to be sent via overnight mail. E. If the escrow agreement allows for the substitution of securities in the escrow account, then it should be provided in the escrow agreement that no such substitution may occur unless there has first been delivered to the escrow agent/trustee, (I) a CPA verification that the escrow investments, as substituted, are sufficient to pay debt service, as it becomes due, on the refunded bonds and (2) an opinion of nationally recognized bond counsel to the effect that the substitution is permitted under the documents and the substitution has no adverse effect on the tax-exempt nature of the refunding bonds. See 2 above for the definition of an independent CPA. F. Escrow investments must be limited to: 1. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- "SLGS"). 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities. 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. • 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing • notes and bonds G. If a forward supply contract is being executed in conjunction with the refunding (or subsequent to the closing of the refunding transaction), the following conditions must also be met: 1. The Insurer must review and approve the forward supply contract at least five business days prior to closing (or after closing, at least five business days prior to execution if not contemplated at the time of closing). 2. The forward supply contract must provide by its terms that the securities delivered under the forward supply are sufficient (when taken with other funds remaining in the escrow) as to amount and timeliness to retire the refunded bonds. 3. The Insurer requires an opinion from a nationally recognized bankruptcy counsel that the securities in escrow and payments to owners of refunded bonds will not constitute assets of the forward supply contract supplier and will not be subject to automatic stay in the event of bankruptcy and/or insolvency of the supplier. 4. The supplier of the securities delivered under the forward supply contract must affirm in the contract that it has no rights to or interest in the monies or securities held in the escrow. 5. The escrow agent must be acceptable to the insurer. The Insurer reserves the right to replace the escrow agent for cause. 6. See 6 above for investments permitted under the forward supply contract. Investments must be non -callable. 7. The supplier should have no right to substitute the original escrow securities. The supplier may substitute securities previously delivered by the supplier under the forward supply contract only if: rii tifl a. The substituted securities mature on a date that is later than the previously delivered securities would have matured; and b. The substituted securities mature prior to the date needed to pay principal and/or interest on the bonds. 8. Two days before each delivery date for the forward supply securities, the escrow agent must notify the Insurer in writing of the securities to be delivered, the maturity amount of the securities and the maturity date. 9. The forward supply contract cannot be amended or modified without the Insurer's written consent. • I NAME OF ISSUER • SERIES DESCRIPTION CERTIFICATE RE: MBIA INSURANCE POLICY SCHEDULE `A' This Certificate of MBIA Insurance Policy (the "Certificate") is furnished by the City of as issuer (the "Issuer") of its $ General Obligation Bonds, dated (the "Bonds"), and , as paying agent under the Bonds (the "Paying Agent"). This Certificate is furnished for use by MBIA Insurance Corporation ("MBIA") in connection with its issuance of a municipal bond insurance policy No. (the "Policy"), which Policy shall guarantee the payment of the principal and interest on the Bonds when due. The Issuer and the Paying Agent hereby certifies as follows: I. The parties acknowledge receipt and review of MBIA's "Payments Under the Policy" provisions with respect to the Policy, all as more particularly set forth in Schedule A attached hereto and made a part hereof. 2. The parties hereby agree, during the term of the Policy and to the best of their abilities, to abide by the terms, obligations, and provisions required by MBIA as set forth in Schedule A hereto. IN WITNESS WHEREOF, we have executed this Certificate as of the _ day of , as Issuer as Paying Agent By: Director of Finance 0 By: Authorized Officer FINANCIAL GUARANTY AGREEMENT • FINANCIAL GUARANTY AGREEMENT made as of [CLOSING DATE], by and between [ISSUER] (the "Issuer") and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state of New York. WITNESSETH: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terms of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more fully set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows: ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the tams and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and term thereof shall be subject to and limited by the terms and conditions of the Surety Bond. Section 1.03. Premium In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason. Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of the Insurer's special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE II REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expanses Indemnification (a) The Issuer will reimburse the Insurer, within the Reimbursement Period, without demand or notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. (b) The Issuer also agrees to reimburse the insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in • connection with the Surety Bond and the enforcement by the Insurer of the Issuer's obligations under this Agreement, the Doc unent, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the Insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply with the covenants or conditions of this Agreement or (ii) reliance by the Insurer upon representations made by the Issuer or (iii) a default by the Issuer under the terms of the Document or any other documents executed in connection with the issuance of the Obligations. (d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available funds at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the Insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not to exceed the Surety Bond Limit); and third, upon full reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments; Instruments of Further Assurance. To the extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instnunent, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the issuer hereby grants to the his = a security interest in or lien on, as the case maybe, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The Issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other further instruments as may be required by law or as shall reasonably be requested by the Insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03: Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (b) any exchange, release or nonperfection of any security interest in property securing the • Obligations or this Agreement or any obligations hereunder, or (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection • with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated orunliquidated. Section 2.05. Insurer's Rights. The issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Quarterly Reports. The Issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fund balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the insurer, (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year, • (c) Access to Facilities, Books and Records. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and upon reasonable notice all books and records relative to the project financed by the Obligations; and (d) Compliance Certificate. On an annual basis the Issuer will provide to the Insurer a certificate confimming compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the • Obligations. ARTICLE III AMENDMENT'S TO DOCUMENT So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Document or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder. (a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by the Issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or (d) Except as otherwise provided in this Section 4.01, the Issuer shall fail to perform any of its other obligations under the Document, or any other document executed in connection with the • issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or (e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief • under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (t) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property, and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days. Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the Issuer to the Insurer under the Document or any related instnnment, and any obligation, agreement or covenant of the issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. In addition, if an Event of Default shall occur due to the failure to pay to the insurer the amounts due under Section 1.03 hereof, the Insurer shall have the right to cancel the Surety Bond in acconlance with its terms. All rights and remedies of the Insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. • ARTICLE V SETTLEMENT The insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the Insurer's decision thereon, if made in good faith, shall be final and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by anofficer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or • equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Issuer and the Insurer. • The Issuer hereby agrees that upon the written request of the Paying Agent, the Insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The insurer agrees to deliver to the Issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surly bond. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the Insurer and their respective successors and assigns; provided, that the issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond. The Issue's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to • the Issuer's request and in reliance on the Issuer's promise to execute this Agreement. Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: if to the Issuer. [ISSUER] [STREET ADDRESS] [CITY, STATE ZIP] Attention: [PERSON AT ISSUER] If to the Paying Agent: [PAYING AGENT] Attention: Corporate Trust Officer If to the Insurer: MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 6.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. • Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instr unent. Complete counterparts of this Agreement shall be lodged with the Issuer and the Insurer. Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render • unenforceable any other provision hereof. Section 6.13. Survival of Obli agtions. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. [ISSUER] By. Title: MBIA Insurance Corporation President Attest: Assistant Secretary CI • ANNEX A • DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. IPOLICY NO.] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of [NAME OF ISSUER] (the "Issuer") under the (TITLE OF THE DOCUMENT] (the "Document") to [NAME OF PAYING AGENT], (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of [TITLE OF THE OBLIGATIONS] (the "Obligations"), provided, that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed [a: FIXED COVERAGE [Dollar Amount of Coverage] or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] or Ib: VARIABLE COVERAGE the annual amount set forth for the applicable bond year on Exhibit A attached hereto (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] 1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The • term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c%o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article I1 of the Financial Guaranty Agreement dated the date hereof between the Insurer and the [ISSUER OR OBLIGOR] (the "Financial Guaranty Agreement"); provided, [ANNUAL PREMIUM OPTION: that no premium is due and unpaid on this Surety Bond and] that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. • 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. • 6. The term of this Surely Bond shall expire [ANNUAL PREMIUM OPTION: ,unless cancelled pursuant to paragraph 9 hereof,] on the earlier of (i) [MATURITY DATE] (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. [OPTIONAL FIRST SENTENCE: This Surety Bond shall be governed by and interpreted under the laws of the State of (STATE)]. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within [I or 3 years] after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the pan of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. [NOS. 9 and II are OPTIONAL] 9. Subject to the terms of the Document, the Issuer shall have the right, upon 30 days prior written notice to the Insurer and the Paying Agent, to terminate this Surety Bond. In the event of a failure by the Issuer to pay the premium due on this Surety Bond pursuant to the terms of the Financial Guaranty Agreement, the Insurer shall have the right upon [No. of days] days prior written notice to the Issuer and the Paying Agent to cancel this Surety Bond. No Demand for Payment shall be made subsequent to such notice of cancellation unless payments are due but shall not have been so paid in connection with the Obligations. 10. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. 11. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. • In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this [DATE] day of [MONTH,YEAR]. MBIA INSURANCE CORPORATION President Assistant Secretary SB-DSRF-9-[STATE CODE] 4/95 • EXHIBIT A Surety Bond No. [POLICY NO] Bond Year Maximum Annual Debt Service 20 to 20 $ 20 to 20 $ 20 to 20 $ • • Attachment I Surety Bond No. (POLICY NO.] DEMAND FOR PAYMENT ,20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The [Debt Service Reserve Fund Requirement] for the Obligations is $ (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its • s Attachment 2 Surety Bond No. [POLICY NO] NOTICE OF REINSTATEMENT ,20 [Paying Agent] [Address] Reference is made to the Surety Bond No. [POLICY NO] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article 11 of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ s MBIA Insurance Corporation President Attest: Assistant Secretary • ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forms of such terms. "Agreement" means this Financial Guaranty Agreement. "Closing Date" means [CLOSING DATE], 20 "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment 1. "Document" means [DOCUMENT]. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement. "hisrrer" has the same meaning as set forth in the first paragraph of this Agreement. "Issuer" means [ISSUER]. "Obligations" means [LEGAL TITLE OF ISSUE]. "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose. "Paying Agent" means [PAYING AGENT]. "Premium" means [PREMIUM) payable to the Insurer on or prior to the Closing Date "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of x following such Surety Bond Payment "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, N.A., New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. "State" means [STATE]. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document "Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit "Surety Bond Limit" means [SURETY BOND LIMIT]. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by the issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalf of • the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment. ANNEX C COMMITMENT [To be provided.] CI • STANDARD FORM FOR MBIA DISCLOSURE FOR OFFICIAL STATEMENTS ]June 30, 2005] [The section entitled "The MBIA Insurance Corporation Insurance Policy" is for use in public finance transactions] The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix _ for a specimen of MBIA's policy [(the "Policy")] MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading [" "]. Additionally, MBIA makes no representation regarding the [Bonds/Securities] or the advisability of investing in the [Bonds/Securities]. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the [Issuer] to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the [Bonds/Securities] as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the [Bonds/Securities] pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any [Bonds/Securities]. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of [Bonds/Securities] upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the [Bonds/Securities] resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the [Bonds/Securities]. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a [Bond/Security] the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or • its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such [Bonds/Securities] or presentment of such other proof of ownership of • the [Bonds/Securities], together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the [Bonds/Securities] as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the [Bonds/Securities] in any legal proceeding related to payment of insured amounts on the [Bonds/Securities], such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such [Bonds/Securities], less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. . MBIA Insurance Corporation M131A Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA • is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. • The above ratings are not recommendations to buy, sell or hold the [Bonds/Securities], and such ratings may be subject to revision or withdrawal at any time by the rating agencies_ Any downward revision • or withdrawal of any of the above ratings may have an adverse effect on the market price of the [Bonds/Securities]. MBIA does not guaranty the market price of the [Bonds/Securities] nor does it guaranty that the ratings on the [Bonds/Securities] will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005 MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31; 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form I0 -Q or Annual Report on Form 10-K, and prior to the termination of the offering of the [Bonds/Securities] offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's • Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's web site at http://www.sec_gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices. STD • DEBT SERVICE RESERVE FUND SURETY BOND • Application has been made to the MBIA Insurance Corporation (the "Insurer") for a commitment to issue a surety bond (the "Debt Service Reserve Fund Surety Bond"). The Debt Service Reserve Fund Surety Bond will provide that upon notice from the Paying Agent to the Insurer to the effect that insufficient amounts are on deposit in the Debt Service Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the 2000 Obligations, the Insurer will promptly deposit with the Paying Agent an amount sufficient to pay the principal of and interest on the 2000 Obligations or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety Bond, duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the insurer with the Paying Agent which have not been reimbursed by the City. The City and the Insurer have entered into a Financial Guaranty Agreement dated [ (the "Agreement"). Pursuant to the Agreement, the City is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Paying Agent under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Fund and the Debt Service Fund have been made. Under the terms of the Agreement, the Paying Agent is required to reimburse the Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to the General Fund. 1) optional redemption of Obligations may be made until the Insurer's Debt Service Reserve Fund Surety Bond is .,instated. The Debt Service Reserve Fund Surety Bond will be held by the Paying Agent in the Debt Service Reserve Fund and is provided as an alternative to the City depositing funds equal to the Debt Service Requirement for outstanding Obligations. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to Maximum Annual Debt Service for the Obligations and the premium therefor will be fully paid by the City at the time of delivery of the Obligations. r FINANCIAL GUARANTY INSURANCE POLICY • MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/IRUSTEE] or its successor (the 'Paying Agent") of an amount equal to () the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date ofsuch principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking find payment, the payments guaranteed anteed hereby shall be made in such amounts and at such lines as such payments of principal would have been due had dire not been any such acceleration, unless the Insurer elects, in its sole discretion, to pay in whole or in pant any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankniptcy law. The amounts referred to in chases (i) and (i) of the preceding sentence shall be referred to herein collectively as the 'Insured Amounts." "Obligations" shall mean: [PAR] [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confined in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the hnuer fiumn the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or resentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The tam owner shall not include the Issuer or any party whose agreement with the Issue constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTIi, YEAR]. MBIA Insurance Corporation Presiders--- t ` %off • Assistant Secretary SIi1R-7 01/05 STATEMENT OF INSURANCE OMBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy ng on file at [INSERT NAME OF TRUSTEE OR PAYING AGENT INCLUDING CITY STATE[. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [INSERT NAME OF TRUSTEE OR PAYING AGENT] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [INSERT LEGAL TITLE OF BONDS. CENTERED AS FOLLOWS: I$ PAR AMOUNT] [ISSUER] (DESCRIPTION OF BONDS] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, ichever is later, will make a deposit of funds, in an account with.U.S. Bank Trust National Association, in New York, New rk, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment 'of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This, policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION TD -R-2 PAYMENTS UNDER THE POLICY/OTHER REQUIRED PROVISIONS A in the event that, on the second Business Day, and again on the Business Day, prior to the payment date on the Obligations, the Paying trrnutee has riot received sufficient moneys to pay all principal of and interest on the Obligations due on the second following or following, as the case be, Business Day, the Paying Agem/rmstee shall immediately notify the Insurer or its designee on the same Business Day by. telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency. B. If the deficiency is made up in whole or in part prior to or on the payment date, the Paying Agent/I}ustee shall so notify the Insurer or its designhee. C. in addition, if the Paying Agent/fustee has notice that any Bondholder has been required to disgorge payments of principal or interest on the Obligations to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable bankruptcy laws, then the Paying Agent/trustee shall notify the Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. D. The Paying Agent/Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney -in -fact for Holders of the Obligations as follows: I. If and to the extent there is a deficiency in amounts required to pay interest on the Obligations, the Paying Agent/rnstee shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under the Policy (the "Insurance Paying Agent/rnstee"), in form satisfactory to the Insurance Paying Agent/Trustee, an instrument appointing the Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the insurer, (b) receive as designee of the respective Ilolders (and not as Paying Agent/Trustee) in accordance with the tenor of the Policy payment from the Insurance Paying Agent'Tmstee with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and 2. If and to the extent of a deficiency in amounts required to pay principal of the Obligations, the Paying Agent/Pnistee shall (a) execute and deliver to the Insurance Paying Agent/I'nstee in form satisfactory to the hsirance Paying Agcnt/fnhstee an instrument appointing the Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Obligation surrendered to the Insurance Paying Agent/fnstee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Paying Agent/Trustee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent/Trustee is received), (b) receive as designee of the respective Holders (and not as Paying Agent/fnhstee) in • accordance with the tenor of the Policy payment therefor from the insurance Paying Agent/fnstee, and (c) disburse the same to such Holders. E. Payments with respect to claims for interest on and principal of Obligations disbursed by the Paying Agent/Trustee from proceeds of the Policy shall not be considered to discharge the obligation of the Issuer with respect to such Obligations, and the Insurer shall become the owner of such unpaid Obligation and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. F. Irrespective of whether any such assignment is executed and delivered, the Issuer and the Paying Agent/Trustee hereby agree for the benefit of the Insurer that I. They recognize that to the extent the insurer makes payments, directly or indirectly (as by paying through the Paying AgenuTmace), on account of principal of or interest on the Obligations, the usurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Issuer, with interest thereon as provided and solely from the sources stated in this indenhttre and the Obligations; and 2. They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (u) of the first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Obligation, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Obligations to Holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest. G. In connection with the issuance of additional Obligations, the Issuer shall deliver to the Insurer a copy of the disclosure document, if any, circulated with respect to such additional Obligations. H. Copies of any amendments made to the documents executed in connection with the issuance of the Obligations which are consented to by the Insurer shall be sent to Standard & Poa's Corporation 1. The usurer shall receive notice of the resignation or removal of the Paying Agent/Trustee and the appointment ofa successor thereto. .1. The Insurer shall receive copies of all notices requ'ved to be delivered to Bondholders and, on an annual basis, copies of the Issuer's audited financial statements and Annual Budget Notices: Any notice that is required to be given to a holder of the Obligation or to the Paying Agent/rmstee pursuant to the Indenture shall also be •ded to the Insurer. All notices required to be given to the Insurer under the Indenture shall be in writing and shall be sent by registered or certified mail to MBIA insurance Corporation, 113 King Street, Armonk, New York 10504 Attention: Surveillance. IC The Issuer/Obligor agrees to reimburse the insurer immediately and unconditionally upon demand, to the extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the Insurer in connection with (i) the enforcement by the Insurer of the Issuer's /Obligor's obligations, or the preservation or defense of any rights of the Insurer, under this Resolution/Indenture and any other document executed in correction with the issuance of the Obligations, and (ii) any consent, amendment, waiver or other action with respect to the Resolution/Indenture or any related docta»eat, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date ofpayment at Citibank's Prone Rate plus 3% or the maximum interest rate pefmitted by law, whichever is less. In addition, the Insurer reserves the right to charge a fee lion with its review of any such consent, amendment or waiver, whether or not granted or approved L The Issuer/Obligor agrees not to use the Insur&s name in any public document including, without limitation, a press release or prey ntatwn, annan ceruem or foram without the Insure's prior consent provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public docmnents issued in connection with the current Obligations to be issued in accordance with the terms of the Conrrnitme nt and provided fintther such pmhubition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requi cents. M. The Issuer /Obligor shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to with Bonds are tendered orpurchased for any purpose other than the redemption and cancellation or legal defeasance of such Bonds without the prior written consent of MBIA. Revised 4/04 • • November 8, 2005 Steve Davis City of Fayetteville Page Two In addition, under no circumstances should any changes be made to Items 2, 3 and 4, nor should any other versions of these materials be used on any financing unless you have direct confirmation from MBIA as to the acceptability of such changes. Confirmation regarding items 2 and 3 may come only from our Documentation and Closing Department or our Legal Department and may be written or verbal. Continuation regarding item 4 should come from Karen Wagner. Since the responsibility for this information remains with us, please send us drafts prior to the printing of any of these documents for our approval. The following payments will be due at the closing of the issue. The premium payments in the amount of .224% of total debt service and 1.6% of total surety bond amount, for the Policy and Surety Bond, respectively. should be wired to MBIA's account number 910-2-721728 at .1P Morgan Chase Bank, New York, New York on the day of closing. Chase's ABA number is 021000021. MBIA's claims paying ability is rated triple A by Fitch IBCA, Inc., Moody's Investors Service and the Standard and Poor's Rating Group. Inquiries related to ratings on transactions, fees and billing matters should be addressed to the appropriate rating agency. • We would like to thank you for sending a copy of the final debt service schedule for this issue. We would also appreciate receiving three copies of the final Official Statement and three executed unbound copies of the closing transcripts within 60 days of the closing. Thank you for your cooperation concerning these matters. If you have any questions, please contact our offices. I Sincerely, Sandra R. Lisanti Associate Documentation and Closing Dept. Phone: (914) 765-3651 Fax: (914)765-3161/3162 Sandra.Lisanti@mbia.com • MBIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-001 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYEYFEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21. 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and • conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $67,000 [.224% (premium rate) of $29,697,586.94 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain • any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. J,I 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. II. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; b. List of Permissible Investments for Indentured Funds: and c. Standard Conditions for Refunding. • Dated this 8th day of November, 2005. MBIA In urance Co pci ration Bki y Assistant Secretary CITY OF FAYETTEVILLE By: Title: • I' GENERAL DOCUMENT PROVISIONS A. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. B. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. C. Supplemental Legal Document. If the basic legal document provides fora supplemental legal document to be issued for reasons other than (I) ) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. D. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: • I. the issuer/obligor fails to pay principal when due; 2. the issuer/obligor fails to pay interest when due; 3. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 4. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: I. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however. the • issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FniHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing • notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. • U,1 :]1y LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities arc only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housimz Administration Debentures (FHA) 5. General Services Administration Participation certificates • 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") • Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial batiks, savings and loan associations or mutual savings banks. The collateral must be held by a third patty and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A -I" or better by S&P. 1. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of • the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. K. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. r1 7 C • 2. The written repo contract must include the following' a. Securities which are acceptable for transfer are: (])Direct U.S. governments, or (2) Federal agencies backed by the bill faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (1) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security finn under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If. however, the securities used as collateral are FNMA or FFILMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: • a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. I.:I=3.I41 STANDARD CONDITIONS FOR REFUNDINCS A. Receipt by the Insurer of the final debt service schedule on the issue within three business days from the sale date. B. Receipt, satisfactory review and subsequent oral approval by the Insurer at least ten days in advance of closing of draft copies of: 1. a verification by an independent CPA firm of the sufficiency of the escrow to timely retire the refunded bonds; 2. the escrow securities purchase contracts of SLG subscription forms or open market confirmations; and, 3. the escrow agreement Final and signed copies of all the above documents to be sent via overnight mail from closing. An independent CPA firm is defined as a licensed CPA firm acting at arms length of the transaction on behalf of the bondholders. It may not be the underwriter, bond counsel or financial adviser for the refunding issue. The firm must carry errors and omissions insurance. The Insurer reserves the right to review the provider of the verification on a deal by deal basis. C. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel (or Special Tax Counsel) to the effect that the refunding bonds are being issued in • compliance with state law and that the interest on the refunding bonds is tax-exempt. D. Receipt by the insurer at least five business days prior to closing of a draft opinion from Bond Counsel stating that the refunded bonds have been legally defeased. (This condition is only applicable in those situations where the refunding issue is legally defeasing the refunded issue.) Final executed copies of items C and D to be sent via overnight mail. E. If the escrow agreement allows for the substitution of securities in the escrow account, then it should be provided in the escrow agreement that no such substitution may occur unless there has first been delivered to the escrow agent/trustee, (1) a CPA verification that the escrow investments, as substituted, are sufficient to pay debt service, as it becomes due, on the refunded bonds and (2) an opinion of nationally recognized bond counsel to the effect that the substitution is permitted under the documents and the substitution has no adverse effect on the tax-exempt nature of the refunding bonds. See 2 above for the definition of an independent CPA. F. Escrow investments must be limited to: I. Cash 2. U.S. Treasury Certificates. Notes and Bonds (including State and Local Government Series -- "SLGS"). 3. Direct obligations of the Treasury which have been stripped 6y the Treasury itself, CATS, TIGRS and similar securities. 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. • 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. CI 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (Pmt IA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (1 -IUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing • notes and bonds G. If a forward supply contract is being executed in conjunction with the refunding (or subsequent to the closing of the refunding transaction). the following conditions must also be met: 1. The Insurer must review and approve the forward supply contract at least five business days prior to closing (or after closing, at least five business days prior to execution if not contemplated at the time of closing). 2. The forward supply contract must provide by its terms that the securities delivered tinder the forward supply are sufficient (when taken with other funds remaining in the escrow) as to amount and timeliness to retire the refunded bonds. 3. The Insurer requires an opinion from a nationally recognized bankruptcy counsel that the securities in escrow and payments to owners of refunded bonds will not constitute assets of the forward supply contract supplier and will not be subject to automatic stay in the event of bankruptcy and/or insolvency of the supplier. 4. The supplier of the securities delivered under the forward supply contract must affirm in the contract that it has no rights to or interest in the monies or securities held in the escrow. 5. The escrow agent must be acceptable to the Insurer. The Insurer reserves the right to replace the escrow agent for cause. 6. See 6 above for investments permitted under the forward supply contract. Investments must be non -callable. 7. The supplier should have no right to substitute the original escrow securities. The • supplier may substitute securities previously delivered by the supplier under the forward supply contract only if: `I:; a. The substituted securities mature on a date that is later than the previously delivered securities would have matured; and b. The substituted securities mature prior to the date needed to pay principal and/or interest on the bonds. 8. Two days before each delivery date for the forward supply securities, the escrow agent must notify the Insurer in writing of the securities to be delivered, the maturity amount of the securities and the maturity date. 9. The forward supply contract cannot be amended or modified without the Insurer's written consent. • • MBIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-003 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: • 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $22,000 [1.6% (premium rate) of $1,350,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. • 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. MaIA 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November. 2005. MBIA s ranee Cor oration By f!rtJ: L'Ass stant'Secret ry CITY OF FAYETTEVILLE By: Title: • • MQIA • (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms • Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moodv's and if rated by A.M. Best & Company, must also be rated in the highest rating category by AM. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. • If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, I'Ia3IEI • • available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (I) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 ABIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-002 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the • Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $130,000 [.224% (premium rate) of $58,156,168.17 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or • documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. AIBIA 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or fonim without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; and b. List of Permissble Investments for Indentured Funds. Dated this 8th day of November, 2005. • MB nsuran ce or oration Assistant Secretary CITY OF FAYETTEVILLE By: Title: • /LABIA Ll GENERAL DOCUMENT PROVISIONS E. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. F. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. G. Supplemental Leeal Document, If the basic legal document provides for a supplemental legal document to be issued for reasons other than (I) ) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. FI. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: • 5. the issuer/obligor fails to pay principal when due; 6. the issuer/obligor fails to pay interest when due; 7. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 8. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity tinder the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: 7. Cash 8. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 9. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 10. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 11. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the • issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. AIQIA 12. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. g. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership h. Farmers Home Administration (Fm HA) Certificates of beneficial ownership i. Federal Financing Bank j. General Services Administration Participation certificates k. U.S. Maritime Administration Guaranteed Title XI financing I. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing • notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. • LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FFIA) 5. General Services Administration Participation certificates • 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title X1 financing 8. U.S. Department of 1 -lousing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FflLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") • Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations TT Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2. B. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are filly insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A -I" or better by S&P. 1. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of • the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. L. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. I. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. • A1131A 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (])Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (1) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral arc FNMA or FFILMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: • a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. • MBIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-004 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $2.250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 clays of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the • following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $36,000 [1.6% (premium rate) of $2,250,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. • 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. A.IC] V41 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. MB) urance GC oration ff Assistant Secretary CITY OF FAYETTEVILLE By: Title: • • MBIA • (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. 1-lowever, in all cases. the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms • Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category by Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment. any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond. and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements. there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. • If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, • • available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (I) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses. including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 • STANDARD FORM FOR MBIA DISCLOSURE FOR OFFICIAL STATEMENTS [June 30, 2095j (The section entitled "The MBIA Insurance Corporation Insurance Policy" is for use in public finance transactions] The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA') for use in this Official Statement. Reference is made to Appendix _ for a specimen of MBIA's policy [(the "Policy")] MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading [" "]. Additionally, MBIA makes no representation regarding the [Bonds/Securities] or the advisability of investing in the [Bonds/Securities]. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the [Issuer] to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the [Bonds/Securities] as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other • than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the [Bonds/Securities] pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any [Bonds/Securities]. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of [Bonds/Securities] upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the [Bonds/Securities] resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the [Bonds/Securities]. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a [Bond/Security] the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which arc then due. Upon • presentment and surrender of such [Bonds/Securities] or presentment of such other proof of ownership of • the [Bonds/Securities], together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the [Bonds/Securities] as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the [Bonds/Securities] in any legal proceeding related to payment of insured amounts on the [Bonds/Securities], such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such [Bonds/Securities], less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. M131A has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA • is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates_ The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. the above ratings are not recommendations to buy, sell or hold the [Bonds/Securities], and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision • • or withdrawal of any of the above ratings may have an adverse effect on the market price of the [Bonds/Securities]. MBIA does not guaranty the market price of the [BOnds/Securities] nor does it guaranty that the ratings on the [Bonds/Securities] will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005 MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form I 0-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at htip://www.rnbia.com and at no cost, upon request to MBIA at its principal executive offices. • Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (I) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form I0 -Q or Annual Report on Form 10-K, and prior to the termination of the offering of the [Bonds/Securities] offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (I) the • Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's • Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's web site at huix//www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at hitp://www.mbia.com; and (iv) at no cost, upon request to MI3IA at its principal executive offices. STD r1 • • DEBT SERVICE RESERVE FUND SURETY BOND Application has been made to the MBIA Insurance Corporation (the "Insurer") for a commitment to issue a surety bond (the "Debt Service Reserve Fund Surety Bond"). The Debt Service Reserve Fund Surety Bond will provide that upon notice from the Paying Agent to the insurer to the effect that insufficient amounts arc on deposit in the Debt Service Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the 2000 Obligations, the Insurer will promptly deposit with the Paying Agent an amount sufficient to pay the principal of and interest on the 2000 Obligations or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety 13ond, duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts which arc then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the insurer with the Paying Agent which have not been reimbursed by the Civ.. The City and the Insurer have entered into a Financial Guaranty Agreement dated [ ] (the "Agreement"). Pursuant to the Agreement, the City is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Paying Agent under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Fund and the Debt Service Fund have been made. Under the terms of the Agreement, the Paying Agent is required to reimburse the Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to the General Fund. •No optional redemption of Obligations may be made until the Insurer's Debt Service Reserve Fund Surety Bond is reinstated. The Debt Service Reserve Fund Surety Bond will be held by the Paying Agent in the Debt Service Reserve Fund and is provided as an alternative to the City depositing funds equal to the Debt Service Requirement for outstanding Obligations. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to Maximum Annual Debt Service for the Obligations and the premium therefor will be fully paid by the City at the time of delivery of the Obligations. I • FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees toy owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/TRUSTEE] or its successor (the "Paying Agent") elan amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that tens is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of mane iry pursuant to a mandatory sinking find payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects, in its sole discretion, to pay in whole or in pan any principal due by reason of such acceleration); and (i) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court ofcompetent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (i) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [PAR] [LEGAL NAME OF ISSUE[ Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, •or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof ofownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of die Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Batik Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of die Insured Amounts due on such Obligations, Tess any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. 'Ibis policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, die temp "owner' shall mean die registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any sent of process on the Insurer may be made to the insurer at its offices located at 1) 3 King Street, Armonk, New York 10504 and such service: of process shall be valid and binding. This policy is non -cancellable for arty reason. The premium on this policy is not refundable for any reason including die payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONIN,YEAR]. MBIA Insurance Corporation President4 • Assistant Secretary SIDR-7 01.05 STATEMENT OF INSURANCE • MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at [INSERT NAME OF TRUSTEE OR PAYING AGENT. INCLUDING CITY. STATE]. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [INSERT NAME OF TRUSTEE OR PAYING AGENT] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due dale of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in pan any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [INSERT LEGAL TITLE OF BONDS, CENTERED AS FOLLOWS] IS PAR AMOUNT] ISSUER (DESCRIPTION OF BONDS] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment of within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with. U.S. Bank Trust National Association, in New York, New • York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment ,of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION STD -R-2 • PAYMENTS UNDER THE POLICY/OTHER REQUIRED PROVISIONS A. In the event that, on the second Business Day, and again on the Business Day, prior to die payment date on the Obligation& the Paying AgentfTrustee has not received sufficient moneys to pay all principal of :and interest on the Obligations due on the second following or following as the case may be, Business Day, the Paying Agent/Trustee shall immediately notify the Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered orcertified mail, of die amount oldie deficiency. B. If the deficiency is made up in whole or in pan prior to or on die payment date, die Paying Agent/Trustee shall so notify die Insurer or its designee. C. In addition, if the Paying Agent/rrustee has notice that any Bondholder has been required to disgorge payments of principal or interest on the Obligations to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable bankruptcy laws, then the Paying AgenvTmstee shall notify die Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. D. The Paying Agent/Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney -in -fact for Holders of die Obligations as follows: I. If and to the extent there is a deficiency in amounts required to pay interest on the Obligations, die Paying Agent/fnstee shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under the Policy (die "Insurance Paying Agemlrmstee"), in form satisfactory to the Insurance Paying Agent/Trustee, an instrument appointing die Insurer as agent for such Holders in my legal proceeding related to the payment of such interest and an assignment to die insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective Holders (arid not as Paying Agent/rrustee) in accordance with die tenor of die Policy payment from the Insurance Paying Agent/Trustee with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and 2. If and to die extent of a deficiency in amounts required to pay principal of the Obligations, die Paying Agent/fnstee shall (a) execute and deliver to the Insurance Paying Agent/Tmstee in form satisfactory to the Insurance Paying Agent?mstee an instrument appointing the Insurer as agent for such holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of die Obligation surrendered to the Insurance Paying Agent/Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Paying AgentTfnstee and available for such payment (but such assignment shall be delivered only if payment fiom the Insurance Paying AgentlTmstee is received), (b) receive as designee of the respective Holders (and not as Paying Agent/fnstee) in • accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent/Trustee, and (c) disburse the same to such Holders. E Payments with respect to claims for interest on and principal of Obligations disbursed by the Paying Agent/Tnstee from proceeds of the Policy shall not be considered to discharge the obligation of the Issuer with respect to such Obligations, and the Insurer shall become the owner of such unpaid Obligation and claims for die interest in accordance with the tenor of die assignment made to it under the provisions of this subsection or otherwise. F. Ines esp active of whether any such assignment is executed and delivered, the Issuer and the Paying Agent/Trustee hereby agree for die benefit of the Insurer that: I. They recognize that to the extent the Insurer makes payments, direcdy or indirectly (as by paying through die Paying Agent/Trustee), on account of principal of or interest on the Obligations, die Insurer will be subrogated to die rights of such Holders to receive the amount of such principal and interest from the Issuer, with interest thereon as provided and solely from die sources stated in this Indenture and the Obligations; and 2. Huey will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of die first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Obligation, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Obligations to Holders, and will otherwise treat the Insurer as die owner of such rights to the amount of such principal and interest. G. In connection with the issuance of additional Obligations, the Issuer shall deliver to die Insurer a copy of die disclosure document, if any, circulated with respect to such additional Obligations. H. Copies of any amendments made to the documents executed in connection with the issuance of the Obligations which are consented to by the usurer shall be sent to Standard & Poors Corporation I. The Insurer shall receive notice of the resignation or removal of die Paving Agent/Trustee and the appointment ofa successor thereto. I. The Insurer shall receive copies of all notices required to be delivered to Bondholders and, on an annual basis, copies of the Issuer's audited financial statements and Annual Budget. Notices: Any notice that is required to be given to a holder of the Obligation or to die Paying Agent/frustee pursuant to the hndentune shall also be provided to die Insurer. All notices required to be given to the Insurer under the Indenture shall be in writing and shall be set by registered or certified mail addressed to MBIA Insurance Corporation, 1 1 3 King Street, Armonk New York 10504 Attention: Surveillance. K. The Issuer/Obligor agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted bylaw, for all .reasonable expenses, including attorneys' fees and expenses, incurred by the Insurer in connection with (i) the enforcement by the Insurer er of the Issuer's /Obligor's obligations, or the preservation or defense of any rights of the Insurer, under this Resolution/Indenturc and any other document executed in connection with die issuance of the Obligation& and (ii) my consent, amendment, waiver or other action with respect to the ResolutionMdennre or my related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment •at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, the hazier reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved L The issuer/Obligor agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the hsurefs name stall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commiunent; and provided further such prohibition shall not apply to the use of die Insurer's name in order to comply with public notice, public meeting or public reporting requirements. M. The Issuer /Obligor shall not enter into any agreeinent nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purpose other than die redemption and cancellation or legal defeasance of such Bonds without the prior written consent of MBIA Revisal 4/04 • r -I L J • NAME OF ISSUER SERIES DESCRIPTION CERTIFICATE RE: MBIA INSURANCE POLICY SCHEDULE 'A' This Certificate of MBIA Insurance Policy (the "Certificate") is furnished by the City of as issuer (the "Issuer") of its $ General Obligation Bonds, dated (the "Bonds"), and , as paying agent under the Bonds (the "Paying Agent"). This Certificate is furnished for use by MBIA Insurance Corporation ("MBIA") in connection with its issuance of a municipal bond insurance policy No. (the "Policy"), which Policy shall guarantee the payment of the principal and interest on the Bonds when due. The Issuer and the Paying Agent hereby certifies as follows: I. The parties acknowledge receipt and review of MBIA's "Payments Under the Policy" provisions with respect to the Policy, all as more particularly set forth in Schedule A attached hereto and made a part hereof. 2. The parties hereby agree, during the term of the Policy and to the best of their abilities, to abide by the terms, obligations, and provisions required by MBIA as set forth in Schedule A hereto. IN WITNESS WHEREOF, we have executed this Certificate as of the _ day of • as Issuer as Paying Agent By: Director of Finance • By: Authorized Officer 01 tlY Ym� F F E OUC • mmm Op F F 35! m 33 • FINANCIAL GUARANTY AGREEMENT FINANCIAL GUARANTY AGREEMENT made as of [CLOSING DATE], by and between [ISSUER] (the "Issuer") and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state of New York. WITNESSETH: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terns of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more fully set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows: ARTICLE I • DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and term thereof shall be subject to and limited by the terns and conditions of the Surety Bond. Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason. Section 1.04. Certain Other Expenses. The issuer will pay all reasonable fees and disbursements of the Insurer's special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE II REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses; Indemnification. (a) The Issuer will reimburse the insurer, within the Reimbursement Period, without demand or notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. [1 • (b) The Issuer also agrees to reimburse the insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the Insurer of the issuer's obligations under this Agreement, the Document, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) ofthis Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent pennittexl by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the Insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply with the covenants or conditions of this Agreement or (ii) reliance by the Insurer upon representations made by die Issuer or (iii) a default by the issuer under the terms of the Document or any other documents executed in connection with the issuance of die Obligations. (d) The Issuer agrees that all amounts owing to the insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available finds at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by die Insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the insurer first, toward payment of any unpaid premium; second, toward repayment of die aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of die Surety Bond Coverage to die extent of such repayment (but not to exceed the Surety Bond Limit); and third, upon full reinstatement of the Surety Bond Coverage to the • Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments; Instruments of Further Assurance. To die extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instrument, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the Issuer hereby grants to the Insurer a security interest in or lien on, as the case may be, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other thither instruments as may be required by law or as shall reasonably be requested by the Insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of: (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder, or • • (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidatod. Section 2.05. Insurers Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Ouarterly Reports. The Issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fund balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the Insurer, (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year; (c) Access to Facilities, Books and Records. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and upon reasonable notice all books and records relative to the project financed by the Obligations; and (d) Compliance Certificate. On an annual basis the Issuer will provide to the Insurer a certificate confirming compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the • Obligations. ARTICLE III AMENDMENTS TO DOCUMENT So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Document or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by the Issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or (d) Except as otherwise provided in this Section 4.01, the Issuer shall fail to perform any of its other obligations under the Document, or any other document executed in connection with the issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or • • (e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment ofa receiver, trustee, custodian, sequestator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (1) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) die appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property, and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days. Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the Issuer to the Insurer under the Document or any related instrument, and any obligation, agreement or covenant of the Issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. In addition, if an Event of Default shall occur due to the failure to pay to the Insurer the amounts due under Section 1.03 hereof, die Insurer shall have the right to cancel the Surety Bond in accordance with its terms. All rights and remedies of the insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. • ARTICLE V SETTLEMENT The Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the Insurer's decision thereon, if made in good faith, shall be final and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE Vi MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any • other or further action in any circumstances without notice or demand. • Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Issuer and the Insurer. The Issuer hereby agrees that upon the written request of the Paying Agent, the insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the tarns of die Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The Insurer agrees to deliver to the issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond. Section 6.04. Successors and Assigns; Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and die Insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without die prior written consent of the Insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Issuer to enforce this Agreement, and "die Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond. The lssuees liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. Section 6-07- Waiver. The issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to • the issuer's request and in reliance on the Issuer's promise to execute this Agreement. Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: If to the Issuer. [ISSUER] [STREET ADDRESS] [CITY, STATE ZIP] Attention: [PERSON AT ISSUER] If to the Paying Agent: [PAYING AGENT] Attention: Corporate Trust Officer If to the Insurer: MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 6.10. Governing Law. This Agreement and the rights and obligations of die parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Issuer and die Insurer. • Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 6.13. Survival of Obligations. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. [ISSUER] By. _ Title: MBIA Insurance Corporation President Attest: Assistant Secretary • 0 ANNEX A DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. [POLICY NO.] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of [NAME OF ISSUER] (the "Issuer") under the [TITLE OF THE DOCUMENT) (the "Document") to [NAME OF PAYING AGENT), (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of [TITLE OF THE OBLIGATIONS] (the "Obligations"), provided, that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed [a: FIXED COVERAGE [Dollar Amount of Coverage] or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] or [b: VARIABLE COVERAGE the annual amount set forth for the applicable bond year on Exhibit A attached hereto (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] 1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The • term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid lelecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surely Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article 11 of the Financial Guaranty Agreement dated the date hereof between the Insurer and the [ISSUER OR OBLIGOR] (the "Financial Guaranty Agreement"); provided, [ANNUAL PREMIUM OPTION: that no premium is due and unpaid on this Surety Bond and] that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the dale the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. • 5. Any service of process on the insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. 6. The term of this Surety Bond shall expire [ANNUAL PREMIUM OPTION: .unless cancelled pursuant to paragraph 9 hereof,] on the earlier of (i) LMATURITY DATE] (the maturity date of the Obligations being currently issued), or (ii) the dale on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. [OPTIONAL FIRST SENTENCE: This Surety Bond shall be governed by and interpreted under the laws of the State of (STATE)]. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within [I or 3 years] after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment; or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the insurer a Demand for Payment pursuant to the leans of this Surety Bond, whichever is earlier. [NOS. 9 and II are OPTIONAL] 9. Subject to (lie terms of the Document, the Issuer shall have the right, upon 30 days prior written notice to the Insurer and the Paving Agent, to terminate this Surety Bond. In the event of a failure by the Issuer to pay the premium due on this Surety Bond pursuant to the terms of the Financial Guaranty Agreement, the Insurer shall have the right upon [No. of days] days prior written notice to the issuer and the Paying Agent to cancel this Surety Bond. No Demand for Payment shall be made subsequent to such notice of cancellation unless payments are due but shall not have been so paid in connection with the Obligations. 10. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. II. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. • In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this [DATE] day of [MONTI-I,YEAR]. MBIA INSURANCE CORPORATION President Assistant Secretary SB-DSRF-9-[STATE CODE] 4/95 L A CI EXHIBIT A Surety Bond No. [POLICY NO.] Bond Year Maximum Annual Debt Service 20 to 20 $ 20 to 20 $ 20 to 20 $ Attachment I Surety Bond No. [POLICY NO.] DEMAND FOR PAYMENT 20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the • Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The [Debt Service Reserve Fund Requirement] for the Obligations is $ (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT] By Its • Attachment 2 Surety Bond No. [POLICY NO.] NOTICE OF REINSTATEMENT 20 (Paying Agent] [Address] Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which arc capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article 11 of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ _ 1\IBIA Insurance Corporation President Attest: Assistant Secretary r ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forms of such terms. "Agreement" means this Financial Guaranty Agreement. "Closing Date" means [CLOSING DATE], 20 "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment 1. "Document" means [DOCUMENT]. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement. "Insurer" has the same meaning as set forth in the first paragraph of this Agreement. "Issuer" means [ISSUER]. "Obligations" means [LEGAL TITLE OF ISSUE]. "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose. "Paying Agent" means [PAYING AGENT]. "Premium" means [PREMIUM} payable to the Insurer on or prior to the Closing Date. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of x following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, N.A., New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. "State" means [STATE]. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the issuer ender the Document. "Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit. "Surety Bond Limit" means [SURETY BOND LIMIT]. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by the Issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalf of the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment. • ANNEX C COMMITMENT [To be provided.] KUTAK ROCK LLP ATLANTA CHICAGO • SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE KANSAS CITY THE THREE SISTERS BUILDING 501-975-3000 LOS ANGELES 214 WEST DICKSON STREET FACSIMILE 501-975-3001 OKLAHOMA CITY FAYETTEVILLE, ARKANSAS ]2]01-6221 OMAHA 4]9-9]S-4200 www.kutakrack.com PASADENA RICHMOND November 29, 2005 SCOTTSDALE WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance by the City of Fayetteville, Arkansas (the "City") of (i) its $27,000,000 aggregate principal amount of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) its $45,000,000 aggregate principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds"), and have delivered on this date our approving opinion with respect thereto. All capitalized terms not otherwise defined herein shall have the meanings assigned thereto in such approving opinion. A portion of the proceeds of the Series 2005A Bonds will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), • between the City and the Escrow Trustee, for the purpose of defeasing the City's previously 4820-5868-2624.1 KUTAK ROCK LLP Defeasance Opinion • November 29, 2005 Page 2 issued $35,000,000 aggregate original principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Prior Bonds"). The Prior Bonds were issued by the City 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 (collectively, the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee. This opinion is being delivered in connection with the defeasance of the Prior Bonds pursuant to Article VII of the Prior Indenture. In connection with this opinion, we have examined (i) the Escrow Agreement, (ii) the Prior Indenture, and (iii) the approving opinion of Kutak Rock LLP dated November 16, 2004 (the "Prior Bond Approving Opinion"). For purposes of this opinion, we have also reviewed originals, certified or otherwise identified to our satisfaction, of (a) a certificate of the Escrow Trustee with respect to receipt of proceeds of the Series 2005A Bonds and the receipt of moneys transferred from the bond fund and the debt service reserve fund for the Prior Bonds, all of which moneys were deposited with the Escrow Trustee pursuant to the terms of the Escrow Agreement, and (b) such other documents, opinions, certificates and other items as we have deemed relevant and necessary in rendering this opinion. • It is our opinion, under existing law, that: 1. The issuance of the Series 2005A Bonds and the deposit of a portion of the proceeds thereof with the Escrow Trustee pursuant to the Escrow Agreement to defease the Prior Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Prior Bonds or the Series 2005A Bonds and will not cause the Prior Bonds or the Series 2005A Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. For the purposes of this opinion, we have assumed the continuing exclusion from gross income for federal income tax purposes of the interest on the Prior Bonds. 2. The requirements of Article VII of the Prior Indenture as to the discharge of the lien thereof on the receipts of the Sales and Use Tax have been satisfied, and the lien of the Prior Indenture against the receipts of the Sales and Use Tax has been discharged. Very truly yours, LLP 4820-5868-2624.1 or 1 • KUTAK ROCK LLP ATLANTA CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK. ARKANSAS 72201-3409 IRVINE KANSAS EITY L ANOEL THE THREE SISTERS BUILDING 501-975-3000 LOE S 214 WEST DICKSON STREET CITY 501-975-3001 OKLAHOMA FAr ETTEVILLE. ARKANSAS 72701-5221 OMAHA 4TY-973-4200 www.kutakrock.com PASADENA RICHMOND SCOTTSDALE November 29, 2005 WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4850-9516-2112.1 KUTAK ROCK LLP • Supplemental Opinion November 29, 2005 Page 2 (a) An executed counterpart of the Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; (e) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005A Bonds (the • "2005A Guaranty Agreement), by and between the City and MBIA Insurance Corporation ("MBIA"); (f) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement), by and between the City and MBIA; and (g) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "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 MATTERS," 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: 1. 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. • 4950-9516-2112.1 e I' KUTAK ROCK LLP • Supplemental Opinion November 29, 2005 Page 3 2. 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 5. The 2005A Guaranty Agreement and the 2005B Guaranty Agreement have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by MBIA, the 2005A Guaranty Agreement and the • 2005B Guaranty Agreement constitute valid and binding agreements of the City enforceable in accordance with their terms. 6. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 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 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, at 4950-9516-2112.1 'I KUTAK ROCK LLP ATLANTA • CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DEB MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE KANSAS CITY THE THREE SISTERS BUILDING 501-975-3000 LOS ANGELES 214 WEST DICKSON STREET FACSIMILE 501-975-3001 OKLAHOMA CITY FAV ETTEVILLE. ARKANSAS ]2]01-5221 OMAHA 479-0]B-4200 www.kutakrock.com PASADENA RICHMOND November 29, 2005 SCOTTSDALE WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 • City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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 Rep!. & Supp. 2005) §§14-164-301 et seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, • 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4838-7042-5344.1 KUTAK ROCK LLP •Approving Opinion November 29, 2005 Page 2 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 Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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 any Additional Bonds and any RLF Loans (as such terms are defined in the Indenture) issued hereafter. 4838-7042-5344.1 4• KUTAK ROCK LLP Approving Opinion November 29, 2005 Page 3 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4838-7042-5344.1 KIT WILLIAMS FAYETTEVILLE CITY ATTORNEY AVID J. WHITAKER Assistant City Attorney Judy Housley Office Manager Phone (479) 575-8313 FAX (479) 575-8315 November 29, 2005 Simmons First Trust Company, N.A., as trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York Kutak Rock LLP Little Rock, Arkansas THE CITY OF FAYETTEVILLE. ARKANSAS 113 W. Mountain, Suite 302 Fayetteville, AR 72701-6083 Re: $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A; and • $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B Ladies and Gentlemen: I am counsel to the City of Fayetteville, Arkansas (the "City") and have acted in that capacity in connection with the issuance and sale by the City of its (i) $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Bonds"), which Bonds are being sold pursuant to the terms of a Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between Stephens Inc. and the City. The terms defined in the Bond Purchase Agreement are used in this opinion with the meanings assigned to them in the Bond Purchase Agreement. In this connection, I have reviewed certain documents with respect to the Bonds; and have examined such records, certificates and other documents as I have considered necessary or appropriate for the purposes of this opinion, including Ordinance No. 4327 adopted by the City Council on August 7, 2001 (the "Election Ordinance"), Ordinance No. 4768 adopted by the City Council on October 4, 2005 (the "Bond Ordinance"), the Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"), the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee, the Continuing Disclosure • Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and the Trustee, the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow • Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"), the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005A Bonds,(the "2005A Guaranty Agreement"), the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement"), the Preliminary Official Statement dated October 27, 2005 (the "Preliminary Official Statement"), and the Official Statement dated November 3, 2005 (the "Official Statement") relating to the offering of the Bonds, and. closing certificates of the City. Based on such review and such other considerations of law and fact as I believe to be relevant, I am of the opinion 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 Election Ordinance and the Bond Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Bonds, the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the Bond Purchase Agreement. 2. The City has duly approved the Preliminary Official Statement and the Official Statement. • 3. The Election Ordinance and the Bond 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. 4. The Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the 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. 5. 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 is expressed) is fair, accurate and complete and does not omit any matter which, in my opinion, for the purposes for which the Official Statement is to be used, should be included or referred to therein. 6. 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 Bonds, the Sales and Use Tax, the Election Ordinance, the Bond Ordinance, the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement or the Bond Purchase • Agreement and, to the best of my knowledge, there is no investigation, pending or threatened, 1 • • and no threatened action, suit or proceeding involving any of the matters hereinabove mentioned in this paragraph 6. 7. The adoption of the Election Ordinance and the Bond Ordinance and the execution and delivery of the Indenture, the Tax Regulatory Agreement, the Disclosure Agreement, the. Escrow Agreement, the 2005A Guaranty Agreement, the 2005B Guaranty Agreement and the Bond Purchase Agreement, and compliance with the provisions thereof, under the circumstances contemplated 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. 8. Based upon the examinations which I have made as counsel to the City specified above, nothing has come to my attention which would lead me to believe that the Official Statement (except for financial and statistical data contained or incorporated in the Official Statement, as to which no view is 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. I hereby consent to the references made to me in the Official Statement. • Sincerely, Kit Williams Fayetteville City Attorney 3 BOND PURCHASE AGREEMENT EXECUTION COPY November 3, 2005 City of Fayetteville City Administration Building 113 West Mountain Fayetteville, Arkansas 72701 $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B 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 Indenture defined and described below. This offer is made subject to your acceptance of this Bond Purchase Agreement on or before midnight on the date set forth above. 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 (i) $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), at the purchase price (the "2005A Purchase Price") of $27,165,790.95 (equal to the par amount of the Series 2005A Bonds plus a net reoffering premium of $341,290.95 and less underwriter's discount of $175,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date (hereinafter defined), and (ii) $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"), at the purchase price (the "2005B Purchase Price," and together with the 2005A Purchase Price, the "Purchase Price") of $44,900,946.35 (equal to the par amount of the Series 2005B Bonds plus a net reoffering premium of $193,446.35 and less underwriter's discount of $292,500.00) plus accrued interest, if any, from November 15, 2005, to the Closing Date. The Series 2005 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 Rep!. & Supp. 2005) §§14-164-301 et seq. (the "Act"). The Series 2005 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, (2) moneys or investments on deposit in the Revenue Fund, Bond Fund and Debt Service Reserve Fund established by a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee (the "Trustee"), and (3) policies of municipal bond insurance to be issued by MBIA Insurance Corporation contemporaneously with the issuance and delivery of the Series 2005 Bonds, all as more particularly described in the Indenture. The Series 2005 Bonds shall be issued and secured pursuant to Ordinance No. 4768 of the City which was adopted by the City Council on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to the Indenture. The Series 2005 Bonds shall have the maturities and interest rates as set forth in Exhibit A hereto. The Series 2005 Bonds shall be subject to redemption as set forth in the Indenture and in the Official Statement (hereinafter defined). The proceeds of the Series 2005A Bonds will be utilized (i) to effect an advance refunding of all of the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Series 2004 Bonds"), (ii) to finance a portion of the costs of the Project (as defined in the Indenture), (iii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005A Bonds, (iv) to purchase a policy of municipal bond insurance with respect to the Series 2005A Bonds, and (v) to pay the costs of issuance of the Series 2005A Bonds. The proceeds of the Series 2005B Bonds will be utilized (i) to finance a portion of the costs of the Project, (ii) to purchase a surety bond for deposit in the Debt Service Reserve Fund for the purpose of securing the Series 2005B Bonds, (iii) to purchase a policy of municipal bond insurance with respect to the Series 2005B Bonds, and (iv) to pay the costs of issuance of the Series 2005B Bonds. A portion of the proceeds of the Series 2005A Bonds will be deposited pursuant to an Escrow Deposit Agreement to be dated as of the date of delivery of the Series 2005 Bonds (the "Escrow Agreement"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), and will be held, invested and utilized (along with other available moneys) to redeem the Series 2004 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 Series 2005 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 4843-9700-4288.2 (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 2005 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 2005 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 27, 2005, relating to the Series 2005 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 "Rule"). 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 November 3, 2005, relating to the Series 2005 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. The City ratifies and confirms the use of the Preliminary Official Statement by the Underwriter prior to the date hereof in connection with the public offering of the Series 2005 Bonds. (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. 4843-97004288.2 3 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 2005 Bonds for the purpose of refunding the Series 2004 Bonds and 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 2005 Bonds, (iii) to enter into this Bond Purchase Agreement, the Indenture, the Escrow Agreement, 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 2005 Bonds to the Underwriter as provided herein, (vi) to deposit a portion of the proceeds of the Series 2005A Bonds with the Escrow Trustee pursuant to the Escrow Agreement for the purpose of refunding the Series 2004 Bonds, (vii) 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 2005 Bonds, and (viii) 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 2005 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. (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 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 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 Series 2005 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 4843-9700-4288.2 4 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement or 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 2005 Bonds, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement have been obtained. 4843-9700-4288.2 5 (j) 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 2005 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 2005 Bond financing, or which, in any way, could adversely affect the validity or enforceability of the Authorizing Ordinance, the Election Ordinance, the Series 2005 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 Series 2005 Bonds for federal income tax purposes or in any other way questions the status of the Series 2005 Bonds under federal or State of Arkansas tax laws or regulations. (k) 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. (I) 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. (m) 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. (n) The City will not knowingly take or omit to take any action, which action or omission will in any way cause the proceeds from the sale of the Series 2005 Bonds to be applied in a manner other than as provided in the Indenture, or which would cause the interest on the Series 2005 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 2005 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 2005 Bonds, subject to the right of the City to withdraw such consent for cause by written notice to the Underwriter. 4843-9700-4288.2 6 (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 29, 2005, 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 2005 Bonds, or cause the Series 2005 Bonds to be delivered, to or at the direction of the Underwriter, said Series 2005 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 2005 Bonds by making a wire transfer of federal funds payable to the order of the Trustee for the account of the City. The Series 2005 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 Indenture, the Escrow Agreement, the Continuing Disclosure Agreement and the Tax Regulatory Agreement and the other documents related to the Series 2005 Bonds and the payment for the Series 2005 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 2005 Bonds and simultaneous delivery of the Series 2005 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 2005 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 2005 Bonds or the Series 2005 Bonds, or of causing interest on obligations of the general character of the Series 2005 Bonds, or the Series 2005 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 2005 Bonds; or 4843-9700-4288.2 7 (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 2005 Bonds or of any of the transactions contemplated in connection herewith, including causing interest on the Series 2005 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 2005 Bonds, or the Series 2005 Bonds which, in the opinion of the Underwriter, materially adversely affects the market price of or market for the Series 2005 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 2005 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 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 2005 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 4843-970O7288.2 8 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 2005 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 2005 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 2005 Bonds or obligations of the general character of the Series 2005 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 2005 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 Series 2005 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 Election 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 Series 2005 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 the Sales and Use Tax shall have occurred, nor shall any development involving a prospective and material adverse 4843-97004288.2 9 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 Indenture, the Escrow Agreement, 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) An opinion of Bond Counsel, addressed to the City and the trustee for the Series 2004 Bonds, to the effect that upon deposit of the moneys as described in the Indenture and the Escrow Agreement with the Escrow Trustee, the Series 2004 Bonds will be deemed to be paid and discharged and the lien on the Sales and Use Tax receipts securing the Series 2004 Bonds will be released; (4) The Official Statement executed by a duly authorized officer of the City; (5) Certified copies of the Authorizing Ordinance and all other ordinances and resolutions of the City relating to the Series 2005 Bonds; (6) Photocopies of the Series 2005 Bonds as executed and delivered; (7) The financial guaranty insurance policy with respect to the Series 2005A Bonds (the "2005A Policy") and the financial guaranty insurance policy with respect to the Series 2005B Bonds (the "2005B Policy"), each issued by MBIA Insurance Corporation ("MBIA"), together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (8) A letter or letters from Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., to the effect that the Series 2005 Bonds have been assigned a rating of no less than "AAA" based on the delivery of the 2005A Policy and the 2005B Policy and an underlying rating of "AA-', which ratings shall be in effect as of the Closing Date; (9) The surety bond for deposit in the Series 2005A Account of the Debt Service Reserve Fund (the "2005A Surety Bond") and the surety bond for deposit in the Series 2005B Account of the Debt Service Reserve Fund (the 4843-9700-4288.2 10 "2005B Surety Bond"), each issued by MBIA, together with such supporting certificates of MBIA and an opinion of counsel to MBIA as shall be satisfactory to Bond Counsel; (10) Verification by BKD, LLP, independent certified public accountants, of the mathematical accuracy of computations supporting (i) the adequacy of the maturing principal of and interest on the investment securities deposited under the Escrow Agreement to pay the principal of, redemption premium, if any, and interest on the Series 2004 Bonds, and (ii) the conclusion that the Series 2004 Bonds are not "arbitrage bonds" within the meaning of Section 148(a) of the Internal Code of 1986, as amended; (11) 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 2005 Bonds, the 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 his knowledge after due investigation and inquiry, threatened, to restrain or enjoin the issuance or sale of the Series 2005 Bonds or in any way affecting any authority for or the validity of the Series 2004 Bonds, the Series 2005 Bonds, the Sales and Use Tax, the Official Statement, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory Agreement or this Bond Purchase Agreement; (iv) the Series 2005 Bonds, the Indenture, this Bond Purchase Agreement, the Escrow 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, 2004, 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 2005 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 2005 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 2005 Bonds as provided in this Bond Purchase Agreement, and to carry out and consummate all other transactions contemplated by this Bond Purchase 4843-9700-4288.2 11 Agreement, the Authorizing Ordinance, the Election 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; (x) to the best of his knowledge, no event affecting 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; (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 Election Ordinance, to levy the Sales and Use Tax, and to execute and deliver the Series 2005 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 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 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 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 Series 2005 Bonds, the Sales and Use Tax, the Authorizing Ordinance, the Election Ordinance, the Indenture, the Escrow Agreement, the Continuing Disclosure Agreement, the Tax Regulatory 4843-97004288.2 12 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 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 Series 2005 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. 4843-9700-4288.2 13 -------.- 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 of a material fact contained in the Official Statement or caused by any 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 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 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. In case. any action shall be brought against one or more of the Indemnified Parties based upon the Official Statement and in respect of which indemnity may be sought against the City, the Indemnified Parties shall promptly notify the City in writing, and, to the extent permitted by law, the City shall promptly assume the defense thereof, including the employment of counsel, the payment of all expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless employment of such counsel has been specifically authorized by the City. The City shall not be liable for any settlement of any such action effected without its consent by any of the Indemnified Parties, but if settled with the consent of the City, the City agrees to indemnify and hold harmless the Indemnified Parties to the extent provided in this Bond Purchase Agreement and to the extent permitted by law. 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 2005 Bonds, legal publication costs, charges for obtaining CUSIP numbers on the Series 2005 Bonds, fees payable to The Depository Trust Company relating to the Series 2005 Bonds, Federal Funds charges, costs of printing the Series 2005 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, accountants' fees and expenses, any fees 4843-9700-4288.2 14 charged by investment rating agencies for the rating of the Series 2005 Bonds, bond insurance premiums, if any, fees of the Trustee and Escrow Trustee and any paying agent fees, and any fees and disbursements in connection with the qualification of the Series 2005 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 2005 Bonds, and all other expenses incurred by it in connection with the public offering and distribution of the Series 2005 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 2005 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 Y300 p.m. on the date first above written: CITY OF F,t1YETTEVILLE, ARKANSAS Title: Mayor 4843-9700-4288.2 15 EXHIBIT A MATURITY SCHEDULE $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A (December 1) Principal Interest Maturity Amount Rate Yield Price 2006 $4,415,000 3.500% 3.150% 100.343% 2006 1,975,000 3.150% 3.150% 100.000% 2007 5,940,000 4.000% 3.250% 101.444% 2007 800,000 3.250% 3.250% 100.000% 2008 6,110,000 4.000% 3.350% 101.843% 2008 900,000 3.350% 3.350% 100.000% 2009 6,260,000 4.000% 3.450% 102.041% 2009 600,000 3.450% 3.450% 100.000% $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B (December 1) Principal Interest Maturity Amount Rate Yield Price 2009 $ 430,000 4.000% 3.450% 102.041% 2010 6,655,000 4.000% 3.650% 101.587% 2010 925,000 3.650% 3.650% 100.000% 2011 7,430,000 4.000% 3.800% 101.064% 2011 455,000 3.800% 3.800% 100.000% 2012* 8,200,000 4.000% 4.000% 100.000% 2013* 8,530,000 4.000% 4.000% 100.000% 2014* 8,870,000 4.000% 4.000% 100.000% 2015 3,505,000 4.000% 4.000% 100.000% (with accrued interest on all Bonds from November 15, 2005) * Mandatory sinking fund redemption. 4843-9700-4288.2 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 5 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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. 2005) §§14-164-301 et seq. (as from lime to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4843.9700-4288.2 B-1 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 nature and extent of the security for the Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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). 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 4843-9700-4288.2 B-2 a 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 Series 2005 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 Series 2005 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 Series 2005 Bonds. 7. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4843-9700-4288.2 B-3 EXHIBIT C PROPOSED FORM OF BOND COUNSEL SUPPLEMENTAL OPINION November _, 2005 City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4843-9700-42881 C-1 (a) An executed counterpart of the Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; and (e) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "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 MATTERS," 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: 1. 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 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 4843-9700-4288.2 C-2 5. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 6. The issuance of the Series 2005 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 2004 (the "Series 2004 Bonds"), and will not cause the Series 2004 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 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, 4843-97004288.2 C-3 Ithe McGraw-Hill Companies STANDARD &POOR'S October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North Akard Street Lincoln Plaza, Suite 3200 Dallas, TX 75201 tel 214 871-1402 reference no.: 743812 L l . OCT 272005 c,r.t _ MAYCS Re: US$26,235,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, dated: November 1, 2005, due: December 1, 2010 Dear Mr. Davis: Pursuant to your request for a Standard & Poor's rating on the above -referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA-". Standard & Poor's views the outlook for this rating as stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on Mr. Steve Davis Page 2 October 19, 2005 CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nvoublicfmanceQ),standardandpoors.00m. Thank you for choosing Standard & Poor's and we look forward to working with you again Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosures cc: Mr. Dennis R. Hunt Mr. Gordon M. Wilboum STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To U.S. Public Finance Ratings Request for a rating. Standard & Poor's issues public finance ratings for a fee upon request from an issuer, or from an underwriter, financial advisor, investor, insurance company, or other entity, provided that the obligor and issuer (if different from the obligor) each has knowledge of the request. The term "issuer/obligor" in these Terms and Conditions means the issuer and the obligor if the obligor is different from the issuer. Agreement to Accept Terms and Conditions. Standard & Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard & Poor's public finance rating constitutes agreement tocomply in all respects with the terms and conditions contained herein and in the rating letter and acknowledges the issuer/obligor's understanding of the scope and limitations of the Standard & Poor's rating as stated herein and in the rating letter. Fees and expenses. 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Notwithstanding the foregoing, the paragraphs above, "Standard & Poor's Not an Advisor, Fiduciary, or Expert" and "Limitation on Damages", shall survive the termination of this Agreement or any withdrawal of a rating. Third Parties. Nothing in this Agreement, or the rating when issued, is intended or should be construed as creating any rights on behalf of any third parties, including, without limitation, any recipient of the rating. No person is intended as a third party beneficiary to this Agreement or to the rating when issued. Binding Effect. This Agreement shall be binding on, and inure to the benefit of, the parties hereto and their successors and assigns. Severability. In the event that any term or provision of this Agreement shall be held to be invalid, void, or unenforceable, then the remainder of this Agreement shall not be affected, impaired, or invalidated, and each such term and provision shall be valid and enforceable to the fullest extent permitted by law. Complete Agreement. This Agreement constitutes the complete agreement between the parties with respect to its subject matter. This Agreement may not be modified except in a writing signed by authorized representatives of both parties. Governing Law. This Agreement and the rating letter shall be governed by the internal laws of the State of New York. The parties agree that the state and federal courts ofNew York shall be the exclusive forums for any dispute arising out of this Agreement and the parties hereby consent to the personal jurisdiction of such courts. .. r... n.. .. n... The McGraw Hlll companies - STANDARD &POOR'S October 19, 2005 City of Fayetteville 113 W. Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North Akard Street Lincoln Plaza Suite 3200 Dallas, TX 75201 ' tel 214 871.1402 reference rar: 743820 Re: US$65,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B, dated: November 1, 2005, due: December 1, 2018 Dear Mr. Davis: Pursuant to your request for a Standard & Poor's rating on the above -referenced obligations, we have reviewed the information submitted to us and, subject to the enclosed Terms and Conditions, have assigned a rating of "AA-". Standard & Poor's views the outlook for this rating as, stable. A copy of the rationale supporting the rating is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an "expert" under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933. The rating is not a "market rating" nor is it a recommendation to buy, hold, or sell the obligations. This letter constitutes Standard & Poor's permission to you to disseminate the above -assigned rating to interested parties. Standard & Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard & Poor's relies on the issuer/obligor and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard & Poor's assumes that the documents you have provided to us are final. If any subsequent changes were made in the final documents, you must notify us of such changes by sending us the revised final documents with the changes clearly marked. To maintain the rating, Standard & Poor's must receive all relevant financial information as soon as such information is available. Placing us on a distribution list for this information would facilitate the process. You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on Mr. Steve Davis Page 2 October 19, 2005 CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 Standard & Poor's is pleased to be of service to you. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. If we can be of help in any other way, please call or contact us at nypublicfmance@standardandpoors.com. Thank you for choosing Standard & Poor's and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosures cc: Mr. Dennis R. Hunt Mr. Gordon M. Wilbourn STANDARD &POOR'S Standard & Poor's Ratings Services Terms and Conditions Applicable To U.S. Public Finance Ratings Request for a rating. Standard & Poor's issues public finance ratings for a fee upon request from an issuer, or from an underwriter, financial advisor, investor, insurance company, or other entity, provided that the obligor and issuer (if different from the obligor) each has knowledge of the request. The term "issuer/obligor" in these Terms and Conditions means the issuer and the obligor if the obligor is different from the issuer. Agreement to Accept Terms and Conditions. Standard & Poor's assigns Public Finance ratings subject to the terms and conditions stated herein and in the rating letter. The issuer/obligor's use of a Standard & Poor's public finance rating constitutes agreement to comply in all respects with the terms and conditions contained herein and in the rating letter and acknowledges the issuer/obligor's understanding of the scope and limitations of the Standard & Poor's rating as stated herein and in the rating letter. Fees and expenses. 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Mountain Fayetteville, AR 72701 Attention: Mr. Steve Davis, Finance and Internal Services Director 500 North Akard Street Lincoln Plaa, Suite 3200 Dallas, TX 75201 tet 214 871-1402 reference no.: 40128707 Re: City of Fayetteville, Arkansas, Outstanding Sales and Use Tax Bonds, Various Series Dear Mr. Davis: Standard & Poor's has reviewed the rating on the above -referenced obligations. After such review, we have affirmed the "AA-" rating and stable outlook. A copy of the rationale supporting the rating and outlook is enclosed. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you or by your agents but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. 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You must promptly notify us of all material changes in the financial information and the documents. Standard & Poor's may change, suspend, withdraw, or place on CreditWatch the rating as a result of changes in, or unavailability of, such information. Standard & Poor's reserves the right to request additional information if necessary to maintain the rating. Mr. Steve Davis Page 2 October 19, 2005 Please send all information to: Standard & Poor's Ratings Services Public Finance Department 55 Water Street New York, NY 10041-0003 If you have any questions, or if we can be of help in any other way, please feel free to call or contact us at nypublicfmanceCastandardandpoors.com. For more information on Standard & Poor's, please visit our website at www.standardandpoors.com. We appreciate the opportunity to work with you and we look forward to working with you again. Sincerely yours, Standard & Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. th enclosure r'uoncauon Date: CV-Vtr-Coup Reprinted from RatingsDired City of Fayetteville, Arkansas Primary Credit Analyst Wendy Wipperman, Dallas (1) 214-871-1421; Wendy_wipperman©standardandpoors.com Secondary Credit Analyst Horatio Aldrete-Sanchez. Dallas (1) 214-871-1426; horacio_aldrete@standardandpoors.com Rationale Standard & Poor's Ratings Services assigned its 'AA-' rating, and stable outlook, to Fayetteville, Ark.'s series 2005A sales and use tax refunding.and capital improvement bonds and series 2005B sales and use tax capital improvement bonds. The rating reflects the city's: • Stable economic base, anchored by University of Arkansas; • Strong legal provisions, including a capped lien and mandatory use of surplus sales tax revenues for principal prepayment; • Solid debt service coverage; and • Healthy historical growth of the pledged revenue stream. A pledge of a dedicated 0.75% citywide sales and use tax, which was authorized by the electorate on Nov. 6, 2001, secures the bonds. University of Arkansas and the poultry industry anchor Fayetteville's expanding economy. With a fall 2005 student enrollment of roughly 17,800, the university accounts for about 30% of the city's 2000 U.S. Census population of 58,047. Population growth, which has increased by 38% since 1990, has been solid. Due mainly to the large student population, per capita median income levels are below the nation's 88% average but are higher than the state's 107% average. Per capita retail sales are 91% of the nation's average and an estimated 11% above the state's average. The city's unemployment rate averaged 3.4% in 2005, well below state and national rates. Fiscal 2004 pledged sales tax revenues provided 1.17x maximum annual debt service (MADS) coverage. For the most recent 12 -month period ending Sept. 30, 2005, sales tax collections generated 1.24x MADS coverage. Pledged sales tax revenues, which have grown by a cumulative 22.5% since 2000, reflect healthy growth. Fiscal 2005 year-to-date sales tax revenues exceed collections for the same period in 2004 by a strong 9.2%. Legal provisions are exceptionally strong due to state statutory requirements, which require that tax receipts can be used solely to pay principal, interest, and administrative fees. Any surplus revenues must be used to redeem bonds before maturity in inverse order of maturity. In fact, the pledged revenue stream's strong performance will allow for the early amortization of the series 2002 sales and use tax bonds. Management expects the series 2005B bonds, which mature in 2018, to be redeemed by 2014. A debt service reserve funded at 5% of the principal amount outstanding being financed from bond proceeds provides additional bondholder security. The additional bonds test requires that pledged sales tax revenues provide a minimum 1.25x MADS coverage. City officials will use bond proceeds to refund series 2004 sales and use tax capital improvement bonds outstanding and finance the construction of a new 10 -million -gallons -per -day wastewater treatment plant. Outlook The stable outlook reflects Fayetteville's stable and expanding economy and Standard & Poor's expectation that the pledged sales tax revenue stream will provide solid debt service coverage in the future and rapid principal retirement. Economy University of Arkansas, the city's leading employer with about 2,867 employees, as well as a student enrollment of about 17,800, and the poultry industry anchor Fayetteville's economy. University officials are projecting student enrollment to increase to 20,000 by 2010. City officials estimate population growth at 3% annually. Additional leading employers include: • Pinnacle Foods Corp.; • Tyson Foods Inc., which produces its entree and Mexican food lines in the city; • Wal-Mart Stores Inc.; and • Superior Industries International Inc. Property tax base growth, which has increased by an average of 15% annually since 1994, has been healthy. The university has been undergoing a $642 million capital improvement program (CIP) over the past several years. Commercial and residential construction activity remains strong; nearly $165 million in building permits were issued in 2004. A Sam's Club store is currently under construction with an expected opening date in 2006; city officials expect the store to increase sales tax collections. CIP Fayetteville currently owns a single wastewater treatment plant, and it contracts privately for the plant's operation. The plant, which has a capacity of 12 million gallons per day (mgd), is designed to meet the city's needs through 2005. Service area population growth and excess wet -weather flows have resulted in the city's need to increase its wastewater system's capacity. The city completed a comprehensive CIP that identified the necessary system upgrades, expansions, and replacements to meet the service area's needs for a 20 -year design period. The $178 million CIP includes the construction of additional sewer interceptor lines, force mains and pump stations, renovations to the existing wastewater treatment plant, and the construction of a new 10- mgd wastewater treatment plant. This issuance will fund the construction of a new 10-mgd wastewater treatment plant and other wastewater infrastructure Improvements. The construction of the second wastewater treatment facility is scheduled to begin in the first quarter of 2006 with projected completion in the third quarter of 2008. Officials have previously funded roughly $59 million of total project costs with the issuance of the city's series 2002 and 2004 sales and use tax bonds., Management plans to finance the remaining CIP costs through the issuance of bonds secured by the city's water and sewer system revenues and state soil and water conservation loans. Published by Standard & Poor's, a Division of The McGraw-Hill Companies, Inc Executive offices: 1221 Avenue of the Americas. New York, NY 10020. Editorial offices: 55 Water Street. New York, NY 10041. Subscriber services: (1) 212-438-7280. Copyright 2005 by The McGraw-Hill Companies, Inc. Reproduction in whole or in part prohibited except by permission. All rights reserved. Information has been obtained by Standard & Poor's from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Standard & Poor's or others, Standard & Poor's does not guarantee the aauracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or the result obtained from the use of such information. Ratings are statements of opinion, not statements of fact or recommendations to buy, hold, or sell any securities. The McGraw-Hill Companies 4768 1. Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A — Wastewater Treatment: An ordinance authorizing the issuance and sale of the City's not to exceed (1) $27,000,000 of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A, and (2) $65,000,000 of Sales and Use Tax Capital Improvement Bonds, Series 20058, for the purpose of Refunding the City's outstanding Sales and Use Tax Capital Improvement Bonds, Series 2004, and 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 Trust Indenture pursuant to which the Series 2005 Bonds will be issued and secured; authorizing the execution and delivery of an Official Statement pursuant to which the Series 2005 Bonds will be offered; authorizing the execution and delivery of a Bond Purchase Agreement providing for the sale of the Series 2005 Bonds; authorizing the execution and delivery of a Continuing Disclosure Agreement; authorizing the execution and delivery of an Escrow Deposit Agreement providing for the Defeasance and Redemption of the Series 20( NORTHWEST ARKANSAS OFFICE THE THREE SISTERS BUILDING 214 WEST DICKSON STREET FAYETTEVILLE. ARKANSAS 72701-5221 470-070-4200 City of Fayetteville, Arkansas Fayetteville, Arkansas KUTAK ROCK LLP SUITE 1100 425 WEST CAPITOL AVENUE LITTLE ROCK. ARKANSAS 72201-3409 501-975-3000 FACSIMILE 501-975-3001 www.kutakrock.com November 29, 2005 Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: ATLANTA CHICAGO DENVER DES MOINES FAYETTEVILLE IRVINE KANSAS CITY LOS ANGELES OKLAHOMA CITY OMAHA PASADENA RICHMOND SCOTTSDALE WASHINGTON WICHITA 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 (i) its $27,000,000 Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds") and (ii) its $45,000,000 Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds," and together with the Series 2005A Bonds, the "Series 2005 Bonds"). The Series 2005 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 Rep!. & Supp. 2005) §§14-164-301 er seq. (as from time to time amended, the "Act"), pursuant to Ordinance No. 4768 of the City, duly adopted and approved on October 4, 2005 (the "Authorizing Ordinance"), and pursuant to a Trust Indenture dated as of November 15, 2005 (the "Indenture"), by and between the City and Simmons First Trust Company, N.A., as 4838-7042-5344.1 KUTAK ROCK LLP Approving Opinion November 29, 2005 Page 2 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 Series 2005 Bonds, the rights, duties and obligations of the City, the Trustee and the Holders of the Series 2005 Bonds, and the terms upon which the Series 2005 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: 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 Series 2005 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 Series 2005 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 Series 2005 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 any Additional Bonds and any RLF Loans (as such terms are defined in the Indenture) issued hereafter. 4838.7042-5344.1 KUTAK ROCK LLP Approving Opinion November 29, 2005 Page 3 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 Series 2005 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. & 2005 Supp.) Section 4-9-109(d)(14), the pledge, assignment and security interest in the Sales and Use Tax receipts securing the Series 2005 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 Series 2005 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 Series 2005 Bonds. Failure to comply with such requirements could cause interest on the Series 2005 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2005 Bonds. The City has covenanted to comply with such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Series 2005 Bonds. The interest on the Series 2005 Bonds is exempt from all state, county and municipal taxes in the State of Arkansas. 8. The Series 2005 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 Series 2005 Bonds. It is to be understood that the rights of the registered owners of the Series 2005 Bonds and the enforceability of the Series 2005 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, 4838-7042-5344.1 KUTAK ROCK LLP ATLANTA CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAVETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409 IRVINE TIIE THREE SISTERS BUILDING 501-9]5-3000 KANSAS CITY 214 WEST DICKSON STREET FAVETTEVILLE, ARKANSAS 7 27 01-5 221 FACSIMILE 501-9]5-3001 LOS ANGELES OKLAHOMA CITY 47D -S7 -4200 www.kutakroek.eom OMAHA PASADENA RICHMOND November 29, 2005 SCOTTSDALE WASHINGTON WASHIGTO WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas MBIA Insurance Corporation Armonk, New York $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B Ladies and Gentlemen: This opinion supplements our bond approving opinion, dated the date hereof, relating to the above -captioned bonds (the "Series 2005 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: 4850-9516-2112.1 KUTAK ROCK LLP Supplemental Opinion November 29, 2005 Page 2 (a) An executed counterpart of the Bond Purchase Agreement dated November 3, 2005 (the "Bond Purchase Agreement"), by and between the City and Stephens Inc., as underwriter (the "Underwriter"); (b) An executed counterpart of the Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), by and between the City and Simmons First Trust Company, N.A., as escrow trustee (the "Escrow Trustee"); (c) An executed counterpart of the Continuing Disclosure Agreement dated November 29, 2005 (the "Disclosure Agreement"), by and between the City and Simmons First Trust Company, N.A., as trustee (the "Trustee"); (d) An executed counterpart of the Tax Regulatory Agreement dated November 29, 2005 (the "Tax Regulatory Agreement"), by and between the City and the Trustee; (e) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005A Bonds (the "2005A Guaranty Agreement), by and between the City and MBIA Insurance Corporation ("MBIA"); (f) An executed counterpart of the Financial Guaranty Agreement dated November 29, 2005, with respect to the surety bond for the Series 2005B Bonds (the "2005B Guaranty Agreement), by and between the City and MBIA; and (g) Portions of the Official Statement dated November 3, 2005, with respect to the Series 2005 Bonds (the "Official Statement"), captioned "INTRODUCTORY STATEMENT," "THE SERIES 2005 BONDS," "SECURITY FOR THE BONDS," "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 MATTERS," 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. 4850-9516-2112.1 KUTAK ROCK LLP Supplemental Opinion November 29, 2005 Page 3 2. 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 constitutes the valid and binding agreement of the City enforceable in accordance with its terms. 3. 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. 4. 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. 5. The 2005A Guaranty Agreement and the 2005B Guaranty Agreement have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by MBIA, the 2005A Guaranty Agreement and the 2005B Guaranty Agreement constitute valid and binding agreements of the City enforceable in accordance with their terms. 6. The statements contained in the Official Statement under the Relevant Captions, insofar as such statements purport to summarize certain provisions of the Series 2005 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. 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 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, 1 r otvc at 48509516-2112.1 KUTAK ROCK LLP ATLANTA CHICAGO SUITE 1100 DENVER 425 WEST CAPITOL AVENUE DES MOINES FAYETTEVILLE NORTHWEST ARKANSAS OFFICE LITTLE ROCK, ARKANSAS 72201-3409• IRVINE THE THREE SISTERS BUILDING 501-975-3000 KANSAS CITY 214 WEST DICKSON STREET LOS ANGELES FACSIMILE 501-975-3001 FAYETTEVILLE. ARKANSAS 72701-5221 OKLAHOMA CITY 479-578-4200 www.kutakrock.com OMAHA PASADENA November 29, 2005 RICHMOND WASHINGTON WICHITA City of Fayetteville, Arkansas Fayetteville, Arkansas Simmons First Trust Company, N.A., as Trustee Pine Bluff, Arkansas Stephens Inc. Little Rock, Arkansas 1 11 :111 1111. 1 $27,000,000 City of Fayetteville, Arkansas Sales and Use Tax Refunding and Capital Improvement Bonds Series 2005A and $45,000,000 City of Fayetteville, Arkansas Sales and Use Tax Capital Improvement Bonds Series 2005B T. A :I 11 lII 11' 1 We have acted as Bond Counsel in connection with the issuance by the City of Fayetteville, Arkansas (the "City") of (i) its $27,000,000 aggregate principal amount of Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Series 2005A Bonds"), and (ii) its $45,000,000 aggregate principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Series 2005B Bonds"), and have delivered on this date our approving opinion with respect thereto. All capitalized terms not otherwise defined herein shall have the meanings assigned thereto in such approving opinion. A portion of the proceeds of the Series 2005A Bonds will be deposited with Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as escrow trustee (the "Escrow Trustee"), under an Escrow Deposit Agreement dated November 29, 2005 (the "Escrow Agreement"), between the City and the Escrow Trustee, for the purpose of defeasing the City's previously 48265868-2624.1 KUTAK ROCK LLP Defeasance Opinion November 29, 2005 Page 2 issued $35,000,000 aggregate original principal amount of Sales and Use Tax Capital Improvement Bonds, Series 2004 (the "Prior Bonds"). The Prior Bonds were issued by the City 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 (collectively, the "Prior Indenture"), between the City and Simmons First Trust Company, N.A., Pine Bluff, Arkansas, as trustee. This opinion is being delivered in connection with the defeasance of the Prior Bonds pursuant to Article VII of the Prior Indenture. In connection with this opinion, we have examined (i) the Escrow Agreement, (ii) the Prior Indenture, and (iii) the approving opinion of Kutak Rock LLP dated November 16, 2004 (the "Prior Bond Approving Opinion"). For purposes of this opinion, we have also reviewed originals, certified or otherwise identified to our satisfaction, of (a) a certificate of the Escrow Trustee with respect to receipt of proceeds of the Series 2005A Bonds and the receipt of moneys transferred from the bond fund and the debt service reserve fund for the Prior Bonds, all of which moneys were deposited with the Escrow Trustee pursuant to the terms of the Escrow Agreement, and (b) such other documents, opinions, certificates and other items as we have deemed relevant and necessary in rendering this opinion. It is our opinion, under existing law, that: I. The issuance of the Series 2005A Bonds and the deposit of a portion of the proceeds thereof with the Escrow Trustee pursuant to the Escrow Agreement to defease the Prior Bonds will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Prior Bonds or the Series 2005A Bonds and will not cause the Prior Bonds or the Series 2005A Bonds to be treated as "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended. For the purposes of this opinion, we have assumed the continuing exclusion from gross income for federal income tax purposes of the interest on the Prior Bonds. 2. The requirements of Article VII of the Prior Indenture as to the discharge of the lien thereof on the receipts of the Sales and Use Tax have been satisfied, and the lien of the Prior Indenture against the receipts of the Sales and Use Tax has been discharged. Very truly yours, 4ffio-5868-2624.1 WV 1W FAA Cjpr4 MBIA Insurance Corporation 113 King Street, Armonk, NY 10504 Tel 914-273-4545 www.mhia.com Capital Strength. Triple -A Performance. VIA COURIER RECEIVED November 8, 2005 NOV 0 9 2005 CITY • OF FAYE'i'i EVILLE Steve Davis MAYOR'S OFFICE City of Fayetteville 113 W. Mountain Fayetteville, Arkansas 72701 RE: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B Dear Mr. Davis: Enclosed please find the following documents for the referenced issues: Two revised Commitments for the Financial Guaranty Insurance Policy (the Q1uo ` "Policy') and two revised Commitments for the Debt Service Reserve Fund Surety Bond (the "Surety Bond"). Please execute each document and return one of the original Commitments for the Policy and the Surety Bond to our offices in the enclosed self-addressed stamped envelope. The second set of original Commitments should be retained for your files: 2. Disclosure language and a form of the Financial Guaranty Insurance Policy (the "Policy") for inclusion in the Official Statement; 3. A form of our Statement of Insurance for printing on the Obligations; and 4. A form of our "Payments Under the Policy/Other Required Provisions" for inclusion in your authorizing document. In the event the authorizing document is completed prior to choosing MBIA as the insurer, please have the Issuer and Paying Agent sign the attached "Schedule A". Please note that all of the conditions to the Commitment must be met prior to the Policy being released by MBIA. All materials and questions regarding the conditions should be directed to the attention of Karen Wagner, whose direct dial telephone number is (914) 765-3213. Maus November 8, 2005 Steve Davis City of Fayetteville Page Two In addition, under no circumstances should any changes be made to Items 2, 3 and 4, nor should any other versions of these materials be used on any financing unless you have direct confirmation from MBIA as to the acceptability of such changes. Confirmation regarding items 2 and 3 may come only from our Documentation and Closing Department or our Legal Department and may be written or verbal. Confirmation regarding item 4 should come from Karen Wagner. Since the responsibility for this information remains with us, please send us drafts prior to the printing of any of these documents for our approval. The following payments will be due at the closing of the issue. The premium payments in the amount of .224% of total debt service and 1.6% of total surety bond amount, for the Policy and Surety Bond, respectively, should be wired to MBIA's account number 910-2-721728 at JP Morgan Chase Bank, New York, New York on the day of closing. Chase's ABA number is 021000021. MBIA's claims paying ability is rated triple A by Fitch IBCA, Inc., Moody's Investors Service and the Standard and Poor's Rating Group. Inquiries related to ratings on transactions, fees and billing matters should be addressed to the appropriate rating agency. We would like to thank you for sending a copy of the final debt service schedule for this issue. We would also appreciate receiving three copies of the final Official Statement and three executed unbound copies of the closing transcripts within 60 days of the closing. Thank you for your cooperation concerning these matters. If you have any questions, please contact our offices. Sincerely, aat Sandra R. Lisantt Associate Documentation and Closing Dept. Phone: (914) 765-3651 Fax: (914) 765-3161/3162 Sandra.Lisanti@mbia.com 1ETTZ REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-004 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $36,000 [1.6% (premium rate) of $2,250,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. S. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. FAA] 'd! 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. MBl ance Co o anon By Assistant Secretary CITY OF FA36ETTEVILLE By: Title: MBIA (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and. if rated by A.M. Best & Company, must also be rated in the highest rating category by A.M. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, MBIA available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 AA. . C REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-003 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $22,000 [1.6% (premium rate) of $1,350,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. AIBIA 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. MBIA s ance Cor o tion By E'r Ss`sj T ecret CITY OF FAYFE'FrEVILLE By: Title: MBIA (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category by A.M. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its teens, MBIA available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-002 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $130,000 [.224% (premium rate) of $58,156,168.17 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. MBIA 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; and b. List of Permissble Investments for Indentured Funds. Dated this 8th day of November, 2005. M BIA ance Co o anon By t Assistant Secretary CITY 4FETTEVILLE By: Title: MBIA GENERAL DOCUMENT PROVISIONS E. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. F. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. G. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than (1) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. H. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: 5. the issuer/obligor fails to pay principal when due; 6. the issuer/obligor fails to pay interest when due; 7. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 8. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: 7. Cash 8. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 9. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 10. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 11. Pre -refunded municipal bonds rated "Aria" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. /LABIA 12. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. g. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership h. Farmers Home Administration (FmHA) Certificates of beneficial ownership i. Federal Financing Bank j. General Services Administration Participation certificates k. U.S. Maritime Administration Guaranteed Title XI financing 1. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: 1. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. MBIA LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations MBIA 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A -I" or better by S&P. I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. L. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. MBIA 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (1) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal pinion which must be delivered to the municipal entity: a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-001 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $67,000 [.224% (premium rate) of $29,697,586.94 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; b. List of Permissible Investments for Indentured Funds; and c. Standard Conditions for Refunding. Dated this 8th day of November, 2005. MBIA In ranee C p ration Byffi Assistant Secretary CITY OF FAYETTEVILLE By: Title: /NB1A GENERAL DOCUMENT PROVISIONS A. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. B. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. C. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than (1) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. D. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: I. the issuer/obligor fails to pay principal when due; 2. the issuer/obligor fails to pay interest when due; 3. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 4. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: 1. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. WV -lw IA 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. AIBIA LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title Xl financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations V I =3 IL I 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aa I or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - 1" by Moody's and "A -I" or better by S&P. 1. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. K. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. 1. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. Maya 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (1) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. A MMA STANDARD CONDITIONS FOR REFUNDINGS A. Receipt by the Insurer of the final debt service schedule on the issue within three business days from the sale date. B. Receipt, satisfactory review and subsequent oral approval by the Insurer at least ten days in advance of closing of draft copies of: 1. a verification by an independent CPA firm of the sufficiency of the escrow to timely retire the refunded bonds; 2. the escrow securities purchase contracts of SLG subscription forms or open market confirmations; and, 3. the escrow agreement Final and signed copies of all the above documents to be sent via overnight mail from closing. An independent CPA firm is defined as a licensed CPA firm acting at arms length of the transaction on behalf of the bondholders. It may not be the underwriter, bond counsel or financial adviser for the refunding issue. The firm must carry errors and omissions insurance. The Insurer reserves the right to review the provider of the verification on a deal by deal basis. C. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel (or Special Tax Counsel) to the effect that the refunding bonds are being issued in compliance with state law and that the interest on the refunding bonds is tax-exempt. D. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel stating that the refunded bonds have been legally defeased. (This condition is only applicable in those situations where the refunding issue is legally defeasing the refunded issue.) Final executed copies of items C and D to be sent via overnight mail. E. If the escrow agreement allows for the substitution of securities in the escrow account, then it should be provided in the escrow agreement that no such substitution may occur unless there has first been delivered to the escrow agent/trustee, (I) a CPA verification that the escrow investments, as substituted, are sufficient to pay debt service, as it becomes due, on the refunded bonds and (2) an opinion of nationally recognized bond counsel to the effect that the substitution is permitted under the documents and the substitution has no adverse effect on the tax-exempt nature of the refunding bonds. See 2 above for the definition of an independent CPA. F. Escrow investments must be limited to: 1. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- "SLGS"). 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities. 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. MBIA 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export-import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds G. If a forward supply contract is being executed in conjunction with the refunding (or subsequent to the closing of the refunding transaction), the following conditions must also be met: 1. The Insurer must review and approve the forward supply contract at least five business days prior to closing (or after closing, at least five business days prior to execution if not contemplated at the time of closing). 2. The forward supply contract must provide by its terms that the securities delivered under the forward supply are sufficient (when taken with other funds remaining in the escrow) as to amount and timeliness to retire the refunded bonds. 3. The Insurer requires an opinion from a nationally recognized bankruptcy counsel that the securities in escrow and payments to owners of refunded bonds will not constitute assets of the forward supply contract supplier and will not be subject to automatic stay in the event of bankruptcy and/or insolvency of the supplier. 4. The supplier of the securities delivered under the forward supply contract must affirm in the contract that it has no rights to or interest in the monies or securities held in the escrow. 5. The escrow agent must be acceptable to the Insurer. The Insurer reserves the right to replace the escrow agent for cause. 6. See 6 above for investments permitted under the forward supply contract. Investments must be non -callable. 7. The supplier should have no right to substitute the original escrow securities. The supplier may substitute securities previously delivered by the supplier under the forward supply contract only if: MBIA a. The substituted securities mature on a date that is later than the previously delivered securities would have matured; and b. The substituted securities mature prior to the date needed to pay principal and/or interest on the bonds. 8. Two days before each delivery date for the forward supply securities, the escrow agent must notify the Insurer in writing of the securities to be delivered, the maturity amount of the securities and the maturity date. 9. The forward supply contract cannot be amended or modified without the Insurer's written consent. $ NAME OF ISSUER SERIES DESCRIPTION CERTIFICATE RE: MBIA INSURANCE POLICY SCHEDULE `A' This Certificate of MBIA Insurance Policy (the "Certificate") is furnished by the City of as issuer (the "Issuer") of its $ General Obligation Bonds, dated (the "Bonds"), and , as paying agent under the Bonds (the "Paying Agent"). This Certificate is furnished for use by MBIA Insurance Corporation ("MBIA") in connection with its issuance of a municipal bond insurance policy No. (the "Policy"), which Policy shall guarantee the payment of the principal and interest on the Bonds when due. The Issuer and the Paying Agent hereby certifies as follows: I. The parties acknowledge receipt and review of MBIA's "Payments Under the Policy" provisions with respect to the Policy, all as more particularly set forth in Schedule A attached hereto and made a part hereof. 2. The parties hereby agree, during the term of the Policy and to the best of their abilities, to abide by the terms, obligations, and provisions required by MBIA as set forth in Schedule A hereto. IN WITNESS WHEREOF, we have executed this Certificate as of the _ day of , as Issuer as Paying Agent By: By: Director of Finance Authorized Officer FINANCIAL GUARANTY AGREEMENT FINANCIAL GUARANTY AGREEMENT made as of [CLOSING DATE], by and between [ISSUER] (the "Issuer') and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state of New York. WITNESSETH: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terms of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond,.all as more frilly set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the issuer and the Insurer agree as follows: ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and tern thereof shall be subject to and limited by the terms and conditions of the Surety Bond. Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason. Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of the Insure& special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE II REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses: Indemnification (a) The Issuer will reimburse the Insurer, within the Reimbursement Period, without demand or notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. a (b) The Issuer also agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the Insurer of the issuer's obligations under this Agreement, the Document, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date ofpayment at the rate set forth in subsection (a) of this Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply with the covenants or conditions of this Agreement or (ii) reliance by the Insurer upon representations made by the Issuer or (iii) a default by the Issuer under the terms of the Document or any other documents executed in connection with the issuance of the Obligations. (d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available funds at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not to exceed the Surety Bond Limit); and third, upon full reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments; instnurnents of Further Assurance. To the extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instmrnent, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the Issuer hereby grants to the Insurer a security interest in or lien on, as the case maybe, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other further instruments as may be required by law or as shall reasonably be requested by the Insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03: Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder, or (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated orunliquidated. Section 2.05. Insurers Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Quarterly Reports. The Issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fund balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the Insurer, (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year, • (c) Access to Facilities. Books and Reconis. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and upon reasonable notice all books and records relative to the project financed by the Obligations; and (d) Compliance Certificate. On an annual basis the Issuer will provide to the Insurer a certificate confirming compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the Obligations. ARTICLE ID AMENDMENTS TO DOCUMENT . So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Document or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder. (a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by the Issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instruunent provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or (d) Except as otherwise provided in this Section 4.01, the Issuer shall fail to perform any of its other obligations under the Document, or any other document executed in connection with the issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or (e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (0 An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property, and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shal l continue unstayed and in effect for 30 days. Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the issuer to the Insurer under the Document or any related instrument, and any obligation, agreement or covenant of the Issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners In addition, if an Event of Default shall occur due to the failure to pay to the Insurer the amounts due under Section 1.03 hereof, the Insurer shall have the right to cancel the Surety Bond in accordance with its terms. All rights and remedies of the Insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. ARTICLE V SETTLEMENT The Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the Insurces decision thereon, if made in good faith, shall be final and binding upon the Insurer, the issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on the part of the insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or firther notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Issuer and the Insurer. The issuer hereby agrees that upon the written request of the Paying Agent, the Insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The Insurer agrees to deliver to the Issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond. Section 6.04. Successors and Assigns; Descriptive Headines. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the Insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond The Issuer's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Issuer's request and in reliance on the Issuer's promise to execute this Agreement Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: If to the Issuer. [ISSUER] [STREET ADDRESS] [CITY, STATE ZIP] Attention: [PERSON AT ISSUER] If to the Paying Agent: [PAYING AGENT] Attention: Corporate Taut Officer If to the Insurer. MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 6.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instnrnent Complete counterparts of this Agreement shall be lodged with the.lssuer and the Insurer. Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 6.13. Survival of Obli ag tions. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. [ISSUER] By. Title: MBIA Insurance Corporation President Attest Assistant Secretary DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. [POLICY NO.] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of [NAME OF ISSUER] (the "Issuer') under the [TITLE OF THE DOCUMENT] (the "Document") to [NAME OF PAYING AGENT], (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of[TITLE OF THE OBLIGATIONS] (the "Obligations"), provided, that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed [a: FIXED COVERAGE [Dollar Amount of Coverage) or the debt service reserve find requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may he reinstated from time to time as set forth herein.] or (b: VARIABLE COVERAGE the annual amount set forth for the applicable bond year on Exhibit A attached hereto (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] I. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article II of the Financial Guaranty Agreement dated the date hereof between the Insurer and the [ISSUER OR OBLIGOR] (the "Financial Guaranty Agreement"); provided, [ANNUAL PREMIUM OPTION: that no premium is due and unpaid on this Surety Bond and] that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. 6. The term of this Surety Bond shall expire (ANNUAL PREMIUM OPTION: ,unless cancelled pursuant to paragraph 9 hereof,] on the earlier of (i) [MATURITY DATE] (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. [OPTIONAL FIRST SENTENCE: This Surety Bond shall be governed by and interpreted under the laws of the State of (STATE)]. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within [I or 3 years] after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. [NOS. 9 and II are OPTIONAL] 9. Subject to the terms of the Document, the Issuer shall have the right, upon 30 days prior written notice to the Insurer and the Paying Agent, to terminate this Surety Bond. In the event of a failure by the Issuer to pay the premium due on this Surety Bond pursuant to the terms of the Financial Guaranty Agreement, the Insurer shall have the right upon [No. of days] days prior written notice to the Issuer and the Paying Agent to cancel this Surety Bond. No Demand for Payment shall be made subsequent to such notice of cancellation unless payments are due but shall not have been so paid in connection with the Obligations. 10. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. 11. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this [DATE] day of [MONTH,YEAR]. MBIA INSURANCE CORPORATION President Assistant Secretary SB-DSRF-9-[STATE CODE] 4/95 • EXHIBIT A Surety Bond No. [POLICY NO.] Bond Year Maximum Annual Debt Service 20 to 20 $ 20 to 20 $ 20 to 20 $ Attachment I Surety Bond No. [POLICY NO.] DEMAND FOR PAYMENT 20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Refercnce is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer'). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The [Debt Service Reserve Fund Requirement] for the Obligations is $ (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof. The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT) By Its Attachment 2 Surety Bond No. [POLICY NO_] NOTICE OF REINSTATEMENT ,20 [Paying Agent) [Address] Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ MBIA Insurance Corporation President Attest: Assistant Secretary ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forms of such terms. "Agreement" means this Financial Guaranty Agreement. "Closing Date" means [CLOSING DATE], 20 • "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment I. "Document" means [DOCUMENT J. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement. "Insurer' has the same meaning as set forth in the first paragraph of this Agreement "Issuer' means [ISSUER]. "Obligations" means [LEGAL TITLE OF ISSUE]. "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the issuer or any designee of the Issuer for such purpose. "Paying Agent" means [PAYING AGENT]. "Premium" means [PREMIUM} payable to the Insure on or prior to the Closing Date. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of x following such Surety Bond Payment "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, NA., New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. "State" means [STATE]. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document. "Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit "Surety Bond Limit" means [SURETY BOND LIMIT]. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by the Issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalf of the Issuer, and (ii) other fiords legally available for payment to the Owners, all as certified in a Demand for Payment. STANDARD FORM FOR MBIA DISCLOSURE FOR OFFICIAL STATEMENTS [June 30, 2005] [The section entitled "The MBIA Insurance Corporation Insurance Policy" is for use in public finance transactions] The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix _ for a specimen of MBIA's policy [(the "Policy")] MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading [" "]. Additionally, MBIA makes no representation regarding the [Bonds/Securities] or the advisability of investing in the [Bonds/Securities]. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the [Issuer] to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the [Bonds/Securities] as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the [Bonds/Securities] pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any [Bonds/Securities]. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of [Bonds/Securities] upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the [Bonds/Securities] resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the [Bonds/Securities]_ Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a [Bond/Security] the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such [Bonds/Securities] or presentment of such other proof of ownership of the [Bonds/Securities], together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the [Bonds/Securities] as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the [Bonds/Securities] in any legal proceeding related to payment of insured amounts on the [Bonds/Securities], such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such [Bonds/Securities], less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. ' The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa" Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the [Bonds/Securities], and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the [Bonds/Securities]. MBIA does not guaranty the market price of the [Bonds/Securities] nor does it guaranty that the ratings on the [Bonds/Securities] will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005 MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31; 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the [Bonds/Securities] offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http:/Iwww.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices. STD DEBT SERVICE RESERVE FUND SURETY BOND Application has been made to the MBIA Insurance Corporation (the "Insurer") for a commitment to issue a surety bond (the "Debt Service Reserve Fund Surety Bond"). The Debt Service Reserve Fund Surety Bond will provide that upon notice from the Paying Agent to the Insurer to the effect that insufficient amounts are on deposit in the Debt Service Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the 2000 Obligations, the Insurer will promptly deposit with the Paying Agent an amount sufficient to pay the principal of and interest on the 2000 Obligations or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety Bond, duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the Insurer with the Paying Agent which have not been reimbursed by the City. The City and the Insurer have entered into a Financial Guaranty Agreement dated ] (the "Agreement"). Pursuant to the Agreement, the City is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Paying Agent under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Fund and the Debt Service Fund have been made. Under the terms of the Agreement, the Paying Agent is required to reimburse the Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to the General Fund. No optional redemption of Obligations may be made until the Insurer's Debt Service Reserve Fund Surety Bond is reinstated. The Debt Service Reserve Fund Surety Bond will be held by the Paying Agent in the Debt Service Reserve Fund and is provided as an alternative to the City depositing funds equal to the Debt Service Requirement for outstanding Obligations. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to Maximum Annual Debt Service for the Obligations and the premium therefor will be fully paid by the City at the time of delivery of the Obligations. FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. NUMBER] MBIA Insurance Corporation (the "Insure"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/TRUSTEE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such tines as such payments of principal would have been due had there not been any such acceleration, unless the Insurerelecs, in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (u) the reimbtrsertment of any such payment which is subsequently recovered from any owner pros ant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankmrytcy law. The amounts referred to in clauses (i) and (h) of the preceding sentence shall be refereed to herein collectively as the "Insured Amounts." "Obligations" shall mean: [PAR] [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mad, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of finds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon present ent and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate imUtmens of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligatias, such instruments being in a form satisfactory to US. Bank Trust National Association, U.S. Bank TnstNational Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts n is due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation As used henevu, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The temp owner shall not include the Issues or any party whose agreement with the Issuer constitutes the wdetlying security for the Obligations Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Strea, Arnonl, New Yak 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR]. MBIA Insurance Corporation President Assistant Secretary STD -R-7 0105 STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at [INSERT NAME OF TRUSTEE OR PAYING AGENT INCLUDING CITY, STATE1. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the issuer to (INSERT NAME OF TRUSTEE OR PAYING AGENT] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [INSERT LEGAL TITLE OF BONDS, CENTERED AS FOLLOWS] [$ PAR AMOUNT] ISf SUER] [DESCRIPTION OF BONDS] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which•is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with.U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of -ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association,. U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This, policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION STD -R-2 PAYMENTS UNDER THE POLICY/OTHER REQUIRED PROVISIONS A. In the event that, on the second Business Day, and again on the Business Day, prior to the payment date on the Obligations, the Paying Agent/fmstee has not received sufficient moneys to pay all principal of and interest on the Obligations due on the second following or following, as the case may be, Business Day, the Paying Agent/ rusice shall immediately notify the Insurer or its designee on the same Business Day by. telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency. B. If the deficiency is made up in whole or in part prior to or on the payment date, the Paying Agent fr stee shall so notify the bisurer or its designee. C. In addition, if the Paying Agent/Trustee has notice that any Bondholder has been required to disgorge payments of principal or interest on the Obligations to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable bankruptcy laws, then the Paying Agent/Trustee shall notify the Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. D. The Paying Agent/Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney -in -fact for Holders of the Obligations as follows: I. If and to the extent there is a deficiency in amounts required to pay interest on the Obligations, the Paying Agent/trustee shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under the Policy (the "h—wPaying Agent/ nstee'), in fort satisfactory to the Insurance Paying AgentIrr stee, an instrument appointing the Inner as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective Holders (and not as Paying Agentfrr stee) in accordance with the tenor of the Policy payment from the Insurance Paying Agent/Trustee with respect to the claims for interest so assigned, and (c) disburse the same to such respective Holders; and 2. If and to the extent of a deficiency in amounts required to pay principal of the Obligations, the Paying Agent/Trustee shall (a) execute and deliver to the Insurance Paying Agent/fnstee in form satisfactory to the Insurance Paying AgmtTrustee an instrument appointing the limner as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the htsuner of any of the Obligation surrendered to the Insurance Paying Agent/Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Paying Agent/fnistee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent/Trustee is received), (b) receive as designee of the respective Holders (and not as Paying AgenUfnstee) in accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent/Trustee, and (c) disburse the same to such Holders. E Payments with respect to claims for interest on and principal of Obligations disbursed by the Paying Agent/Trustee stee horn proceeds of the Policy shall not be considered to discharge the obligation of the issuer with respect to such Obligations, and the Insurer shall become the owner of such unpaid Obligation and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. F. Inesspective of whether any such assignment is executed and delivered, the Issuer and the Paying Agent/Trustee hereby agree for the benefit of the Insurer that: I. They recognize that to the extent the Insurer makes payments, directly or indirectly (as by paying through the Paying Agett/rr steer), on account of principal of or interest on the Obligations, the Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Issuer, with interest thereon as provided and solely from the sources stated in this Indenture and the Obligations; and 2. They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (u) of the first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Obligation, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Obligations to Holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest G. In connection with the issuance of additional Obligations, the Issuer shall deliver to the Insurer a copy of the disclosure document if any, circulated with respect to such additional Obligations. H. Copies of any amendments made to the documents executed in connection with the issuance of the Obligations which are consented to by the Insurer shall be sent to Standard & Poor's Corporation. The Insurer shall receive notice of the resignation or removal of the Paying Agent/Trustee and the appointment of a successor thereto. .1. The Insurer shall receive copies of all notices required to be delivered to Bondholders and, on an annual basis, copies of the Its audited financial statements and Annual Budget Notices: Any notice that is required to be given to a holder of the Obligation 01 10 the Paying Agent/Trustee pursuant to the indenture shall also be provided to the Insurer. All notices required to be given to the Insurer under the Indenture shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Sneet, Armonk, New York 10504 Attention Surveillance. K. The lssuer/Obligor agrees to reimburse the Insurer immediately and unconditionally upon demand, to the extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the Insurer in connection with (i) the enforcement by the Insurer of the issuer's /Obligors obligations, or the preservation or defense of any rights of the Insurer, under this Resolution/Indenture and any other document executed in connection with the issuance of the Obligations, and (ii) any consent amendment waiver or other action with respect to the Resolutionilide nne or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, the Insurer reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved L The Issuer/Obligor agrees not to use the Insurer's name in any public document including, without limitation, a prey release or presentation, announcement or forum without the Insurer s prior consent; provided Inwever, such prohibition on the use of the Insureds name slell not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requvcments. M. The Issuer /Obligor shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds am tendered or purchased for any purpose other than the redemption and cancellation or legal defcasance of such Bonds without the prior written consent of MBIA Revised 4/04 AIBIA Capital Strength. Triple -A Performance. VIA COURIER November 8, 2005 Steve Davis City of Fayetteville 113 W. Mountain Fayetteville, Arkansas 72701 RE: $27,000,000 City of Fayetteville, Improvement Bonds, Series 2005A MBIA Insurance Corporation 113 King Street, Armonk, NV 10504 Tel 914-273-4545 www.mbia.com Arkansas. Sales and Use Tax Refunding and Capital $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B Dear Mr. Davis: Enclosed please find the following documents for the referenced issues: 1. Two revised Commitments for the Financial Guaranty Insurance Policy (the "Policy") and two revised Commitments for the Debt Service Reserve Fund Surety Bond (the "Surety Bond"). Please execute each document and return one of the original Commitments for the Policy and the Surety Bond to our offices in the enclosed self-addressed stamped envelope. The second set of original Commitments should be retained for your files; 2. Disclosure language and a form of the Financial Guaranty Insurance Policy (the "Policy") for inclusion in the Official Statement: 3. A form of our Statement of Insurance for printing on the Obligations; and 4. A form of our "Payments Under the Policy/Other Required Provisions" for inclusion in your authorizing document. In the event the authorizing document is completed prior to choosing MBIA as the insurer, please have the Issuer and Paying Agent sign the attached "Schedule A". Please note that all of the conditions to the Commitment must be met prior to the Policy being released by MBIA. All materials and questions regarding the conditions should be directed to the attention of Karen Wagner, whose direct dial telephone number is (914) 765-3213. November 8, 2005 Steve Davis City of Fayetteville Page Two In addition, under no circumstances should any changes be made to Items 2, 3 and 4, nor should any other versions of these materials be used on any financing unless you have direct confirmation from MBIA as to the acceptability of such changes. Confirmation regarding items 2 and 3 may come only from our Documentation and Closing Department or our Legal Department and may be written or verbal. Confirmation regarding item 4 should come from Karen Wagner. Since the responsibility for this information remains with us, please send us drafts prior to the printing of any of these documents for our approval. The following payments will be due at the closing of the issue. The premium payments in the amount of .224% of total debt service and 1.6% of total surety bond amount, for the Policy and Surety Bond, respectively, should be wired to MBIA's account number 910-2-721728 at JP Morgan Chase Bank, New York, New York on the day of closing. Chase's ABA number is 021000021. MBIA's claims paying ability is rated triple A by Fitch IBCA, Inc., Moody's Investors Service and the Standard and Poor's Rating Group. Inquiries related to ratings on transactions, fees and billing matters should be addressed to the appropriate rating agency. We would like to thank you for sending a copy of the final debt service schedule for this issue. We would also appreciate receiving three copies of the final Official Statement and three executed unbound copies of the closing transcripts within 60 days of the closing. Thank you for your cooperation concerning these matters. If you have any questions, please contact our offices. Sincerely, Sandra R. Lisanti Associate Documentation and Closing Dept. Phone: (914) 765-3651 Fax: (914)765-3161/3162 Sandra.Lisanti@mbia.com REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-001 Sale Date: November 3, 2005 Program Type: Negotiated DP Re: $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $67,000 (.224% (premium rate) of $29,697,586.94 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. V 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. 11. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; b. List of Permissible Investments for Indentured Funds; and c. Standard Conditions for Refunding. Dated this 8th day of November, 2005. MBIA In urance Co pt ration By F (i Assistant Secretary CITY OF FAYETTEVILLE By: Title: MBIA GENERAL DOCUMENT PROVISIONS A. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. B. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the insurer to be sent to Standard & Poor's. C. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than (1) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. D. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: I. the issuer/obligor fails to pay principal when due; 2. the issuer/obligor fails to pay interest when due: 3. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 4. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: I. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: 1. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with oust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. MBIA LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities arc only permitted if they have been stripped by the agency itself): I. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership 2. Farmers Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal 1 -lousing Administration Debentures (Fl -IA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mac") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FI-ILMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). FI. Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A -I" or better by S&P. I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. K. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. I. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. MQ1A 2. The written repo contract must include the following a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the fill faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (I) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If. however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. AMA STANDARD CONDITIONS FOR REFUNDINGS A. Receipt by the Insurer of the final debt service schedule on the issue within three business days from the sale date. B. Receipt, satisfactory review and subsequent oral approval by the Insurer at least ten days in advance of closing of draft copies of: I. a verification by an independent CPA firm of the sufficiency of the escrow to timely retire the refunded bonds; 2. the escrow securities purchase contracts of SLG subscription forms or open market confirmations; and, 3. the escrow agreement Final and signed copies of all the above documents to be sent via overnight mail from closing. An independent CPA firm is defined as a licensed CPA firm acting at arms length of the transaction on behalf of the bondholders. It may not be the underwriter. bond counsel or financial adviser for the refunding issue. The firm must carry errors and omissions insurance. The Insurer reserves the right to review the provider of the verification on a deal by deal basis. C. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel (or Special Tax Counsel) to the effect that the refunding bonds are being issued in compliance with state law and that the interest on the refunding bonds is tax-exempt. D. Receipt by the Insurer at least five business days prior to closing of a draft opinion from Bond Counsel stating that the refunded bonds have been legally defeased. (This condition is only applicable in those situations where the refunding issue is legally defeasing the refunded issue.) Final executed copies of items C and D to be sent via overnight mail. E. If the escrow agreement allows for the substitution of securities in the escrow account, then it should be provided in the escrow agreement that no such substitution may occur unless there has first been delivered to the escrow agent/trustee, (1) a CPA verification that the escrow investments, as substituted, are sufficient to pay debt service, as it becomes due, on the refunded bonds and (2) an opinion of nationally recognized bond counsel to the effect that the substitution is permitted under the documents and the substitution has no adverse effect on the tax-exempt nature of the refunding bonds. See 2 above for the definition of an independent CPA. F. Escrow investments must be limited to: I. Cash 2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- "SLGS"). 3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities. 4. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 5. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. #BIA 6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmFIA) Certificates of beneficial ownership c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of 1 -lousing and Urban Development (1 -IUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds G. If a forward supply contract is being executed in conjunction with the refunding (or subsequent to the closing of the refunding transaction), the following conditions must also be met: 1. The Insurer must review and approve the forward supply contract at least five business days prior to closing (or after closing, at least five business days prior to execution if not contemplated at the time of closing). 2. The forward supply contract must provide by its terms that the securities delivered tinder the forward supply are sufficient (when taken with other funds remaining in the escrow) as to amount and timeliness to retire the refunded bonds. 3. The Insurer requires an opinion from a nationally recognized bankruptcy counsel that the securities in escrow and payments to owners of refunded bonds will not constitute assets of the forward supply contract supplier and will not be subject to automatic stay in the event of bankruptcy and/or insolvency of the supplier. 4. The supplier of the securities delivered under the forward supply contract must affirm in the contract that it has no rights to or interest in the monies or securities held in the escrow. 5. The escrow agent must be acceptable to the Insurer. The Insurer reserves the right to replace the escrow agent for cause. 6. Sec 6 above for investments permitted under the forward supply contract. Investments must be non -callable. 7. The supplier should have no right to substitute the original escrow securities. The supplier may substitute securities previously delivered by the supplier under the forward supply contract only if: a. The substituted securities mature on a date that is later than the previously delivered securities would have matured; and b. The substituted securities mature prior to the date needed to pay principal and/or interest on the bonds. 8. Two days before each delivery date for the forward supply securities, the escrow agent must notify the Insurer in writing of the securities to be delivered, the maturity amount of the securities and the maturity date. 9. The forward supply contract cannot be amended or modified without the Insurer's written consent. MBIA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-003 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $1,350,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Refunding and Capital Improvement Bonds, Series 2005A (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYE7TEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $22,000 [1.6% (premium rate) of $1,350,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. /NIBIA This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November. 2005. MB1A s rance Cop o ation By l A'ssistanv'Secretary CITY OF FAYETTEVILLE By: Title: MQIA (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve find surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. I-lowever, in all cases, the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the insurer. General Terms Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and if rated by A.M. Best & Company, must also be rated in the highest rating category by AM. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is. by its terms, AII3IA available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (I) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 AMA REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 2005-009784-002 Sale Date: November 3. 2005 Program Type: Negotiated DP Re: $45,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated November 8, 2005, constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21. 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (1) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $130,000 [.224% (premium rate) of $58,156,168.17 (total debt service), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. AIQIA 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document. 10. The Applicant agrees not to use the Insurer's name in any public document including. without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prohibition on the use of the Insurer's name shall not relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the current Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurer's name in order to comply with public notice, public meeting or public reporting requirements. II. This Commitment may be signed in counterpart by the parties hereto. 12. Compliance with the Insurer's following conditions (see attached). a. General Document Provisions; and b. List of Permissble Investments for Indentured Funds. Dated this 8th day of November, 2005. MB surance or oration Assistant Secretary CITY OF FAYETTEVILLE By: Title: MB A GENERAL DOCUMENT PROVISIONS E. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management. F. Amendments. In the basic legal document, there are usually two methods of amendment. The First. which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's. G. Supplemental Legal Document. If the basic legal document provides for a supplemental legal document to be issued for reasons other than ( I) a refunding to obtain savings; or (2) the issuance of additional bonds pursuant to an additional bonds test, there must be a requirement that the Insurer's consent also be obtained prior to the issuance of any additional bonds and/or execution of such supplemental legal document. H. Events of Default and Remedies. All documents normally contain provisions which define the events of default and which prescribe the remedies that may be exercised upon the occurrence of an event of default. At a minimum, events of default will be defined as follows: 5. the issuer/obligor fails to pay principal when due; 6. the issuer/obligor fails to pay interest when due; 7. the issuer/obligor fails to observe any other covenant or condition of the document and such failure continues for 30 days and 8. the issuer/obligor declares bankruptcy. The Insurer, acting alone, shall have the right to direct all remedies in the event of a default. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent. E. Defeasance requires the deposit of: 7. Cash 8. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- " SLGs") 9. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 10. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable. 11. Pre -refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre -refunded bonds must have been pre -refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre -refunded municipals to satisfy this condition. AIaL.1 12. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S. g. U.S. Export -Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership h. Farmers Home Administration (FmHA) Certificates of beneficial ownership i. Federal Financing, Bank j. General Services Administration Participation certificates k. U.S. Maritime Administration Guaranteed Title Xl financing I. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations. F. Agents: I. In transactions where there is an agent/enhancer (other than the Insurer), the trustee, tender agent (if any), and paying agent (if any) must be commercial banks with trust powers. 2. The remarketing agent must have trust powers if they are responsible for holding moneys or receiving bonds. As an alternative, the documents may provide that if the remarketing agent is removed, resigns or is unable to perform its duties, the trustee must assume the responsibilities of remarketing agent until a substitute acceptable to the Insurer is appointed. MBIA LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export -Import Bank (Eximbank) Direct obligations or filly guaranteed certificates of beneficial ownership 2. Fanners Home Administration (FmHA) Certificates of beneficial ownership 3. Federal Financing Bank 4. Federal Housing Administration Debentures (FHA) 5. General Services Administration Participation certificates 6. Government National Mortgage Association (GNMA or "Ginnie Mae") GNMA - guaranteed mortgage -backed bonds GNMA - guaranteed pass -through obligations (not acceptable for certain cash -flow sensitive issues.) 7. U.S. Maritime Administration Guaranteed Title XI financing 8. U.S. Department of I -lousing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): I. Federal Home Loan Bank System Senior debt obligations 2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac") Participation Certificates Senior debt obligations 3. Federal National Mortgage Association (FNMA or "Fannie Mae") Mortgage -backed securities and senior debt obligations 4. Student Loan Marketing Association (SLMA or "Sallie Mae") Senior debt obligations /NL3IA 5. Resolution Funding Corp. (REFCORP) obligations 6. Farm Credit System Consolidated systemwide bonds and notes D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA -m; or AA -m and if rated by Moody's rated Aaa, Aal or Aa2. E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request). H. Commercial paper rated, at the time of purchase, "Prime - I" by Moody's and "A -I" or better by S&P. I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime - I" or "A3" or better by Moody's and "A -I" or "A" or better by S&P. L. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request) Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities first with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. I. Repos must be between the municipal entity and a dealer bank or securities firm a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services. 2. The written repo contract must include the following: a. Securities which are acceptable for transfer are: (I)Direct U.S. governments, or (2) Federal agencies backed by the fill faith and credit of the U.S. government (and FNMA & FHLMC) b. The term of the repo may be up to 30 days c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities). d. Valuation of Collateral (I) The securities must be valued weekly, marked -to -market at current market price plus accrued interest (a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%. 3. Legal opinion which must be delivered to the municipal entity: a. Repo meets guidelines under state law for legal investment of public funds. Additional Notes (i) There is no list of permitted investments for non -indentured funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible. (ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment. (iii) DSRF investments should be valued at fair market value and marked to market at least once per year. DSRF investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer. REVISED AS OF NOVEMBER 8, 2005 COMMITMENT TO ISSUE A DEBT SERVICE RESERVE SURETY BOND Application No.: 2005-009784-004 Sale Date: November 3, 2005 Program Type: Negotiated DP RE: $2,250,000 Debt Service Reserve Fund for the $27,000,000 City of Fayetteville, Arkansas, Sales and Use Tax Capital Improvement Bonds, Series 2005B (the "Obligations") This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between CITY OF FAYETTEVILLE (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated October 21, 2005, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $1,350,000 on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions: I. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $36,000 [1.6% (premium rate) of $2,250,000 (total surety bond amount), premium rounded to the nearest thousand]. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a pail of the Application or subsequently submitted to be a part of the Application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. 6, Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading. 7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 8. This Commitment may be signed in counterpart by the parties hereto. 9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A). Dated this 8th day of November, 2005. MBI/ urance Corporation Ij Assistant Secretary CITY OF FAYETTEVILLE By: Title: MI3IA (Attachment A) TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM Introduction The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement. The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached. The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below). The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases. the Surety Bond will expire on the final maturity date of the current issue. The program criteria are subject to change by the Insurer. General Terms Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and if rated by A.M. Best & Company, must also be rated in the highest rating category by AM. Best & Company). In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied. In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro -rata draw on each of the surety bonds. With regard to replenishment, any available monies, as defined in the Indenture or Resolution, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund. The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement. If the documents provide for the issuance of additional bonds that do not share a common reserve fund with the current issue, the Insurer can issue a surety bond that is, by its terms, MORA available only as a reserve for the current issue. In such cases, the Insurer would require a covenant that any revenues available for debt service must be distributed between the current issue and any additional bonds on a pro rata basis without regard to the existence of a funded debt service reserve or a surety bond. The bond documents should require the Trustee to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required. Required Terms With respect should be granted to any security that same interest interest in collateral subject only to that granted to the bondholders, the Insurer of the bondholders, This would apply to existing security, if any, as well as any to be granted in the future. The Insurer should receive an opinion from counsel to the issuer/obligor that the Financial Guaranty Agreement is a legal, valid and binding obligation of the issuer/obligor and is enforceable against the issuer/obligor in accordance with its terms. In general terms, the "flow of funds" would be structured as follows: All gross revenues should be paid in the following order with the priority indicated: (1) expenses of operation and maintenance; (2) debt service on the bonds; (3) reimbursement of amounts advanced by the Insurer under the Surety Bond; (4) reimbursement of cash amounts, if any, drawn from the reserve fund; (5) replenishment of Renewal and Replacement Fund; (6) payment to the Insurer of interest on amounts advanced under the Surety Bond; (7) all other lawful uses, including the debt service payment on any subordinate bonds. Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the bond documents may be terminated. It will be the responsibility of the trustee/paying agent to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement. There may be no optional redemption of bonds or distribution of funds to the issuer and/or the underlying obligor unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full. 8/12/93 STANDARD FORM FOR MBIA DISCLOSURE FOR OFFICIAL STATEMENTS [June 30, 2005[ [The section entitled "The MBIA Insurance Corporation Insurance Policyis for use in public finance transactions] The MBIA Insurance Corporation Insurance Policy The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this Official Statement. Reference is made to Appendix _ for a specimen of MBIA's policy [(the "Policy'')]. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Policy and MBIA set forth under the heading [" "]. Additionally, MBIA makes no representation regarding the [Bonds/Securities] or the advisability of investing in the [Bonds/Securities]. The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the [Issuer] to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the [Bonds/Securities] as such payments shall become due but shall not be so paid (except that in the event of any acceleration of (he due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the [Bonds/Securities] pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law (a "Preference''). MBIA's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any [Bonds/Securities]. MBIA's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of [Bonds/Securities] upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Policy also does not insure against nonpayment of principal of or interest on the [Bonds/Securities] resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the [Bonds/Securities]. Upon receipt of telephonic or telegraphic notice, such notice subsequently confined in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a [Bond/Security] the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such [Bonds/Securities] or presentment of such other proof of ownership of the [Bonds/Securities], together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the [Bonds/Securities] as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the [Bonds/Securities] in any legal proceeding related to payment of insured amounts on the [Bonds/Securities], such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the insured amounts due on such [Bonds/Securities], less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA Insurance Corporation MBIA Insurance Corporation (`MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545. Regulation As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum imum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw -Full Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the [Bonds/Securities], and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the [Bonds/Securities]. MBIA does not guaranty the market price of the [BOnds/Securities] nor does it guaranty that the ratings on the [Bonds/Securities] will not be revised or withdrawn. MBIA Financial Information As of December 31, 2004, MBIA had admitted assets of $10.4 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2005 MBIA had admitted assets of $10.7 billion (unaudited), total liabilities of $7.0 billion (unaudited), and total capital and surplus of $3.7 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2004 and December 31, 2003 and for each of the three years in the period ended December 31, 2004, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form l0 -K of the Company for the year ended December 31, 2004 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2005 and for the six month periods ended June 30, 2005 and June 30, 2004 included in the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2005, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof. Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices. Incorporation of Certain Documents by Reference The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement: (I) The Company's Annual Report on Form 10-K for the year ended December 31, 2004; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the [Bonds/Securities] offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (I) the Company's Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005 and June 30, 2005) are available (i) over the Internet at the SEC's web site at httn://www see gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at hltp://www.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices. STD DEBT SERVICE RESERVE FUND SURETY BOND Application has been made to the MBIA Insurance Corporation (the "Insurer") for a commitment to issue a surety bond (the "Debt Service Reserve Fund Surety Bond"). The Debt Service Reserve Fund Surety Bond will provide that upon notice from the Paying Agent to the Insurer to the effect that insufficient amounts are on deposit in the Debt Service Fund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the 2000 Obligations, the Insurer will promptly deposit with the Paying Agent an amount sufficient to pay the principal of and interest on the 20O0 Obligations or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety Bond, duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts which are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the Insurer with the Paying Agent which have not been reimbursed by the City. The City and the Insurer have entered into a Financial Guaranty Agreement dated f I (the "Agreement"). Pursuant to the Agreement, the City is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Paying Agent under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Operation and Maintenance Fund and the Debt Service Fund have been made. Under the terms of the Agreement, the Paying Agent is required to reimburse the Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to the General Fund. No optional redemption of Obligations may be made until the Insurer's Debt Service Reserve Fund Surety Bond is reinstated. The Debt Service Reserve Fund Surety Bond will be held by the Paying Agent in the Debt Service Reserve Fund and is provided as an alternative to the City depositing funds equal to the Debt Service Requirement for outstanding Obligations. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to Maximum Annual Debt Service for the Obligations and the premium therefor will be fully paid by the City at the time of delivery of the Obligations. FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 PolicyNo. (NUMBER] MBIA Inauance Corporation (the "Insure?'), in consideration of die payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of die following described obligations, die full and complete payment required to be made by or on behalf of die Issuer to [PAYING AGENT/TRUSTEE] or its successor (die "Paying Agent") of an amount equal to (i) the principal of (either at the slated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that tern is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking find payment the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects, in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (u) die reimbursement of any such payment which is subsequently recovered from any owner puns ant to a final judgment by a court ofcompetent jurisdiction that such payment constitutes an avoidable preference to such owner within die meaning of any applicable bankruptcy law. The amounts refereed to in clauses (i) and (i) of die preceding sentence shall be referred to herein collectively as the "insured Amounts." 'Obligation' shall mean: IPARI (LEGAL NAME OF ISSUE) Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified nail, by die Insurer from die Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, die Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate inshuments of assignment to evidence the assignment of die Insured Amounts due on the Obligations as am paid by the Insurer, and appropriate instnunents to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on die Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Tout National Association shall disburse to such owners, or die Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by die Paying Agent for the payment of such Insured Amounts and legally available therefor. this policy does not unsure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used hereitt, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained d by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer consitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS \V IEREOF, die busier has caused this policy lobe executed in facsimile on its behalf by its duty authorized officers, this [DAY) day of Ih4ONTIL YEAR]. MBIA insurance Corporation Presiden�.> 4 Assistant Secretary SEUn4 011441 STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at [INSERT NAME OF TRUSTEE OR PAYING AGENT INCLUDING CITY. STATE}. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [INSERT NAME OF TRUSTEE OR PAYING AGENT} or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [INSERT LEGAL TITLE OF BONDS CENTERED AS FOLLOWS] I$ PAR AMOUNT] ISSUER IDESCRIPTION OF BONDS] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment of within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment -of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term 'owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION STD -R-2 PAYMENTS UNDER TILE POLICY/OTHER REQUIRED PROVISIONS A. In the event that, on die second Business Day, and again on the Business Day, prior to the payment date on die Obligations, die Paying Agent/fnisire has not received sufficient moneys to pay all principal of and interest on the Obligations due on die second following or following as the case may be, Business Day, the Paying Agent/rmstee shall immediately notify die Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered or certified mad, of die amount oldie deficiency. B. If the deficiency is made up in whole or in pan prior to or on die payment date, the Paying Agent/fnwee shall so notify the Insurer or its designee. C. In addition, if the Paying Agent/Trustee has notice that any Bondholder has been required to disgorge payments of principal or interest on the Obligations to a mstee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Bondholder within the meaning of any applicable banlmiptcy laws, then the Paying AgentuTmstee shall notify the Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. D. The Paying Agent/hmtee is hereby irrevocably designated, appointed, directed and authorized to act as attorney -inn -fact for Holders of the Obligations as follows: I. If and to die extent there is a deficiency in amounts required to pay interest on die Obligations, die Paying Agent/rnslee shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under die Policy (the "Insurance Paying Agent/Trustee'), in form satisfactory to die Insurance Paying Agent/Trustee, an instrument appointing die Insurer as agent for such Ilolders in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (b) receive as designee of the respective Holders (and not as Paying Agent/Trustee) in accordance with die tenor of die Policy payment from the Insurance Paying Agent/Trustee with respect to die claims for interest so assigned, and (c) disburse the same to such respective Holders; and 2. If and to die extern of a deficiency in amounts required to pay principal of the Obligations, die Paying Agent/frstec shall (a) execute and deliver to the Insurance Paying Agent/Trustee in loran satisfactory to the Insurance Paying Agent/riustee an instrument appointing the Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Obligation surrendered to the Insurance Paying Age t1Tmstee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Paying Ageniffnstee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying AgenuTrustee is received), (b) receive as designee of the respective Holders (and not as Paying Agent/Trustee) in accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent/Trustee, and (c) disburse the same to such holders. E Payments with respect to claims for interest on and principal of Obligations disbursed by the Paying Agent/Trustee from proceeds of the Policy shall not be considered to discharge the obligation of the Issuer with respect to such Obligations, and die Insurer shall become die owner of such unpaid Obligation and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. P. Irrespective of whether any such assignment is executed and delivered, the Issuer and the Paving Agent/Trustee hereby agree for die benefit of the Insurer that: I. They recognize that to the extent the Insurer makes payments, directly or indirectly (as by paying through the Paying Agent/Trustee), on account of principal of or interest on the Obligations, the Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from die Issuer, with interest thereon as provided and solely from die sources stated in this Indenture and die Obligations; and 2. They will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of die fuss paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in this Indenture and the Obligation, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Obligations to Holders, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest G. In confection with the issuance of additional Obligations, the Issuer shad] deliver to the Insurer a copy of die disclosure document, if any, circulated with respect to such additional Obligations. 11. Copies of any amendments made to the documents executed in connection with the issuance of the Obligations which are consented to by die Insurer shall be sent to Standard & Poor's Corporation 1. The Insurer shall receive notice of the resignation or removal of die Paying Agent/Trustee and the appointment of a successor thereto. J. The Insurer shall receive copies of all notices required to be delivered to Bondholders and, on an annual basis, copies of the Issuer's audited financial statements and Annual Budget. Notices: Any notice that is required to be given to a holder of the Obligation or to the Paying Agent/frustee pursuant to the Indenture shall also be provided to die Insurer. Al] notices required to be given to the Insurer wider the Indenture shall he in writing and shall be sou by registered or certified mail addressed to NBIA Insurance Corporation, 113 King Street Armoric New York 10504 Attention: Sur v:illance. K The Issucr,'Obligor agrees to reimburse the Insurer inunediately and unconditionally upon demand, to die extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the Insurer in connection with (i) the enforcement by the Insurer uer of the Issuer's /Obligor's obligations, or die preservation or defense of any rights of the Insurer, under this Remluton/Indenure and any other document executed in connection with the issuance of the Obligations, and (i) any consent amendment, waiver or other action with respect to the Resolution/Indenture or any related document, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, the Inner reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved. L The Issuer/Obligor agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent; provided however, such prolubition on the use of the hewers name shall riot relate to the use of the Insurer's standard approved form of disclosure in public documents issued in connection with the cement Obligations to be issued in accordance with the terms of the Commitment; and provided further such prohibition shall not apply to the use of the Insurers name in order to comply with public notice, public meeting or public reporting requires ants. M. The Issuer /Obligor shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purpose other than die redemption and cancellation or legal det'rasance of such Bonds without the prior written consent of MBIA Revised 4/04 NAME OF ISSUER SERIES DESCRIPTION CERTIFICATE RE: MBIA INSURANCE POLICY SCHEDULE `A' This Certificate of MBIA Insurance Policy (the "Certificate") is furnished by the City of as issuer (the "Issuer") of its $ General Obligation Bonds, dated (the "Bonds"), and , as paying agent under the Bonds (the "Paying Agent"). This Certificate is furnished for use by MBIA Insurance Corporation ("MBIA") in connection with its issuance of a municipal bond insurance policy No. (the "Policy"), which Policy shall guarantee the payment of the principal and interest on the Bonds when due. The Issuer and the Paying Agent hereby certifies as follows: I. The parties acknowledge receipt and review of MBIA's "Payments Under the Policy" provisions with respect to the Policy, all as more particularly set forth in Schedule A attached hereto and made a part hereof. 2. The parties hereby agree, during the term of the Policy and to the best of their abilities, to abide by the terms, obligations, and provisions required by MBIA as set forth in Schedule A hereto. IN WITNESS WHEREOF, we have executed this Certificate as of the _ day of , as Issuer as Paying Agent By: By: Director of Finance Authorized Officer no Li C SUU C d Y ti C U O d O O Y C `1 WH N C 0 U U 9 O u O u N O O b 00-c LL N d C L C C N O N 0 4 C O N yf .N 9 L u aoa u U 0 0 > C L 'Co C O £ N U s n 3 m s m S m 3 0 m m 0 0 FINANCIAL GUARANTY AGREEMENT FINANCIAL GUARANTY AGREEMENT made as of [CLOSING DATE], by and between [ISSUER] (the "Issuer") and MBIA Insurance Corporation (the "insurer"), organized under the laws of the state of New York. WITNESSETII: WHEREAS, the Issuer has or will issue the Obligations; and WHEREAS, pursuant to the terms of the Document the Issuer agrees to make certain payments on the Obligations; and WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce the insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more fully set forth in this Agreement; and WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows: ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of the Insurer under the Surety Bond and the coverage and tens thereof shall be subject to and limited by the terms and conditions of the Surety Bond. Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, die Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refb ndable for any reason. Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of die Insurer's special counsel related to any modification of this Agreement or the Surety Bond. ARTICLE 11 REIMBURSEMENT AND INDEMNIFICATION OBLIGATIONS OF ISSUER AND SECURITY THEREFOR Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses; Indemnification (a) The Issuer will reimburse the insurer, within the Reimbursement Period, without demand or notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law. (b) The issuer also agrees to reimburse the insurer immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the insurer of the Issuer's obligations under this Agreement, the Document, and any other document executed in connection with the issuance of the Obligations, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01. (c) The Issuer agrees to indemnify the Insurer, to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expanses which the insurer may sustain or incur by reason of or in consequence of (i) the failure of the issuer to perform or comply with die covenants or conditions of this Agreement or (ii) reliance by the insurer upon representations made by the issuer or (iii) a default by die issuer under the terms of the Document or any other documents executed in connection with the issuance of the Obligations. (d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations. (e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available fiords at the Insurers office at 113 King Street, Armonk, New York 10504, Attention: Accounting and insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer. Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the Insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not to exceed the Surety Bond Limit); and third, upon full reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer. Section 2.03. Security for Payments; Instruments of Further Assurance. To the extent, but only to the extent, that the Document, or any related indenture, trust agreement, ordinance, resolution, mortgage, security agreement or similar instrument, if any, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the Issuer hereby grants to the Insurer a security interest in or lien on, as the case may be, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Document or any other document executed in connection with the issuance of the Obligations, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other further instruments as may be required by law or as shall reasonably be requested by the insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the insurer under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Document, irrespective of (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder, or (c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations, the Document or any other document executed in connection with the issuance of the Obligations; or (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated. Section 2.05. hnurer's Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses inured by the Insurer in connection with the Obligations and this Agreement. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the owners to receive regularly scheduled principal and interest on the Obligations. Section 2.06. On -Going Information Obligations of Issuer. (a) Quarterly Reports. The issuer will provide to the Insurer within 45 days of the close of each quarter interim financial statements covering all fund balances under the Document, a statement of operations (income statement), balance sheet and changes in fund balances. These statements need not be audited by an independent certified public accountant, but if any audited statements are produced, they must be provided to the Insurer; (b) Annual Reports. The Issuer will provide to the Insurer annual financial statements audited by an independent certified public accountant within 90 days of the end of each fiscal year; (c) Access to Facilities, Books and Records. The Issuer will grant the Insurer reasonable access to the project financed by the Obligations and will make available to the Insurer, at reasonable times and upon reasonable notice all books and records relative to the project financed by the Obligations; and (d) Compliance Certificate. On an annual basis the Issuer will provide to the insurer a certificate confirming compliance with all covenants and obligations hereunder and under the Revenue Agreement, the Document or any other document executed in connection with the issuance of the Obligations. ARTICLE Ill AMENDMENTS TO DOCUMENT So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Document or any other document executed in connection with the issuance of the Obligations, without the prior written consent of the Insurer. ARTICLE IV EVENTS OF DEFAULT; REMEDIES Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) The Issuer shall fail to pay to the insurer when due any amount payable under Sections 1.03; or (b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or (c) Any material representation or warranty made by die Issuer under the Document or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or (d) Except as otherwise provided in this Section 4.01. the Issuer shall fail to perfomn any of its other obligations wider the Document, or any other document executed in connection with the issuance of the Obligations, or hereunder, provided that such failure continues for more than 30 days after receipt by the Issuer of written notice of such failure to perform; or (e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (0 An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestmtor or similar official for the Issuer or for a substantial part of its property; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days. Section 4.02. Remedies. if an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the Issuer to the Insurer under the Document or any related instrument, and any obligation, agreement or covenant of the issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. In addition, if an Event of Default shall occur due to the failure to pay to the Insurer the amounts due under Section 1.03 hereof, the Insurer shall have the right to cancel the Surety Bond in accordance with its terms. All rights and remedies of the Insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. ARTICLE V SETTLEMENT The Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the insurer's decision thereon, if made in good faith, shall be final and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE VI MISCELLANEOUS Section 6.01. Interest Computations. All computations of interest due hereunder shall he made on the basis of the actual number of days elapsed over a year of 360 days. Section 6.02. Exercise of Rights. No failure or delay on die part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the issuer and the insurer. The issuer hereby agrees that upon the written request of the Paying Agent, the Insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. "Ihe Insurer agrees to deliver to the Issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond. Section 6.04. Successors and Assigns; Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the Insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Insurer. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear. Section 6.06. Signature on Bond. The issuers liability shall not be atiected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Issuer's request and in reliance on the Issuer's promise to execute this Agreement. Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others: If to the Issuer. [ISSUER] [STREET ADDRESS] [CITY, STATE ZIP] Attention: (PERSON AT ISSUER] If to the Paying Agent: [PAYING AGENT] Attention: Corporate Trust Officer If to the Insurer: MBIA Insurance Corporation 113 King Street Ammonk, New York 10504 Attention: Insured Portfolio Management Group Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 6.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Issuer and the Insurer. Section 6.12. Severability. hi the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof Section 6.13. Survival of Obligations. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, temunation or substitution of the Surety Bond and this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. [ISSUER] By Title: MBIA Insurance Corporation President Attest: Assistant Secrerary ANNEX A DEBT SERVICE RESERVE SURETY BOND MBIA Insurance Corporation Armonk, New York 10504 Surety Bond No. [POLICY NO.] MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surely Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of [NAME OF ISSUER] (the "Issuer") under the [TITLE OF THE DOCUMENT] (the "Document") to [NAME OF PAYING AGENT], (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the issuance by the Issuer of [TITLE OF THE OBLIGATIONS] (the "Obligations"), provided, that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed [a: FIXED COVERAGE (Dollar Amount of Coverage] or the debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] or [b: VARIABLE COVERAGE the annual amount set forth for the applicable bond year on Exhibit A attached hereto (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.] I. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations. 2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form attached hereto as Attachment I (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment dale of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage. 3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so. 4. The amount payable by the Insurer under this Surely Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article II of the Financial Guaranty Agreement dated the date hereof between the Insurer and the [ISSUER OR OBLIGOR] (the "Financial Guaranty Agreement"); provided, [ANNUAL PREMIUM OPTION: that no premium is due and unpaid on this Surely Bond and] that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2. 5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. 6. The term of this Surety Bond shall expire [ANNUAL PREMIUM OPTION: ,unless cancelled pursuant to paragraph 9 hereof,] on the earlier of (i) [MATURITY DATE] (the maturity date of the Obligations being currently issued), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document. 7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations. 8. [OPTIONAL FIRST SENTENCE: This Surety Bond shall be governed by and interpreted under the laws of the State of (STATE)]. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within [ I or 3 years] after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the pan of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier. [NOS. 9 and II are OPTIONAL] 9. Subject to the terms of the Document, the issuer shall have the right, upon 30 days prior written notice to the Insurer and the Paying Agent, to terminate this Surety Bond. In the event of a failure by the Issuer to pay the premium due on this Surety Bond pursuant to the terms of the Financial Guaranty Agreement, the Insurer shall have the right upon [No. of days] days prior written notice to the Issuer and the Paying Agent to cancel this Surety Bond. No Demand for Payment shall be made subsequent to such notice of cancellation unless payments are due but shall not have been so paid in connection with the Obligations. 10. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer. II. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this [DATE] day of [MONTH,YEAR). MBIA INSURANCE CORPORATION President Assistant Secretary SB-DSRF-9-[STATE CODE] 4/95 Attachment I Surety Bond No [POLICY NO.] DEMAND FOR PAYMENT 20 MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Attention: President Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Paying Agent hereby certifies that: (a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due"). (b) The [Debt Service Reserve Fund Requirement] for the Obligations is $ (c) The amounts legally available to the Paying Agent on the Due Date will be $_ less than the Amount Due (the "Deficiency"). (d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: [Paying Agent's Account] [PAYING AGENT) By Its Attachment 2 Surety Bond No. [POLICY NO.] NOTICE OF REINSTATEMENT ,20 [Paying Agent] [Address] Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the 'Insurer'). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires. The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ AIBIA Insurance Corporation President Attest: Assistant Secretary ANNEX B DEFINITIONS For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have die meaning as set out below, which shall be equally applicable to both die singular and plural forms of such terms. "Agreement" means this Financial Guaranty Agreement. "Closing Date" means [CLOSING DATE], 20 "Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations. "Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in die form attached to the Surety Bond as Attachment I. "Document" means [DOCUMENT]. "Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement. "Insurer" has the same meaning as set forth in the first paragraph of this Agreement. "Issuer" means [ISSUER]. "Obligations" means [LEGAL TITLE OF ISSUE]. "Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose. "Paying Agent" means [PAYING AGENT]. "Premium" means [PREMIUM) payable to the Insurer on or prior to the Closing Date. "Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on die date of such Surety Bond Payment and ending on the earlier of the date of cancellation of the Surety Bond due to nonpayment of Premium when due or on the expiration of x following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of die date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, N.A., New York, New Yoric, as its prime rate. The rate of interest shall be calculated on the basis of die actual number of days elapsed over a 360 -day year. "State" means [STATE]. "Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to die terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document. "Surety Bond Coverage" means die amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed die Surety Bond Limit. "Surety Bond Limit" mews [SURETY BOND LIMIT]. "Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by the Issuer pursuant to the Document less (i) that portion of the Debt Service Payment paid by or on behalf of die Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment.