Dated: October 1, 2007 First Interest Payment Date: March 15, 2008 Due: September 15, as shown on the inside front cover

Transcription

1 NEW ISSUE BOOK ENTRY ONLY Rating: See RATING herein In the opinion of Co-Bond Counsel, interest on the Bonds is excludable from the gross income of the holders thereof for federal income tax purposes, assuming continuing compliance by the County with the requirements of federal tax laws. Interest on the Bonds will not be a preference item for purposes of either individual or corporate federal alternative minimum tax; however, interest paid to corporate holders of the Bonds may be subject to alternative minimum tax under circumstances described under TAX EXEMPTION herein. Under the laws of the Commonwealth of Pennsylvania, the Bonds are exempt from personal property taxes in Pennsylvania, and interest on the Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax. See TAX EXEMPTION herein. $54,825,000 COUNTY OF LACKAWANNA PENNSYLVANIA consisting of $21,090,000 General Obligation Bonds, Series A of 2007 (Ambac Insured) $33,735,000 General Obligation Bonds, Series B of 2007 (FSA Insured) Dated: October 1, 2007 First Interest Payment Date: March 15, 2008 Due: September 15, as shown on the inside front cover This Official Statement has been prepared to provide information relating to the issuance by the County of Lackawanna, Pennsylvania (the County ) of its $21,090,000 General Obligation Bonds, Series A of 2007 (the 2007A Bonds ) and $33,735,000 General Obligation Bonds, Series B of 2007 (the 2007B Bonds and, together with the 2007A Bonds, the Bonds ). For certain information concerning the County, see Appendix A COUNTY OF LACKAWANNA. The Bonds are subject to redemption prior to maturity, as described herein. See THE BONDS Redemption. The Bonds have been issued pursuant to an Ordinance enacted by the County on September 11, 2007 (the Ordinance ). The Bonds will mature in the aggregate principal amounts set forth on the inside front cover hereto. The Bonds will be issued in fully registered form, without coupons, and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company ( DTC ), New York, New York. So long as Cede & Co. is the registered owner, reference herein to the registered owner of the Bonds shall mean Cede & Co. and not the Beneficial Owners (as such phrase is defined herein). DTC will act as securities depository for the Bonds, and purchases of beneficial ownership interests in the Bonds will be made in book-entry form only. Beneficial Owners will not receive certificates representing their interest in the Bonds. See BOOK-ENTRY ONLY SYSTEM herein. The Bonds shall be issuable only as fully registered bonds in denominations of $5,000 and any integral multiple thereof. Interest on the Bonds is payable initially on March 15, 2008 and thereafter on each September 15 and March 15 until maturity or prior redemption by Manufacturers & Traders Trust Co., with a corporate trust office located in Harrisburg, Pennsylvania, as paying agent and sinking fund depository of the Bonds (the Paying Agent ). So long as Cede & Co. is the registered owner, the Paying Agent will pay the principal of, premium, if any, and interest on, the Bonds to DTC, which will remit such principal, premium, if any, and interest to the Beneficial Owners of the Bonds, as more fully described under BOOK-ENTRY ONLY SYSTEM herein. The Bonds and interest earnings thereon are being issued to provide funds to: (1) finance the cost of certain capital projects of the County, including capitalized interest thereon; (2) refund all or a portion of certain of the County s outstanding General Obligation Bonds, Series A of 2004, Series B of 2004 and Series B of 1999; and (3) pay the costs of issuing and insuring the Bonds, as more fully described herein. THE BONDS ARE GENERAL OBLIGATION BONDS OF THE COUNTY, PAYABLE FROM ITS TAX AND OTHER GENERAL REVENUES. THE COUNTY HAS COVENANTED THAT IT WILL PROVIDE IN ITS BUDGET IN EACH YEAR, AND WILL APPROPRIATE FROM ITS GENERAL REVENUES IN EACH YEAR, THE AMOUNT OF THE DEBT SERVICE DUE ON THE BONDS FOR SUCH YEAR, AND WILL DULY AND PUNCTUALLY PAY OR CAUSE TO BE PAID FROM THE SINKING FUNDS ESTABLISHED UNDER THE ORDINANCE OR ANY OTHER OF ITS REVENUES OR FUNDS THE PRINCIPAL OF EVERY BOND AND THE INTEREST THEREON ON THE DATES, AT THE TIMES AND PLACE AND IN THE MANNER STATED IN THE BONDS, AND FOR SUCH BUDGETING, APPROPRIATION AND PAYMENT THE COUNTY IRREVOCABLY HAS PLEDGED ITS FULL FAITH, CREDIT AND TAXING POWER, WHICH TAXING POWER PRESENTLY INCLUDES THE POWER TO LEVY AD VALOREM TAXES ON ALL PROPERTY WITHIN THE COUNTY, PRESENTLY UNLIMITED AS TO RATE OR AMOUNT FOR SUCH PURPOSE. The scheduled payment of principal of and interest on the 2007A Bonds when due will be guaranteed by a financial guaranty insurance policy (the 2007A Bond Insurance Policy ) to be issued concurrently with the delivery of the 2007A Bonds by Ambac Assurance Corporation. For a discussion of the terms and provisions of the 2007A Bond Insurance Policy, including the limitations thereof, see 2007A BOND INSURANCE POLICY herein. The scheduled payment of principal of and interest on the 2007B Bonds when due will be guaranteed by a municipal bond insurance policy (the 2007B Bond Insurance Policy ) to be issued concurrently with the delivery of the 2007B Bonds by Financial Security Assurance Inc. For a discussion of the terms and provisions of the 2007B Bond Insurance Policy, including the limitations thereof, see 2007B BOND INSURANCE POLICY herein. The Bonds are offered by the Underwriters when, as and if issued, subject to the approval of certain matters by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania, and Anthony C. Lomma, Esquire, Scranton, Pennsylvania, Co-Bond Counsel. Certain legal matters will be passed upon for the County by Elaine Geroulo, Esquire, Solicitor to the County, and certain legal matters will be passed upon for the Underwriters by Pepper Hamilton LLP, Philadelphia, Pennsylvania, and O Malley, Harris, Durkin and Perry, P.C., Scranton, Pennsylvania. The Bonds are expected to be available for delivery in definitive form through the facilities of DTC in New York, New York on or about October 11, The date of this Official Statement is September 11, Morgan Stanley

2 MATURITY SCHEDULE $21,090,000 COUNTY OF LACKAWANNA, PENNSYLVANIA GENERAL OBLIGATION BONDS, SERIES A OF 2007 MATURITY DATES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS Due (September 15) Principal Amount Interest Rate Price 2009 $ 650, % % , , , , , , , , , , , ,030, ,080, $6,280, % Term Bonds due September 15, 2027 priced at % $2,975, % Term Bonds due September 15, 2029 priced at % $33,735,000 COUNTY OF LACKAWANNA, PENNSYLVANIA GENERAL OBLIGATION BONDS, SERIES B OF 2007 MATURITY DATES, PRINCIPAL AMOUNTS, INTEREST RATES AND PRICES OR YIELDS Due (September 15) Principal Amount Interest Rate Price 2008 $ 550, % % , ,020, ,065, ,105, ,150, ,205, ,265, ,330, ,395, ,450, ,505, ,570, ,645, ,730, $10,025, % Term Bonds due September 15, 2027 priced at % $4,745, % Term Bonds due September 15, 2029 priced at %

3 COUNTY OF LACKAWANNA, PENNSYLVANIA BOARD OF COUNTY COMMISSIONERS Robert C. Cordaro...Chairman A.J. Munchak...Commissioner Michael J. Washo...Commissioner COUNTY ADMINISTRATION Elected County Officials Edward Karpovich...Treasurer John Mellow...Controller Evelyn Rafalko McNulty... Recorder of Deeds Linda Munley... Register of Wills John J. Szymanski... Sheriff Joseph Brennan... Coroner Mary Rinaldi...Clerk of Judicial Records Appointed County Officials Steven Barcoski... Budget Director Paul Taramelli...County Chief of Staff Thomas Durkin...Chief Financial Officer Elaine Geroulo, Esquire...Solicitor CO-BOND COUNSEL Ballard Spahr Andrews & Ingersoll, LLP Philadelphia, Pennsylvania Anthony C. Lomma, Esquire Scranton, Pennsylvania CO-UNDERWRITERS COUNSEL Pepper Hamilton LLP Philadelphia, Pennsylvania O Malley, Harris, Durkin and Perry, P.C. Scranton, Pennsylvania PAYING AGENT Manufacturers & Traders Trust Co. Harrisburg, Pennsylvania UNDERWRITERS PNC Capital Markets LLC Philadelphia, Pennsylvania Morgan Stanley & Co. Incorporated New York, New York -i-

4 This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy the Bonds in any jurisdiction to any person to whom it is unlawful to make such an offer in such jurisdiction. No dealer, sales representative or any other person has been authorized by the County or the Underwriters to give any information or make any representation, other than those contained herein, in connection with the offering of or solicitation for the Bonds, and if given or made such information or representation must not be relied upon. Information set forth herein was obtained from officials of the County and other sources which are considered reliable and is not to be construed as a representation of the Underwriters. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The information, estimates and expressions of opinion in this Official Statement are subject to change without notice. Neither the delivery of the Official Statement nor any sale of the Bonds shall, under any circumstances, create any implication that there has been no material change in the affairs of the County since the date of the Official Statement. No dealer, broker, salesman, or any other person has been authorized by the County to give any information or to make any representations, other than those contained in this Official Statement, and if given or made, such other information must not be relied upon as having been authorized by the County. 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 the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The Bonds have not been registered under the Securities Act of 1933, as amended, and the Ordinance has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon certain exemptions contained in such federal laws. In making an investment decision, investors must rely upon their own examination of the Bonds and the security therefore, including an analysis of the risk involved. The Bonds have not been recommended by any federal or state securities commission or regulatory authority. The registration, qualification or exemption of the Bonds in accordance with applicable provisions of securities laws of the various jurisdictions in which the Bonds have been registered, qualified or exempted cannot be regarded as a recommendation thereof. Neither such jurisdictions nor any of their agencies have passed upon the merits of the Bonds or the adequacy, accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. Other than with respect to information concerning (i) Ambac Assurance Corporation ( Ambac Assurance ) contained under the caption 2007A BOND INSURANCE POLICY and in Appendix B1 Specimen of 2007A Bond Insurance Policy herein, and (ii) Financial Security Assurance Inc. ( Financial Security ) contained under the caption 2007B BOND INSURANCE POLICY and in Appendix B2 Specimen of 2007B Bond Insurance Policy herein, none of the information in this Official Statement has been supplied or verified by Ambac Assurance or Financial Security and neither Ambac Assurance nor Financial Security makes any representation or warranty, express or implied, as to (i) the accuracy or completeness of such information; (ii) the validity of the Bonds; or (iii) the tax-exempt status of the interest on the Bonds. References in this Official Statement to statutes, laws, rules, regulations, ordinances, resolutions, agreements, reports and documents do not purport to be comprehensive or definitive, and all such references are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. The order and placement of materials in this Official Statement, including the Appendices, are not to be deemed to be a determination of relevance, materiality or importance, and this Official Statement, including the Appendices, must be considered in its entirety. The offering of the Bonds is made only by means of this entire Official Statement. -ii-

5 TABLE OF CONTENTS INTRODUCTION...1 PURPOSE OF THIS ISSUE...1 THE BONDS...2 Description of the Bonds...2 Redemption...2 Selection of Bonds for Redemption...4 Notice of Redemption...4 BOOK-ENTRY ONLY SYSTEM...4 The Depository Trust Company...4 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS...6 General Obligation...6 Sinking Funds...6 PLAN OF FINANCING...7 TAX EXEMPTION...7 Federal Tax Exemption...7 Pennsylvania Tax Exemption...8 Information Reporting and Backup Withholding...8 RIGHTS AND REMEDIES OF BONDHOLDERS...8 MUNICIPAL BANKRUPTCY LAW A BOND INSURANCE POLICY A Bond Insurance Policy...10 Payment Pursuant to the 2007A Bond Insurance Policy...10 Available Information...11 Incorporation of Certain Documents by Reference B BOND INSURANCE POLICY B Bond Insurance Policy...12 LITIGATION...13 LEGAL MATTERS...13 RATING...13 FINANCIAL STATEMENTS...13 UNDERWRITING...14 CONTINUING DISCLOSURE...14 MISCELLANEOUS...15 Negotiability...15 Paying Agent...15 Certain Other Matters...15 APPENDIX A - COUNTY OF LACKAWANNA... A-1 APPENDIX B1 - SPECIMEN OF 2007A BOND INSURANCE POLICY...B1-1 APPENDIX B2 - SPECIMEN OF 2007B BOND INSURANCE POLICY...B2-1 APPENDIX C - AUDITED FINANCIAL STATEMENTS FOR THE COUNTY OF LACKAWANNA FOR THE YEAR ENDED DECEMBER 31, C-1 APPENDIX D - PROPOSED FORM OF OPINION OF CO-BOND COUNSEL... D-l The Table of Contents does not list all of the subjects in this Official Statement and in all instances reference should be made to the complete Official Statement to determine the subjects set forth herein. -iii-

6 OFFICIAL STATEMENT relating to $54,825,000 COUNTY OF LACKAWANNA PENNSYLVANIA CONSISTING OF $21,090,000 GENERAL OBLIGATION BONDS, SERIES A OF 2007 $33,735,000 GENERAL OBLIGATION BONDS, SERIES B OF 2007 INTRODUCTION This Official Statement, including the cover page and Appendices attached hereto, is furnished in connection with the offering by the County of Lackawanna, Pennsylvania (the County ) of its $21,090,000 aggregate principal amount General Obligation Bonds, Series A of 2007 (the 2007A Bonds ) and $33,735,000 General Obligation Bonds, Series B of 2007 (the 2007B Bonds and, together with the 2007A Bonds, the Bonds ). The Bonds are being issued pursuant to an Ordinance of the County Board of Commissioners enacted September 11, 2007 (the Ordinance ). Manufacturers & Traders Trust Co., its successors or assigns, will act as the paying agent, sinking fund depository and bond registrar and transfer agent (in each capacity hereinafter referred to as the Paying Agent ) for the Bonds. The Bonds are general obligations of the County and the County has pledged its full faith, credit and taxing power to pay the principal of, premium, if any, and interest on the Bonds. The Bonds will be issued in accordance with: (i) the laws of the Commonwealth of Pennsylvania (the Commonwealth ), including the Local Government Unit Debt Act, 53 Pa. Cons. Stat. 8001, et seq., as amended (the Debt Act ); (ii) the Home Rule Charter of the County; and (iii) the Ordinance. Copies of the Ordinance may be obtained from the County. Neither the delivery of this Official Statement nor any sale of the Bonds made hereunder shall, under any circumstances, create an implication that there have been no changes in the affairs of the County, or the communities or areas served by the County, since the date of this Official Statement or of the earliest date as of which certain information contained herein is given. PURPOSE OF THIS ISSUE The proceeds of the Bonds, together with and interest earnings thereon, will be used to: (1) finance the cost of certain capital projects of the County, including capitalized interest thereon; (2) refund all or a portion of certain of the County s outstanding General Obligation Bonds, Series A of 2004, Series B of 2004 and Series B of 1999; and (3) pay the costs of issuing and insuring the Bonds. See Plan of Financing herein.

7 ESTIMATED SOURCES AND USES 2007A Bonds 2007B Bonds Sources of Funds: Proceeds of Bonds $21,090, $33,735, Transferred Proceeds re: 2004B Bonds ,095, Original Issue Premium 577, ,465, Interest Earnings 294, Accrued Interest 26, , TOTAL SOURCES OF FUNDS... $21,988, $36,339, Use of Funds Capital Projects $20,264, $ 0.00 Refunding Project ,811, Capitalized Interest 879, Accrued Interest 26, , Cost of Issuance (1) 818, ,483, TOTAL USES OF FUNDS $21,988, $36,339, (1) Includes legal fees and expenses, Underwriters Discount, Paying Agent fees, rating agency fees, bond insurance premiums, printing fees, financial advisory fees, accounting fees, and miscellaneous fees. THE BONDS Certain capitalized terms used herein but not defined elsewhere in this Official Statement shall have the meanings given to them under the heading THE BONDS-Certain Definitions Relating to the Bonds. Description of the Bonds The Bonds shall bear interest at the rates and at the times as set forth on the inside front cover hereof. Interest on the Bonds shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The Bonds will be issued as fully registered bonds without coupons, in denominations of $5,000 and any integral multiple thereof. The Bonds will be dated October 1, 2007 and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company. Payment of principal of and interest on the Bonds will be made directly to DTC or its nominee, Cede & Co., by the Paying Agent. See BOOK-ENTRY ONLY SYSTEM. The Bonds are subject to redemption prior to maturity, as set forth below. Redemption Optional Redemption. The Bonds maturing on or after September 15, 2018 are subject to redemption prior to maturity at the option of the County on September 15, 2017, or any date thereafter, in whole or from time to time in part, in such order of maturity or portion of each maturity as may be designated by the County and within a maturity by lot, or by any other method deemed by the Paying Agent to be fair and appropriate at a redemption price of 100% of the principal amount to be redeemed, plus interest accrued thereon, to the date of redemption. Mandatory Sinking Fund Redemption for the 2007A Bonds. The 2007A Bonds maturing on September 15, 2027 are subject to mandatory redemption prior to maturity on September 15 in the years shown below, at a redemption price equal to 100% of the principal amount being -2-

8 redeemed plus accrued interest to the date of redemption, from mandatory sinking fund installments in the amounts set forth below: Year Principal Amount 2023 $1,135, ,195, ,255, ,315, * 1,380,000 *Final Maturity The 2007A Bonds maturing on September 15, 2029 are subject to mandatory redemption prior to maturity on September 15 in the years shown below, at a redemption price equal to 100% of the principal amount being redeemed plus accrued interest to the date of redemption, from mandatory sinking fund installments in the amounts set forth below: 2028 $1,450, * 1,525,000 *Final Maturity Mandatory Sinking Fund Redemption for 2007B Bonds. The 2007B Bonds maturing on September 15, 2027 are subject to mandatory redemption prior to maturity on September 15 in the years shown below, at a redemption price equal to 100% of the principal amount being redeemed plus accrued interest to the date of redemption, from mandatory sinking fund installments in the amounts set forth below: Year Principal Amount 2023 $1,815, ,905, ,000, ,100, * 2,205,000 *Final Maturity The 2007B Bonds maturing on September 15, 2029 are subject to mandatory redemption prior to maturity on September 15 in the years shown below, at a redemption price equal to 100% of the principal amount being redeemed plus accrued interest to the date of redemption, from mandatory sinking fund installments in the amounts set forth below: 2028 $2,315, * 2,430,000 *Final Maturity -3-

9 Selection of Bonds for Redemption If less than all of the Bonds of a series and maturity shall be called for prior redemption, the particular Bonds or portions thereof to be redeemed shall be selected at random by the Paying Agent, in such manner as the Paying Agent in its discretion may deem fair and appropriate. Notice of Redemption Notice of any redemption shall be given by depositing a copy of the redemption notice by first class mail, postage prepaid, not less than thirty (30) days prior to the date fixed for redemption, addressed to each of the registered owners of the Bonds to be redeemed at the addresses shown in the registration books on the fifth Business Day preceding the date selected for the mailing of such notice; provided, however, that failure to give such notice by mailing, or any defect therein or in the mailing thereof with respect to one Bond, shall not affect the validity of any proceeding for redemption of other Bonds so called for redemption as to which proper notice has been given. On the date designated for redemption, notice having been provided as aforesaid, and money for payment of the principal and interest being held by the Paying Agent, interest on the Bonds or portion thereof shall cease to accrue and such Bonds or portions thereof shall cease to be entitled to any benefit or security under the Ordinance, and registered owners of such Bonds or portions thereof so called for redemption shall have no rights with respect thereto, except to receive payment of the principal to be redeemed and accrued interest thereon to the date fixed for redemption. If at the time of the mailing of any notice of redemption the County shall not have deposited with the Paying Agent moneys sufficient to redeem all the Bonds called for redemption, such notice shall state that it is conditional, that is, subject to the deposit or transfer of redemption moneys with the Paying Agent not later than the opening of business on the redemption date, and that such notice shall be of no effect unless such moneys are so deposited. BOOK-ENTRY ONLY SYSTEM The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, as defined herein under the heading The Depository Trust Company, payment of principal, redemption premium, if any, and interest with respect to the Bonds to DTC, its Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, its Participants and the Beneficial Owners is based solely on the understanding of the County of such procedures and record keeping from information provided by DTC. Accordingly, no representations can be made concerning these matters and neither DTC, its Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or its Participants, as the case may be. The County, the Paying Agent and the Underwriters understand that the current Rules applicable to DTC are on file with the Securities and Exchange Commission and that the current Procedures of DTC to be followed in dealing with Participants are on file with DTC. The Depository Trust Company The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities, in authorized denominations, registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity within a series of the Bonds, each in the aggregate principal amount of such maturity within a series, and will be deposited with DTC. If, however, the aggregate principal amount of the Bonds exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such maturity within a series. 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 -4-

10 Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing authority registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC 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 bookentry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of the Depository Trust and Clearing Corporation ( DTCC ). DTCC, in turn, is owned by a number of its Direct Participants and members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emergency 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, Inc., 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, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). The rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bonds documents. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to any matter related to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the County as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). -5-

11 Principal and interest payments on the 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 County, on payable date in accordance with their respective holdings shown on DTC s records. Payments by participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such participant and not of DTC nor its nominee, or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the County or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, certificated Bonds are required to be printed and delivered. The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In such event, certificated Bonds will be printed and delivered. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the County believes to be reliable, but the County takes no responsibility for the accuracy thereof. NEITHER THE COUNTY NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION, EITHER SINGULARLY OR JOINTLY, TO DIRECT PARTICIPANTS, TO INDIRECT PARTICIPANTS, OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (II) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE OWNERS OF THE BONDS UNDER THE ORDINANCE; (III) THE SELECTION BY DTC OR ANY DIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; (IV) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR REDEMPTION PREMIUM, IF ANY, OR INTEREST DUE WITH RESPECT TO THE BONDS; (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNER OF THE BONDS, OR (VI) ANY OTHER MATTER. General Obligation SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Bonds are general obligations of the County, payable from taxes and other general revenues of the County, which presently include ad valorem taxes levied on all taxable property within the County unlimited as to rate or amount, for the payment of debt service due on the Bonds. The County has covenanted that it will provide in its budget in each year, and will appropriate from its general revenues in each such year, the amount of debt service on the Bonds for such year and will duly and punctually pay or cause to be paid from the Sinking Funds established for the Bonds or any of its revenues or funds the principal of every Bond and the interest thereon on the dates and at the places and in the manner stated in the Bonds and the Ordinance, and for such budgeting, appropriation and payment, the County has irrevocably pledged its full faith, credit and taxing power. Sinking Funds For certain information concerning the County, see Appendix A COUNTY OF LACKAWANNA. Sinking funds for the payment of debt service on each of the series of 2007A Bonds and 2007B Bonds (collectively, the Sinking Funds ) have been created under the Ordinance and maintained by the Paying Agent, as sinking fund depository (the Sinking Fund Depository ). The County will deposit in the Sinking Funds on or prior to the date when interest and/or principal is due on the Bonds, a sufficient sum so that on such payment date the -6-

12 respective Sinking Funds will contain, together with any other available funds therein, sufficient money to pay in full, interest and/or principal then due on the Bonds. All moneys in the Sinking Funds not required for prompt expenditure may, in accordance with the procedures described in the Ordinance, be invested in authorized investments. Authorized investments held in the Sinking Funds must mature or must be subject to redemption, withdrawal or collection in their full amount at the option of the Paying Agent not later than the date upon which moneys are required to be paid to owners of the Bonds. All moneys in the Sinking Funds shall be applied exclusively to the payment of the debt service for the Bonds as the same from time to time becomes due and payable. All moneys deposited into the Sinking Funds and all investments and proceeds thereof shall be subject to a perfected security interest for the benefit of the owners of the Bonds. The Paying Agent, as Sinking Fund Depository, is authorized without further order from the County to pay from the Sinking Funds the principal of and interest on the Bonds as and when due and payable. PLAN OF FINANCING The proceeds of the 2007A Bonds, together with interest earnings thereon, will be applied to: (1) finance the cost of certain capital projects of the County, including capitalized interest thereon; and (2) pay the costs of issuing and insuring the Bonds. The capital projects funded by the Bonds include (a) further capital repairs, renovations, improvements and additions to the County s courthouse; (b) capital repairs, renovations, improvements and additions to the County s prison and the County s Trolley Museum; (c) all or a portion of the County s allocable share of certain capital repairs, renovations, improvements and additions to the Wilkes-Barre Scranton International Airport and certain pedestrian and parking facilities located adjacent to the County of Lackawanna Transportation System (COLTS) intermodal complex; (d) certain systems upgrades, equipment and vehicles used at the County s prison; (e) certain transportation-related capital repairs and equipment; and (f) other miscellaneous capital projects and equipment, located within the County. The proceeds of the 2007B Bonds, together with interest earnings thereon, will be applied to: (1) currently refund all of the County s outstanding General Obligation Bonds, Series B of 2004 (the 2004B Bonds ) and terminate the floating-to-fixed rate swap agreement entered into dated as of November 23, 2004 (the 2004B Swap ) between the County and PNC Bank, National Association entered into concurrently with the issuance of the 2004B Bonds; (2) currently refund the principal amount of the County s outstanding General Obligation Bonds, Series A of 2004 maturing October 15, 2007 (such portion being referred to as the 2004A Bonds ); (3) currently refund the principal amount of the County s outstanding General Obligation Bonds, Series A of 1999 maturing January 1, 2008 (such portion being referred to as the 1999A Bonds and, together with the 2004B Bonds and the 2004A Bonds, the Bonds to be Refunded ); and (4) pay certain costs of issuance and bond insurance premiums. Federal Tax Exemption TAX EXEMPTION In the opinion of Ballard Spahr Andrews & Ingersoll, LLP, and Anthony C. Lomma, Esquire, Co-Bond Counsel, interest on the Bonds is excludable from gross income for purposes of federal income tax under existing laws as enacted and construed on the date of issuance of the Bonds, assuming the accuracy of the certifications of the County and continuing compliance by the County with the requirements of the Internal Revenue Code of 1986 (the Code ). Interest on the Bonds is not an item of tax preference for purposes of either individual or corporate federal alternative minimum tax, but interest on Bonds held by a corporation (other than an S corporation, regulated investment company, real estate investment trust, or real estate mortgage investment conduit) may be indirectly subject to federal alternative minimum tax because of its inclusion in the adjusted current earnings of a corporate holder. Interest on Bonds held by foreign corporations may be subject to the branch profits tax imposed by the Code. Ownership of the Bonds may result in other federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients -7-

13 of social security or railroad retirement benefits, certain S corporations and taxpayers who may be deemed to have incurred or continued debt to purchase or carry the Bonds. No opinion is expressed as to these matters. The 2007A Bonds maturing in the years 2009 through and including 2013 and 2021 through and including 2029 and the 2007B Bonds maturing in the years 2008 through and including 2016 and 2020 through and including 2029 are offered at a premium ( original issue premium ) over their principal amount. For federal income tax purposes, original issue premium is amortizable periodically over the term of a Bond through reductions in the holder s tax basis for the Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Amortization of premium does not create a deductible expense or loss. Holders should consult their tax advisers for an explanation of the amortization rules. The 2007ABonds maturing in the years 2014 through and including 2020 and the 2007B Bonds maturing in the years 2017 through and including 2019 are offered at a discount ( original issue discount ) equal generally to the difference between public offering price and principal amount. For federal income tax purposes, original issue discount on a Bond accrues periodically over the term of the Bond as interest with the same tax exemption and alternative minimum tax status as regular interest. The accrual of original issue discount increases the holder s tax basis in the Bond for determining taxable gain or loss from sale or from redemption prior to maturity. Holders should consult their tax advisers for an explanation of the accrual rules. Pennsylvania Tax Exemption In the opinion of Co-Bond Counsel, under the laws of the Commonwealth of Pennsylvania as enacted and construed on the date of issuance of the Bonds, the Bonds are exempt from personal property taxes in Pennsylvania, and interest on the Bonds is exempt from Pennsylvania personal income tax and Pennsylvania corporate net income tax. On May 21, 2007, the U.S. Supreme Court agreed to review a Kentucky state court decision on the issue of whether the U.S. Constitution precludes states from giving more favorable tax treatment to state and local government bonds issued within that state than the tax treatment given bonds issued outside that state. The outcome of this or any similar case cannot be predicted, but the ultimate result could be a change in the treatment for state tax purposes of obligations such as the Bonds, including whether interest on the Bonds is exempt from Pennsylvania income tax. Information Reporting and Backup Withholding Payments of interest on tax-exempt obligations, including the Bonds, are generally subject to the Internal Revenue Service ( IRS ) information reporting by the payor and backup withholding if the recipient has not furnished the payor with a completed Form W-9, certifying the recipient s tax identification number or basis for exemption. Backup withholding means that the payor will withhold tax from the interest payments at the backup withholding rate, currently 28%. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the account, as generally can be expected, there should be no backup withholding on the Bond interest. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for Federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner s Federal income tax once the required information is furnished to the IRS. RIGHTS AND REMEDIES OF BONDHOLDERS Pursuant to the Debt Act, amounts deposited in the Sinking Funds (as defined in the Debt Act) and all investments and proceeds of investments thereof shall be subject to a security interest in favor of the holders of the Bonds until such moneys or investments shall have been properly disbursed or sold. The Debt Act confers on the holder of any Bond the right, through court action, to compel the County to make required sinking fund payments and obtain a judgment for amounts due and owing on the Bonds. -8-

14 The Debt Act further provides that if the County should default in the payment of debt service on the Bonds when due and such default shall continue for thirty (30) days, or if the County should fail to comply with any provisions of the Bonds or the Ordinance (or any agreements with the Paying Agent and/or the Bond Insurer authorized by the Ordinance), the holders of twenty-five (25) percent in aggregate principal amount of the Bonds may appoint a trustee, who may be the Paying Agent, to represent the holders of the Bonds. Such trustee may, and upon written request of the holders of twenty-five (25) percent in aggregate principal amount of the Bonds, shall take such actions on behalf of the Bondholders as are permitted by the Debt Act, including among others, a petition to the Court of Common Pleas of Lackawanna County to levy the amount due on the Bonds upon all taxable real estate and other property subject to ad valorem taxation in the County in the manner more particularly described in the Debt Act. Bonds. The taking of action by such trustee shall preclude the taking of similar action by individual holders of the With respect to the 2007A Bonds, as long as the terms of the 2007A Bond Insurance Policy are being fully met and satisfied, the consent of Ambac Assurance is needed to pursue any remedies under the Ordinance and the Debt Act, and Ambac Assurance shall be deemed the holder of the 2007A Bonds for purposes of the Ordinance. If debt service is paid on the 2007A Bonds under the 2007A Bond Insurance Policy, Ambac Assurance will be subrogated to all rights of the holders of the 2007A Bonds. With respect to the 2007B Bonds, as long as the terms of the 2007B Bond Insurance Policy are being fully met and satisfied, the consent of Financial Security is needed to pursue any remedies under the Ordinance and the Debt Act, and Financial Security shall be deemed the holder of the 2007B Bonds for purposes of the Ordinance. If debt service is paid on the 2007B Bonds under the 2007B Bond Insurance Policy, Financial Security will be subrogated to all rights of the holders of the 2007B Bonds. The Debt Act provides certain other remedies in the event of default, and further qualifies the remedies herein described. MUNICIPAL BANKRUPTCY LAW The rights and remedies of holders of the Bonds are subject to the provisions of Chapter 9 of the Federal Bankruptcy Code ( Bankruptcy Code ). In general, Chapter 9 permits, under certain circumstances, a political subdivision of a state to commence a voluntary bankruptcy proceeding and to file a plan of adjustment in the repayment of its debts, if such political subdivision is generally not paying its debts as they become due (unless such debts are the subject of a bona fide dispute), or is unable to pay its debts as they become due. The filing of a petition in bankruptcy generally operates as an automatic stay of the commencement or continuation of any judicial proceeding against the debtor and its property and against an officer or inhabitant of the debtor that seeks to enforce a claim against the debtor. In order to proceed under Chapter 9, state law must authorize the political subdivision to file a petition under the Bankruptcy Code. Pennsylvania law authorizes a municipality such as the County to file a petition under Chapter 9 of the Bankruptcy Code where one of the conditions set forth in Act No ( Act 47 ) of the Commonwealth of Pennsylvania, as amended (also referred to as the Municipalities Financial Recovery Act ) is present. Act 47 permits a municipality to file a municipal debt adjustment action pursuant to the Bankruptcy Code if: (1) filing is recommended by a plan coordinator appointed by the Pennsylvania Department of Community and Economic Development ( DCED ); (2) there is imminent jeopardy of an action by a creditor, claimant or supplier of goods or services that is likely to substantially interrupt or restrict the continued ability of the municipality to provide health or safety services; (3) one or more creditors of the municipality have rejected a plan proposed or adopted by the municipality and unsuccessful negotiations have continued for ten days; (4) a condition substantially affecting the municipality s financial distress is potentially solvable only by using a remedy exclusively available through the Federal Municipal Debt Readjustment Act; or (5) a majority of the governing body of a municipality determined by the DCED to be financially distressed has failed to adopt a plan or carry out the recommendations of such as a plan coordinator. Act 47 also contains provisions and circumstances under which a municipality may be declared to be in financial distress making it eligible for interest free loans, grants and/or administrative assistance -9-

15 through adoption of a financial plan and appointment of a plan coordinator. Such coordinator, appointed by the DCED, would have the authority to recommend a plan increasing taxes or other sources of revenues, reducing services, rescheduling obligations or merging municipalities. The above references to the Bankruptcy Code and Act 47 are for informational purposes only and are not to be construed as an indication that the County expects to resort to the provisions of such laws or that, if it did, permission would be granted by the DCED, or that any proposed plan or plans would include a dilution of the sources of payment and the security for the payment of the Bonds. 2007A Bond Insurance Policy 2007A BOND INSURANCE POLICY Concurrently with the issuance of the 2007A Bonds, Ambac Assurance Corporation ( Ambac Assurance or the 2007A Bond Insurer ) will issue its financial guaranty insurance policy for the 2007A Bonds (the 2007A Bond Insurance Policy or the 2007A Policy ). The 2007A Policy guarantees the scheduled payment of principal of and interest on the 2007A Bonds when due as set forth in the form of the 2007A Policy included as Appendix B1 to this Official Statement. Payment Pursuant to the 2007A Bond Insurance Policy Ambac Assurance, a Wisconsin-domiciled stock insurance corporation, has made a commitment to issue the 2007A Bond Insurance Policy relating to the Bonds, effective as of the date of issuance of the 2007A Bonds. Under the terms of the 2007A Bond Insurance Policy, Ambac Assurance will pay The Bank of New York, in New York, New York, or any successor thereto (the Insurance Trustee ), that portion of the principal of and interest on the 2007A Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the 2007A Bond Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Paying Agent. The insurance will extend for the term of the 2007A Bonds and, once issued, cannot be canceled by Ambac Assurance. The 2007A Bond Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the 2007A Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding 2007A Bonds, Ambac Assurance will remain obligated to pay the principal of and interest on outstanding 2007A Bonds on the originally scheduled interest and principal payment dates, including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the 2007A Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac Assurance elects, in its sole discretion, to pay all or a portion of the accelerated principal and interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac Assurance s obligations under the 2007A Bond Insurance Policy shall be fully discharged. In the event the Paying Agent has notice that any payment of principal of or interest on a 2007A Bond that has become Due for Payment and that is made to a holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, non-appealable order of a court or competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The 2007A Bond Insurance Policy does not insure any risk other than Nonpayment (as set forth in the -10-

16 2007A Bond Insurance Policy). Specifically, the 2007A Bond Insurance Policy does not cover: 1. prepayment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; 2. payment of any redemption, prepayment or acceleration premium; and 3. nonpayment of principal or interest caused by the insolvency or negligence of the Trustee, Paying Agent or Bond Registrar, if any. If it becomes necessary to call upon the 2007A Bond Insurance Policy, payment of the principal requires surrender of the 2007A Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such 2007A Bonds to be registered in the name of Ambac Assurance to the extent of payment under the 2007A Bond Insurance Policy. Payment of interest pursuant to the 2007A Bond Insurance Policy requires proof of holder entitlement to interest payments and an appropriate assignment of the holder s right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the 2007A Bonds, appurtenant coupon, if any, or right to payment of principal of or interest on such Bonds as will be fully subrogated to the surrendering holder s right to payment. Ambac Assurance Corporation Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $10,391,000,000 (unaudited) and statutory capital of approximately $6,730,000,000 (unaudited) as of June 30, Statutory capital consists of Ambac Assurance's policyholders' surplus and statutory contingency reserve. Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. and Fitch Ratings have each assigned a triple-a financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in the Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor. Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regarding, nor has it participated in the preparation of, this Official Statement other than the information supplied by Ambac Assurance and presented under the heading 2007A BOND INSURANCE POLICY. Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the Company ), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the SEC ). These reports, proxy statements and other information can be read and copied at the SEC s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C Please call the SEC at SEC-0330 for further information on the public reference room. The SEC maintains an internet site at that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York

17 Copies of Ambac Assurance s financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance s administrative offices is One State Street Plaza, 19 th Floor, New York, New York 10004, and its telephone number is (212) Incorporation of Certain Documents by Reference The following documents filed by the Company with the SEC (File No ) are incorporated by reference in this Official Statement: 1. The Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and filed on March 1, 2007; 2. The Company s Current Report on Form 8-K dated and filed on April 25, 2007; 3. The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2007 and filed on May 10, 2007; 4. The Company s Current Report Filed on Form 8-K dated and filed on July 25, 2007; 5. The Company s Current Report on Form 8-K dated and filed on August 3, 2007; and 6. The Company s Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2007 and filed on August 9, All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in Available Information. 2007B Bond Insurance Policy 2007B BOND INSURANCE POLICY Concurrently with the issuance of the 2007B Bonds, Financial Security Assurance Inc. ( Financial Security or the 2007B Bond Insurer ) will issue its municipal bond insurance policy for the 2007B Bonds (the 2007B Bond Insurance Policy or the 2007B Policy ). The 2007B Policy guarantees the scheduled payment of principal of and interest on the 2007B Bonds when due as set forth in the form of the 2007B Policy included as Appendix B2 to this Official Statement. Financial Security is a New York domiciled financial guaranty insurance company and a wholly owned subsidiary of Financial Security Assurance Holdings Ltd. ( Holdings ). Holdings is an indirect subsidiary of Dexia, S.A., a publicly held Belgian corporation, and of Dexia Credit Local, a direct wholly-owned subsidiary of Dexia, S.A. Dexia, S.A., through its bank subsidiaries, is primarily engaged in the business of public finance, banking and asset management in France, Belgium and other European countries. No shareholder of Holdings or Financial Security is liable for the obligations of Financial Security. At June 30, 2007, Financial Security s combined policyholders surplus and contingency reserves were approximately $2,642,612,000 and its total net unearned premium reserve was approximately $2,116,401,000 in accordance with statutory accounting principles. At June 30, 2007, Financial Security s consolidated shareholder s equity was approximately $3,072,828,000 and its total net unearned premium reserve was approximately $1,660,356,000 in accordance with generally accepted accounting principles. The consolidated financial statements of Financial Security included in, or as exhibits to, the annual and quarterly reports filed after December 31, 2005 by Holdings with the Securities and Exchange Commission are hereby incorporated by reference into this Official Statement. All financial statements of Financial Security included in, or as exhibits to, documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the -12-

18 Securities Exchange Act of 1934 after the date of this Official Statement and before the termination of the offering of the 2007B Bonds shall be deemed incorporated by reference into this Official Statement. Copies of materials incorporated by reference will be provided upon request to Financial Security Assurance Inc.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). The 2007B Bond Insurance Policy does not protect investors against changes in market value of the 2007B Bonds, which market value may be impaired as a result of changes in prevailing interest rates, changes in applicable ratings or other causes. Financial Security makes no representation regarding the 2007B Bonds or the advisability of investing in the 2007B Bonds. Financial Security makes no representation regarding the Official Statement, nor has it participated in the preparation thereof, except that Financial Security has provided to the Issuer the information presented under this caption for inclusion in the Official Statement. LITIGATION At closing, the County shall furnish or cause to be furnished, a certificate in form satisfactory to Bond Counsel and the Underwriters, to the effect that, among other things, there is no litigation pending in any court to restrain or enjoin the issuance or delivery of the Bonds or the proceedings of the County taken in connection therewith, or the application of any moneys provided for their payment, or contesting the powers of the County with respect to the foregoing or the consummation of the transactions contemplated by this Official Statement. For more information relating to litigation see Appendix A COUNTY OF LACKAWANNA. LEGAL MATTERS Certain matters relating to the authorization and issuance of the Bonds will be subject to the approving opinion of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania, and Anthony C. Lomma, Esquire, Scranton, Pennsylvania, Co-Bond Counsel. Certain legal matters will be passed upon for the County by Elaine Geroulo, Esquire, Solicitor to the County, and certain legal matters will be passed upon for the Underwriters by Pepper Hamilton LLP, Philadelphia, Pennsylvania, and O Malley, Harris, Durkin and Perry, P.C., Co-Underwriters Counsel. RATING Moody s Investor Service ( Moody s ) is expected to assign a rating of Aaa with respect to the Bonds based upon the understanding that, upon delivery of the Bonds, the 2007A Bond Insurance Policy will be issued by Ambac Assurance and the 2007B Bond Insurance Policy will be issued by Financial Security insuring the scheduled payment of principal and interest on the 2007A Bonds and 2007B Bonds, respectively. Such rating reflects only the views of such organization and any desired explanation of the significance of such rating should be obtained from Moody s. Generally, a rating agency bases its ratings on information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any period of time or that the ratings will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. FINANCIAL STATEMENTS The audited financial statements of the County for the year ended December 31, 2005 are included as Appendix C to this Official Statement. CERTAIN RELATIONSHIPS Pepper Hamilton LLP, Philadelphia, Pennsylvania, and O Malley, Harris, Durkin and Perry, P.C., Scranton, Pennsylvania, counsel to the Underwriters, have served as Bond Counsel to the County in prior bond issues of the County. -13-

19 UNDERWRITING PNC Capital Markets LLC and Morgan Stanley & Co. Incorporated have agreed to purchase the 2007A Bonds at a purchase price of $21,519,798.65, which includes an underwriters discount of $147,630.00, plus net original issue premium of $577, and the 2007B Bonds at a Purchase Price of $34,963,908.00, which includes an underwriters discount of $236,145.00, plus net original issue premium of $1,465, The Purchase Contracts provide that the Underwriters will purchase all the Bonds, if any are purchased, in accordance with the terms of the Purchase Contracts. The initial public offering price set forth on the inside front cover page of this Official Statement may be changed by the Underwriters from time to time without any requirement of prior notice. The Underwriters reserve the right to join with other dealers in offering the Bonds to the public, and said Bonds offered to other dealers may be at prices lower than those offered to the public. CONTINUING DISCLOSURE The County has agreed to provide certain continuing disclosure for the benefit of the holders of the Bonds. The County agrees to file: (i) with each nationally recognized municipal securities information repository ( NRMSIR ), recognized by the Securities and Exchange Commission (the SEC ) pursuant to SEC Rule 15c2-12 (the Rule ) and the state information depository, if any, of the Commonwealth of Pennsylvania ( SID ), recognized by the SEC pursuant to the Rule, within 275 days after the end of each fiscal year, a copy of its audited financial statements, prepared in accordance with the guidelines adopted by the Government Accounting Standards Board and the American Institute of Certified Public Accountants Audit Guide, Audits of State and Local Government, and an annual updating of the information set forth in Appendix A hereto under the headings TAX STRUCTURE -- Trends in Assessed Valuation, and Realty Tax Collection, FINANCIAL SUMMARIES and DIRECT DEBT. (ii) in a timely manner, with each NRMSIR and the SID, notice of the occurrence of any of the following events (if material) with respect to the Bonds: (a) principal and interest payment delinquencies; (b) non-payment related defaults; (c) unscheduled draws on any debt service reserve reflecting financial difficulties; (d) unscheduled draws and on any credit enhancement reflecting financial difficulties; (e) substitution of any credit or liquidity provider, or their failure to perform; (f) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (g) modifications to rights of holders of the Bonds; (h) bond calls; (i) defeasance; (j) release, substitution, or sale of property securing repayment of the Bonds; and (k) rating changes. (iii) in a timely manner to the Paying Agent, each NRMSIR and to the SID, notice of a failure by the County to provide its annual financial statements within the time limit specified above. The County, as required by law or in the exercise of reasonable business judgment, reserves the right to modify from time to time the specific types of information provided or the format of the presentation of such information, to the extent necessary or appropriate in the judgment of the County; provided that, the County agrees that any such modifications will be done in a manner consistent with the Rule. The County reserves the right to terminate its obligation to provide annual financial information and notices of material events, as set forth above, if and when the County no longer remains an obligated person with respect to the Bonds within the meaning of the Rule. The County acknowledges that its undertaking pursuant to the Rule described under this heading is intended to be for the benefit for the registered owners of the Bonds and shall be enforceable by the Paying Agent on their behalf; provided that, the Paying Agent s right to enforce the provisions of this undertaking shall be limited to a right to obtain specific enforcement of the County s obligations hereunder and any failure by the County to comply with the provisions of this undertaking shall not be an event of default with respect to the Bonds. In recent years, the County has failed to meet its obligations under the continuing disclosure agreements relating to previous bond issues to provide annual financial information within the periods specified in the applicable agreement. At this time, the County has filed all required financial information for the prior fiscal years. For fiscal year 2006, the County has filed its unaudited financial statements and intends to file its audited financial statements when available. The County intends to meet its required continuing disclosure obligations in future years. -14-

20 MISCELLANEOUS Negotiability The Bonds are investment securities under Article 8 of the Pennsylvania Uniform Code and are negotiable instruments to the extent provided therein. Paying Agent The obligations and duties of the Paying Agent are described in the Ordinance and the Paying Agent has undertaken only those obligations and duties which are expressly set out in the Ordinance. The Paying Agent has not independently passed upon the validity of the Bonds, the security therefore, the adequacy of the provisions for payment thereof or the tax-exempt status of the interest on the Bonds. The Paying Agent has no fiduciary obligations other than with respect to moneys delivered to it for payment upon the Bonds. Certain Other Matters The information set forth herein has been obtained from the County and other sources which are believed to be reliable. So far as any statement herein includes matters of opinion, or estimates of future expenses and income, whether or not expressly so stated, such statements are intended merely as such and not as representations of fact, The information contained herein should not be construed as representing all conditions affecting the County or the Bonds. Additional information may be obtained directly from the County. The information assembled herein is not to be construed as a contract with holders of the Bonds. COUNTY OF LACKAWANNA, PENNSYLVANIA By: /s/ Robert C. Cordaro Chairman Board of Commissioners -15-

21 APPENDIX A COUNTY OF LACKAWANNA A-1

22 COUNTY OF LACKAWANNA LACKAWANNACOUNTY.ORG

23 GENERAL INFORMATION General All information regarding the County herein has been provided by the County except where specifically noted otherwise. The County of Lackawanna (the County ), organized in August 1878, is Pennsylvania s youngest county. The County has a land area of 461 square miles and is located in the northeast corner of the state about 150 miles north of Philadelphia. Two cities, seventeen boroughs and twenty-one townships are located inside the County s boundaries. The City of Scranton is both the County seat and the largest municipality in the County. Major interstate highways provide excellent access to and from the County, making it an ideal location for corporations and individuals requiring efficient transportation for goods and services. Interstate 81 from the north and south, Interstate 380 from the South, Interstate 84 from the east, on the Pennsylvania Turnpike Northeast Extension (Interstate 476) from the south, U.S. Route 6 (Governor Robert P. Casey Highway), U.S. Route 11, PA Route 307 and Business Route 6 (Scranton-Carbondale Highway) provided excellent local connections. Commercial rail service is provided over approximately 75 miles of track by the Canadian Pacific Railway, Delaware Lackawanna, Norfolk Southern Railway Company, Reading Blue Mountain and Northern Railroad and Luzerne and Susquehanna Railroad Company. Scheduled passenger train service between Scranton and Hoboken, New Jersey is anticipated to commence within the next five years. Commercial air transportation is centered at the Wilkes-Barre Scranton International Airport. Public transportation to most major cities within the northeastern United States is offered by Martz Trailways, Capital Trailways and Greyhound bus companies which depart from downtown Scranton. Medical care for the County s residents is provided by nine hospitals with a total of approximately 2,400 beds. Seven colleges with a total enrollment of approximately 10,250 are located in the County. A total of approximately 42,000 students are enrolled in public schools located in the County. Although 83.2% of the County s population lives in areas classified as urban, there are 289 farms in the County. Healthcare, education and manufacturing are the largest components of the County s employment base. Tourism is a growing industry attracting visitors to the County s historic sites, architecture, and the County s cultural, recreational and natural resources. The Steamtown National Historic Site offers tourists the opportunity to enjoy excursion passenger train service. Form of County Government The County operates under a Home Rule Charter form of government. On April 27, 1976, the electorate of the County voted to adopt their current Home Rule Charter (the Charter ) pursuant to Section 207 of Pennsylvania s Home Rule Charter and Optional Plans Law of 1972, Act 62 (P.L. 184), as amended ( Act 62 ). Act 62 permits a Study Commission to recommend retention of the existing form of government, recommend adoption of an optional plan of government or to draft or recommend a home rule charter. Both the legislative and administrative branches of the government are a function of the Board of Commissioners consisting of the top three vote-getters in a four-person field. Some basic provisions of the Charter are: 1. The Charter permits County Government to be less dependent on State laws. The Charter gives the power to pass ordinances that relate to local needs without depending on the General Assembly for approval. 2. The Charter maintains the Board of County Commissioners and most of the row offices. -1-

24 Elected Officials 3. The Charter includes a clearer definition of the powers of the County Commissioners. The Charter also provides for monetary restrictions on contract awards and also, on its face, contains limitations on the County s ability to increase millage for property tax purposes. However, the Court of Common Pleas of Lackawanna County has ruled that such limitation has been preempted by statute of the Commonwealth of Pennsylvania. See the section herein entitled Taxing Power. 4. The creation of the position of Administrative Director to implement County ordinances and resolutions and to enhance liaison between the Commissioners, County Government and the people. 5. The powers of the Controller were increased to assure adequate checks and balances of the County Commissioners. 6. The Sheriff s office was given new powers and authorities. 7. The budgetary process was updated and provisions made for an independent audit. 8. A personnel and administrative code was adopted. 9. Direct citizen participation through initiative, referendum and recall, not available under the provisions of the County Code, is provided in the Charter. County Commissioners. Three county commissioners (two from one political party and a third from a different political party) are elected to four-year terms. All legislative powers as may be exercised by the County under the Constitution and Laws of the Commonwealth of Pennsylvania are vested in the Board of Commissioners including the power to: a. enact, amend, or repeal ordinances and resolutions; b. make appropriations, incur indebtedness and adopt an annual and capital budget; c. levy taxes, assessments and service charges; d. provide for enforcement of all ordinances; e. acquire property by eminent domain; f. legislate in respect of intergovernmental programs; g. enter into agreements with units or groupings of local governments; h. legislate concerning County participation in development programs including but not limited to mass transit, housing, aeronautics, land use, waste disposal and cultural development; i. make provisions for any matters of County Government not otherwise provided for. Controller. The County Controller is elected to a four-year term and is responsible for the operation and maintenance of the County s budgeting and accounting systems. In addition, all bonds, notes, contracts and written obligations of the County shall be executed by the Controller, the Chairman of the Board of Commissioners and the County Treasurer. Treasurer. The County Treasurer is elected to a four-year term and is responsible for the custody and investment of all County money. In addition, the Treasurer acts as a tax collecting agency and signs all checks properly authenticated and vouched by the Controller. -2-

25 County Employment The following table shows full and part-time employment by the County government for the years 1997 through Year Total Number , , , , , , , , , , ,587 Labor Relations As of January 1, 2007, the County had a total of 1,587 budgeted employees (including part-time employees). Of these, 770 are represented by the unions show below: Union No. Current Contract Represents Year of Last Expires Last Strike Duration Service Employees International Union 209 Clerical Maintenance 12/31/2008 None N.A. Local #406 Employees Service Employees International Union 222 Health & Social Service 12/31/2008 None N.A. Local #406 Employees American Federation of State, County & 134 Correctional Employees 12/31/2008 None N.A. Municipal Employees American Federation of State, County & 90 Child Welfare 12/31/ days Municipal Employees Employees Lackawanna County 11 Detectives 12/31/2009 None N.A. Lackawanna County Adult, Juvenile & 54 Employees 12/31/2009 None N.A. Domestic Relations Officer Lackawanna County Deputy Sheriffs Association 50 Deputy Sheriffs 12/31/2009 None N.A. Certain County-wide Governmental Entities Within Lackawanna County Other governmental entities that operate within the County are listed in the succeeding paragraphs. The County guarantees certain debt issued by some of these entities. The section entitled Direct Debt herein offers further information regarding these County guarantees. Lackawanna County Industrial Development Authority ( LCIDA ). The LCIDA provides tax-exempt financing to encourage economic development in the County. Lackawanna County Railroad Authority ( LCRA ). The LCRA was formed in 1984, for the purpose of purchasing and operating a railroad for $1.7 million. The original related mortgage of the LCRA has been paid. The County has provided annual grant subsidies to the Authority in the past but presently does not subsidize the LCRA. Lackawanna County Planning Commission ( LCPC ). The LCPC is an advisory commission which advises the Board of Commissioners of the County on various grants and development projects within the County. The LCPC also advises municipalities on grants, development and zoning ordinances. The LCPC has no indebtedness. -3-

26 County of Lackawanna Transit System ( COLTS ). The COLTS provides bus service for the residents of the County. The COLTS s existing debt is not guaranteed by the County. Lackawanna County Multi-Purpose Stadium Authority ( Stadium Authority ). The Stadium Authority has been responsible for the operation and maintenance of a multi-purpose stadium facility constructed in the County primarily for use as a minor league baseball stadium for a team currently affiliated with the New York Yankees. The Stadium Authority s outstanding debt is not guaranteed by the County. Over the past years, the County has provided subsidies to the Stadium Authority for operations and capital projects. The following provides a summary of these subsidies over the past five years. Year Net Amount for Operations Net Amount for Capital Projects Net Amount Total 2002 $181, $0.00 $181, ,333, ,333, ,670, ,670, ,669, , ,344, ,121, ,447, ,568, Total $7,975, $4,123, $12,098, The Stadium Authority has entered into a management agreement and purchase option agreement with SWB Yankees LLC to operate all activities of the Stadium Authority with an option to purchase the AAA affiliate. SWB Yankees LLC is a corporate entity 50% owned by Mandalay BB Enterprises and the New York Yankees. The management agreement eliminated any further County subsidy for operations and guarantees a minimum payment of $125,000 per annum from SWB Yankees LLC for operational costs. Future capital improvements remain the responsibility of the Stadium Authority. Northeastern Pennsylvania Sports Development Corporation ( NPSDC ). The NPSDC was formed in 1986 as a Pennsylvania nonprofit corporation with two authorized stock shares owned by the County and the County of Luzerne. Its purpose was to finance the acquisition of a AAA baseball franchise. The franchise has been donated to the Stadium Authority. Each County guaranteed 50% of the notes issued by NPSDC of which $128,846 remains outstanding. NPSDC is currently a non-operating entity; therefore the County s portion of the outstanding debt is $64,423 and is recorded as long-term debt with a final maturity of February 20, Solid Waste Management Authority ( SWMA ). The SWMA is responsible for implementing the County s Recycling Program including, but not limited to, the operation of the County s Recycling Facility and the development and implementation of the County s Solid Waste Management Plan developed in accordance with PA Act 101of 1998, as amended. The County, until 2005, provided an annual subsidy to the SWMA of approximately $600,000 but presently does not. The SWMA is currently privately operated by a private firm. The current operator pays the SWMA $60,000 annually. Lackawanna County Housing Authority ( LCHA ). The LCHA provides public housing for low income and elderly residents of the County. None of the LCHA s existing debt carries a County guaranty. Population DEMOGRAPHICS The County s population decreased by 2.6% from 1990 to The table below shows population comparisons for the County, Pennsylvania and the United States % Change % Change Lackawanna County 219, , ,525 (2.6%) (1.8%) Pennsylvania 11,881,643 12,281,054 12,429, U.S. 249,709, ,421, ,410, Source: U.S. Department or Commerce - Bureau of Census -4-

27 Per Capita Personal Income The following table shows the per capita income levels of Lackawanna County, Pennsylvania and the United States % Change % Change Lackawanna County $12,358 $18,710 $29, % 59.47% Pennsylvania 14,068 20,880 33, U.S. 14,420 21,587 34, Source: Bureau of Research Statistics, Pennsylvania Department of Labor and Industry Housing The number of housing units within the County has increased by 4.0% from 1990 to The following chart shows comparable housing data for the County and Pennsylvania. Number of Units Median Housing Value %Change Owner Occupied Lackawanna County 91,707 95,362 96, $93,400 Pennsylvania 4,938,140 5,249,750 5,422, $97,000 Employment AREA COMMERCE Listed below are the ten largest employers located within the County, and the estimated number of employees of each as of March 31, 2006: Company Name Product /Service Estimated Employees United States Government Federal Government Agencies 3,300 Commonwealth of Pennsylvania State Government Agencies 2,700 Mercy Hospital Health Care 2,352 Allied Services Rehabilitation Hospital and Elder 2,300 Care Tobyhanna Army Depot Electronics 2,250 Cinram Manufacturing Recorded Music Mfg. 1,794 Lackawanna County County Government Agencies 1,544 Diocese of Scranton Church/Schools 1,420 Community Medical Center Health Care 1,386 Moses Taylor Hospital Health Care 1,100 Source: Greater Scranton Area Chamber of Commerce. -5-

28 Unemployment Rates The following table shows the rates of unemployment of Lackawanna County, Pennsylvania and the United States for the ten-year period ending December 31, 2006 and the seven-month period ending May 1, * Lackawanna County 7.1% 5.8% 5.2% 4.3% 4.7% 5.7% 5.4% 6.2% 4.8% 5.6% 4.8% Pennsylvania U.S Source: Pennsylvania Dept. of Labor & Industry, Bureau of Research & Statistics. Not seasonally adjusted. *May 2007 TAXING POWER The Charter permits the County to levy ad valorem taxes on all taxable real and personal property within County borders. The Charter provides for a maximum millage limitation on real and personal property taxes imposed by the County, and thus, on its face, limit the County s authority to levy taxes for general revenue purposes, including debt service requirements. The limitation is 25 mills, plus additional increases of 5% of total millage per year after such 25 mill limit is reached. The County has imposed the following taxes based on millage which is nominally subject to the millage limits: For the Year Ended December 31, 2007: (Budgeted) Property Type Millage Real Estate (General Fund) Real Estate (Debt Service) Library (Library Fund) Culture & Education Total The County has pledged its full faith, credit and taxing power for the payment of the Bonds. On March 18, 1986, the Court of Common Pleas of Lackawanna County decided Charles Luger v. Joseph J. Corcoran and Ray A. Alberigi, Majority Commissioners of the County of Lackawanna and the County of Lackawanna, 85-CIV-5841 (hereinafter Luger v. County of Lackawanna ). In that case, the plaintiffs challenged the authority of the County to change its predetermined ratio between assessed value and market value as being contrary to the millage limits in the County s Home Rule Charter. The Court upheld the County s authority to change its predetermined ratio, and, in addition, stated that the limitation on millage in the Home Rule Charter is preempted by state statute and is therefore invalid. In relevant part the Court stated: It should also be noted that the 1984 Amendment to the Home Rule Charter Act, Section prohibits the establishing of limitations on rates of taxation by the governing body specifically. Section (a.1) in pertinent part states that: the governing body of a home rule municipality shall not be subject to any limitation on the rates of taxation imposed upon residents. Thus, it appears that any restrictions on increasing taxes, including limiting the increase of millage above 25 mills, are now preempted by the State Legislature of Pennsylvania. -6-

29 This preemption is in accordance with Article 9, Section 2 of the Pennsylvania Constitution which, in relevant part provides: [a] municipality which has a home rule charter may exercise any power or perform any function not denied by the Constitution, by its home rule charter or by the General Assembly at any time. The Court s decision in Luger v. County of Lackawanna was not appealed by either plaintiff within the time period prescribed for appeal, and therefore represents a final adjudication of the matters decided therein. Reassessment. The County has initiated the reassessment of all taxable real estate within the County. Completion of reassessment notices is expected in First year tax revenue in 2009 may not increase due to reassessed values more than 5.0% but may exceed 5.0% in succeeding years. Legal Action. On December 22, 2004, a taxpayer filed an action for declaratory judgment in the Court of Common Pleas of Lackawanna County (the Complaint ) challenging the rate of taxation set by the County Commissioners on December 14, The millage rate was increased from to Preliminary objections to the complaint were filed by the County and on December 20, 2005, the Court of Common Pleas of Lackawanna County sustained the objections and dismissed the complaint (the Order ). In January 2006, the Order was appealed to Pennsylvania Commonwealth Court. On December 28, 2006, Pennsylvania Commonwealth Court affirmed the lower Court s Order. A Petition for Allowance of Appeal (the Petition ) was filed with the Pennsylvania Supreme Court on March 13, There is no right of appeal to the Pennsylvania Supreme Court, and the Pennsylvania Supreme Court, to date, has not ruled on the Petition. -7-

30 TAX STRUCTURE Trends in Assessed Valuation The trend in assessed valuation of real estate in the County is shown below: Year Assessed Valuation Market Value Assessed to Market Percentage l997 $1,270,605,957 $4,974,482, ,276,724,543 5,291,329, ,268,895,167 5,282,682, ,287,437,021 5,675,477, ,301,736,817 5,750,473, ,326,258,465 6,198,571, ,337,971,352 6,287,402, ,356,799,562 6,788,877, ,532,652,250 6,904,165, ,555,251,944 7,624,284, Source: Pennsylvania State Tax Equalization Board ( STEB ) Taxpayers The major taxpayers within the County and their real property assessed valuation as of January 1, 2007, are as follows: Larger Taxpayers Taxpayer Business Assessed Valuation Steamtown Mall Partners L.P. Shopping Mall $5,576,391 Shoppes at Montage Shopping 4,900,000 Kane Properties Trucking & 4,200,000 Warehousing PR Financing Limited Shopping Mall 3,865,335 Partnership Fleet Bank Financial Services 3,493,436 Fleet Bank Financial Services 3,471,524 Prudential Insurance Co. Financial Services 3,467,831 PR Financing Ltd Partnership Shopping Mall 3,344,000 Versacold Logistics LLC Warehousing 3,222,600 Cinemark USA Inc. Movie Theater 2,669,920 New Plan Realty Trust Shopping Mall 2,579,710 TOTAL $40,790,747 Percentage of Assessed Value of Property of the County s Larger Taxpayers to Total Fiscal 2007 Assessed Value of all property in the County $1,436,364,209 equals 2.84%. -8-

31 Realty Tax Collection Real Estate taxes for the calendar year are levied on February 1, of each year and collected by the Lackawanna Single Tax Office and remitted to the County. Taxes are payable as follows: 2.2% discount February 1 through February 28; 2% discount March 1 through April 30; face amount May 1 through June 30. A 2% interest penalty is assessed each month beginning in January of the following year. After two years, properties liened for unpaid taxes may be sold at Sheriff s sale. The County collects delinquent taxes on its behalf and for other taxing authorities. These collections and remittances are accounted for through the County s Delinquent Tax Agency Fund. Real Estate Tax Collections Budget Millage (mills) Tax Levy $33,816,518 $38,350,797 $38,796,737 $39,539,969 $40,046,367 $60,457,141 $58,305,730 $55,997,200 Current Collection $30,025,264 $33,267,494 $33,890,254 $34,864,742 $35,356,534 $53,407,022 $50,178,594 $49,557,522 % of Levy 88.79% 86.75% 87.35% 88.18% 88.29% 88.34% 87,10% 88.50% Prior Yrs Collection $4,040,163 $4,164,023 $5,378,843 $5,234,503 $4,871,737 $5,058,403 $7,385,312 $7,030,000 Total Collections $34,065,427 $37,431,517 $39,269,097 $40,099,245 $40,228,271 $58,465,425 $58,169,906 $56,587,522 % of Levy % 97.60% % % % 96.71% 99.77% % -9-

32 Pension Program The County s Employees Pension Plan (the Plan ) is a single-employer defined benefit pension plan that covers all employees of the County. The Plan provides retirement, disability and death benefits to plan members and their beneficiaries. Cost-of-living adjustments are provided at the discretion of the County s Retirement Board. Act 96 of 1971, as amended, cited as the County Pension Law, provides for the creation, maintenance and operation of the Plan. Plan members are presently required to contribute 8% of their annual covered salary. The County is required to contribute at an actuarial determined rate. The Entry Age Actuarial Cost Method of funding is used to determine costs. The County employs the HayGroup as its independent consulting actuary. The HayGroup s most recent actuarial report is dated June 20, Selected information from that report is presented below. Actuarial present value of projected future benefits... $114,543,257 Actuarial value of plan assets ,954,131 Actuarial present value of projected future benefits in excess of Actuarial value of plan assets $9,589,126 Funded ratio % Accumulated net pension obligation... $4,936,532 Source: The County s Report on 2006 Actuarial Valuation dated as of June 20, 2006 prepared by the HayGroup. INTEREST RATE MANAGEMENT AGREEMENTS The County has six interest rate swap agreements, all with PNC Bank, N.A., ( PNC, also referred to herein as the Counterparty ), currently outstanding as of the date hereof as described below: 1. A floating-to-fixed rate swap agreement (the 2004B Fixed Swap ) entered into on November 23, 2004, relating to all of the County s 2004B Bonds. The 2004B Fixed Swap is structured such that the County will receive 63% of the London Interbank Offered Rate (LIBOR) having a one-month maturity (One Month LIBOR) plus 25 basis points (0.25%) from PNC as the 2004B Fixed Swap Counterparty, and shall pay a fixed rate of 3.693% to PNC thus creating a synthetic fixed rate liability in relation to the 2004B Bonds; 2. A floating-to-fixed rate swap agreement (the 2005B Fixed Swap ), entered into on December 22, 2005 relating to all of the County s 2005B Auction Rate Securities (the 2005B Bonds ); The 2005B Fixed Swap is structured such that the County will receive a rate equal to the lesser of (i) the actual interest rate on the 2005B Bonds, or (ii) 63% of One Month LIBOR plus 25 basis points (0.25%) through October 1, 2008 (the 2005B Bonds Escrow Period ) from PNC. The County will pay a fixed rate of 3.54% to PNC from the effective date until the maturity of the 2005B Fixed Swap. The receipt on the 2005B Fixed Swap is expected to approximate the interest rate on the 2005B Bonds over the life of the 2005B Bonds thus creating a synthetic fixed rate liability for the 2005B Bonds; 3. A floating-to-fixed rate swap agreement (the 2006A Fixed Swap ) and together with the 2004B Fixed Swap and 2005B Fixed Swap, the Fixed Swaps ), entered into on May 23, 2006 relating to all of the County s 2006A General Obligation Bonds (the 2006A Bonds ). The 2006A Fixed Swap is structured such that the County will receive a rate equal to the 68% of the One Month LIBOR from PNC as the 2006A Swap Counterparty. The County will pay a fixed rate of 3.937% to PNC from the effective date until the maturity of the 2006A Fixed Swap; 4. A Constant Maturity Basis Swap (the 2004B CMS ) entered into on May 23, 2006 relating to all of the County s 2004B Bonds. The 2004B CMS is structured such that the County will receive % of LIBOR having a five year maturity (Five Year LIBOR) from PNC and shall pay 63% of the One Month LIBOR plus 25 basis points (0.25%) offsetting the receipt on the 2004B Fixed Swap. The expectation, based on historical data, is that the receipt from the 2004B CMS will surpass the corresponding payment over time; -10-

33 5. A Constant Maturity Basis Swap (the 2005B CMS ) entered into on May 23, 2006 relating to all of the County s 2005B Bonds. The 2005B CMS is structured such that the County will receive % of Five Year LIBOR from PNC and shall pay 63% of the One Month LIBOR plus 25 basis points (0.25%) offsetting the receipt on the 2005B Fixed Swap. The expectation, based on historical data, is that the receipt from the 2005B CMS will surpass the corresponding payment over time; and 6. A Constant Maturity Basis Swap (the 2006A CMS and together with the 2004B CMS and the 2005B CMS, the CMS Swaps ) entered into on May 23, 2006 relating to all of the County s 2006A Bonds. The 2006A CMS is structured such that the County will receive % of Five Year LIBOR from PNC and shall pay 68% of One Month LIBOR offsetting the receipt on the 2006A Fixed Swap. The expectation, based on historical data, is that the receipt from the 2006A CMS will surpass the corresponding payment over time. Due to market conditions, the County is likely to amend the existing CMS Swaps at or prior to the issuance of the Bonds by suspending or deferring the payments and amending the ISDA Master Agreement governing the CMS Swaps and the receipts of each to be based upon a percentage of LIBOR having a ten-year maturity (Ten Year LIBOR) in order to better manage the County s current net swap cashflows. In addition, the County will continue to monitor the swap portfolio in order to balance the risks and rewards on an ongoing basis. All of the previously described swap agreements are Qualified Interest Rate Management Agreements as defined under the Debt Act, and the County has pledged its full faith, credit and taxing power for the payment of scheduled periodic payments under such agreements. FINANCIAL SUMMARIES General Fund Revenues, Expenditures and Changes in Fund Balances County operations are funded through the General Fund. The following is a Summary of the General Fund Revenues, Expenditures and Changes in Fund Balances. The summaries for the years ended December 31, 2001 through 2005 are from the County s annual audited General Purpose Financial Statements (the Financial Statements ). The accounts of the County are organized on the basis of funds and account groups, each of which constitutes a separate accounting entity. The governmental fund types are those through which governmental functions are financed and include the General Fund, Special Revenue Funds, Capital Project Fund, Debt Service Fund, Proprietary Funds and Fiduciary Funds. The accounting policies of the County conform with generally accepted accounting principals as applicable to governmental units. The Financial Statements are prepared under the modified accrual basis of accounting. The 2006 financial summary is not audited and is prepared on a cash basis. The County s 2007 Budget is also prepared on a cash basis. -11-

34 Summary of the General Fund Revenues, Expenditures and Changes in Fund Balances Unaudited Budget Year ended December (1) 2007 (1) Taxes 33,044,848 36,340,859 37,678,891 38,436,653 55,818,536 43,201,245 40,790,272 Payments in lieu of taxes 179, , ,567 84, , , ,370 Licenses and permits 14,272 21,052 14,251 14, Grants 14,895,090 15,140,910 14,772,563 17,337,997 16,608,812 17,736,962 18,619,280 Charges and earnings 7,652,113 12,302,619 11,697,695 10,965,688 15,048,659 15,698,007 15,843,323 Courts costs fines & forfeitures 29,017 21, ,193 96,512 20,386 23,719 35,000 Interest and rent 694, , , , ,922 1,106, ,400 Contributions and other 704,671 2,851,895 1,800, , ,045 1,953,305 1,460,000 Total revenue 57,214,928 67,276,779 66,542,601 67,731,981 88,456,558 79,921,569 77,657,645 General government - administrative 9,260,630 10,101,287 11,040,094 12,488,120 13,938,202 13,213,266 12,990,144 General government - judicial 9,055,335 9,935,950 10,057,612 12,742,901 14,356,715 14,308,212 14,608,359 Public safety - corrections 15,689,267 20,102,516 20,918,678 23,409,418 23,255,471 23,380,956 25,819,105 Public works and enterprises 3,442,034 4,393,156 4,630, , , , ,950 Human services 14,853,119 16,601,986 15,814,856 16,206,976 15,593,099 17,624,096 19,089,981 Culture and recreation 2,955,604 3,006,463 3,973,470 4,343,929 5,463,114 2,786,059 2,947,286 Conservation and development 580, , , , , , ,750 Other 420,062 1,759,055 1,415, , , , ,441 Total expenditures 56,256,067 66,598,316 68,611,049 71,340,968 74,385,471 72,480,798 76,690,016 Excess (deficiency) revenue over expenditures 958, ,463 (2,068,468) (3,608,987) 14,071,087 7,440, ,629 Other financing sources (uses): Proceeds from long-term debt ,145, Transfers in 752,307 1,532,122 2,573,751 4,157, ,820 3,995,992 2,264,905 Transfers out (2,722,145) (5,897,503) (7,496,587) (7,277,274) (11,671,249) (12,330,662) (4,889,455) Total other uses and sources (1,969,838) (4,365,381) (4,922,806) 17,025,689 (11,242,429) (8,334,670) (2,624,550) Excess (deficiency) revenue and other financing sources over expenditures and other uses (1,010,977) (3,686,918) (6,991,254) 13,416,702 2,828,657 (893,899) (1,656,921) Beginning fund balance 3,674,900 2,663,923 (1,521,794) (8,513,048) 4,903,654 7,723,310 1,656,921 (2) Prior year adjustments 0 (498,799) Ending fund balance 2,663,923 (1,521,794) (8,513,048) 4,903,654 7,732,310 6,829,411 0 (1) Cash basis. May not compare fairly with prior years. (2) Assume beginning balance cash basis. -12-

35 DIRECT DEBT The outstanding debt of the County as of September 1, 2007, is shown below: General Obligation Debt: Date of Issue Original Amount Final Maturity Outstanding Series B of 1995 Bonds 10/01/95 $ 725,000 10/01/09 $ 215,000 Series A of 1999 Bonds 04/15/99 27,865,000 01/01/22 21,345,000 Series B of 1999 Bonds (taxable) 04/15/99 5,225,000 01/01/19 3,995,000 Series A of 2002 Bonds 01/15/02 19,540,000 10/01/20 13,735,000 Series B of 2002 Bonds (taxable) 01/15/02 4,425,000 10/01/20 3,615,000 Series A of 2004 Bonds 11/23/04 10,110,000 10/15/15 9,565,000 Series B of 2004 Bonds (VRDN) * 11/23/04 29,270,000 10/15/29 29,270,000 Series C of 2004 Bonds 11/23/04 4,210,000 10/15/10 4,200,000 Series D of 2004 Bonds 12/01/04 20,145,000 12/01/14 15,405,000 Series B of 2005 Bonds (VRDN Auction) * 11/28/05 38,650,000 09/15/20 38,650,000 Series A of 2006 Bonds (VRDN) * 06/15/06 41,365,000 09/01/29 41,365,000 Series of 2007 Bonds 10/01/07 54,825,000 09/15/29 54,825,000 Northeastern Pennsylvania Sports Development Corporation * Interest rate synthetically fixed pursuant to interest rate swap agreements. Debt Statement Residents of the County are responsible for the debt indicated below: 04/20/03 465,059 02/20/08 64,423 DIRECT DEBT General Obligation Debt: Series B of 1995 Bonds... $ 215,000 Series A of 1999 Bonds... 21,345,000 Series B of 1999 Taxable... 3,995,000 Series A of 2002 Bonds... 13,735,000 Series B of 2002 Bond Taxable... 3,615,000 Series A of 2004 Bonds... 9,565,000 Series B of 2004 Bonds... 29,270,000 Series C of 2004 Bonds... 4,200,000 Series D of 2004 Bonds... 15,405,000 Series B of 2005 Bonds... 38,650,000 Series A of 2006 Bonds... 41,365,000 Series of 2007 Bonds... 54,825,000 Total General Obligation... $236,185,000 Plus Guaranteed Debt: Northeastern Pennsylvania Sports Development Corporation... $ 64, Lackawanna River Basin Sewer Authority 3,830,000 Total Guaranteed Debt... $3,894,423 Less Refunded Debt: Series A of 1999 Bonds... $ 1,550,000 Series A 0f 2004 Bonds ,000 Series B of 2004 Bonds... 29,270,000 Total Refunded Debt... $31,815,000 Gross Direct Debt... $208,264,423 Less: Self-Supporting Debt: 2004 Lackawanna River Basin Sewer Authority ($3,830,000) Net Direct Debt... $204,434,423 Overlapping Debt... $445,668,864 Net Direct Debt Plus Overlapping Debt. $650,103,

36 Calculation of Borrowing Base Revenues Received from all Sources. $121,983,090 $148,196,957 $154,950,274 Less: Interest on moneys in sinking funds pledged for debt.. 15,000 17, ,284 Grants & Gifts 46,571,495 46,609,779 59,215,571 Net Revenues Adjusted.. 75,396, ,570,178 95,546,419 Total Net Revenues for Three Years ,513,192 Borrowing Base-Average - Three Year Period... 90,837,731 Borrowing Limit: Nonelectoral Debt (300%) ,513,192 Borrowing Limit: Nonelectoral Plus Lease Rental Debt (400%).... $363,350,924 Debt Ratio Calculations Net Direct Debt Plus Overlapping Debt Per Capita $3, Net Direct Debt Plus Overlapping Debt to Market Value 8.66% Net Direct Debt Per Capita $ Net Direct Debt to Market Value % Gross Direct Debt Per Capita. $ Gross Direct Debt to Market Value % 2005 Population. 209, Market Value. $7,519,995,089 Net Direct Debt.. $204,434,423 Gross Direct Debt... $208,264,423 Net Direct Debt Plus Overlapping Debt $650,103,287 Tax and Revenue Anticipation Borrowings Capital Projects Year Amount 1998 $5,000, ,000, ,500, ,000, ,000, ,000, ,000, ,300, ,500, ,500,000 The five-year plan is reviewed annually and revised as appropriate. The five-year plan s remaining capital improvements are summarized below: * Estimated, subject to change. Year Amount * 2008 $26,340, ,500, ,500, ,500,000 Total $34,840,

37 Debt Service Requirements of the County s Outstanding General Obligation Debt * Year NEPA Sports 1986 Note Series 1995 B Series 1999 A Series 1999 B Taxable Series 2002 A Series 2002 B Taxable Series 2004 A Series 2004 C Taxable Series 2004 D Series 2005 B Series 2006 A Series 2007 A Series 2007 B Total 2007 $64, $72, $ 0.00 $ 0.00 $1,597, $289, $ 194, $106, $1,138, $ 696, $ 814, $ 0.00 $ 0.00 $ 4,974, , , , ,904, , ,384, , ,494, ,367, ,683, , ,072, ,294, , ,485, , ,894, , ,384, , ,480, ,741, ,697, ,598, ,551, ,430, ,473, , ,991, , ,382, , ,494, ,727, ,713, ,597, ,552, ,445, ,327, , ,145, , ,383, , ,485, ,738, ,727, ,600, ,556, ,467, ,325, , , , ,288, , ,478, ,423, ,738, ,596, ,553, ,357, ,718, , , , , , ,475, ,799, ,758, ,597, ,554, ,416, ,523, , ,276, , ,383, , ,473, ,825, ,774, ,597, ,552, ,442, ,518, , , , ,380, , ,196, ,788, ,598, ,551, ,984, ,515, , , , , ,224, ,804, ,598, ,553, ,225, ,519, , , , , ,246, ,827, ,601, ,552, ,275, ,514, , , , , ,237, ,846, ,598, ,554, ,292, ,516, , , , , ,273, ,868, ,601, ,551, ,340, , ,302, , ,277, ,890, ,597, ,555, ,647, , ,909, ,598, ,552, ,685, , ,935, ,596, ,555, ,706, ,961, ,597, ,553, ,112, ,988, ,601, ,552, ,141, ,015, ,601, ,552, ,169, ,047, ,598, ,552, ,198, ,080, ,597, ,552, ,230, ,112, ,598, ,552, ,263, ,144, ,601, ,551, ,296, $64, $239, $26,283, $5,886, $18,312, $5,573, $10,546, $5,901, $18,521, $51,775, $64,126, $34,481, $55,686, $297,334, * As of June 30, Partially refunded with Series B 2007 Bonds Refunded with Series B of 2007 Bonds (1) County portion only. -15-

38 APPENDIX B1 SPECIMEN OF 2007A BOND INSURANCE POLICY B1-1

39 Financial Guaranty Insurance Policy Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York Telephone: (212) Obligor: Policy Number: Obligations: Premium: Ambac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees to pay to The Bank of New York, as trustee, or its successor (the Insurance Trustee ), for the benefit of the Holders, that portion of the principal of and interest on the above-described obligations (the Obligations ) which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor. Ambac will make such payments to the Insurance Trustee within one (1) business day following written notification to Ambac of Nonpayment. Upon a Holder s presentation and surrender to the Insurance Trustee of such unpaid Obligations or related coupons, uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Holder the amount of principal and interest which is then Due for Payment but is unpaid. Upon such disbursement, Ambac shall become the owner of the surrendered Obligations and/or coupons and shall be fully subrogated to all of the Holder s rights to payment thereon. In cases where the Obligations are issued in registered form, the Insurance Trustee shall disburse principal to a Holder only upon presentation and surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free of any adverse claim, together with an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or such Holder s duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or its nominee. The Insurance Trustee shall disburse interest to a Holder of a registered Obligation only upon presentation to the Insurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to the Insurance Trustee of an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee, duly executed by the Holder or such Holder s duly authorized representative, transferring to Ambac all rights under such Obligation to receive the interest in respect of which the insurance disbursement was made. Ambac shall be subrogated to all of the Holders rights to payment on registered Obligations to the extent of any insurance disbursements so made. In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on an Obligation which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from the Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such Holder will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. As used herein, the term Holder means any person other than (i) the Obligor or (ii) any person whose obligations constitute the underlying security or source of payment for the Obligations who, at the time of Nonpayment, is the owner of an Obligation or of a coupon relating to an Obligation. As used herein, Due for Payment, when referring to the principal of Obligations, is when the scheduled maturity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity; and, when referring to interest on the Obligations, is when the scheduled date for payment of interest has been reached. As used herein, Nonpayment means the failure of the Obligor to have provided sufficient funds to the trustee or paying agent for payment in full of all principal of and interest on the Obligations which are Due for Payment. This Policy is noncancelable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. SPECIMEN President Secretary Effective Date: THE BANK OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy. Form No.: 2B-0012 (1/01) A- Authorized Representative Authorized Officer of Insurance Trustee

40 APPENDIX B2 SPECIMEN OF 2007B BOND INSURANCE POLICY B2-1

41 FINANCIAL SECURITY ASSURANCE MUNICIPAL BOND INSURANCE POLICY ISSUER: BONDS: Policy No.: -N Effective Date: Premium: $ FINANCIAL SECURITY ASSURANCE INC. ("Financial Security"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of Financial Security, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which Financial Security shall have received Notice of Nonpayment, Financial Security will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by Financial Security, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in Financial Security. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by Financial Security is incomplete, it shall be deemed not to have been received by Financial Security for purposes of the preceding sentence and Financial Security shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, Financial Security shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by Financial Security hereunder. Payment by Financial Security to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of Financial Security under this Policy. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless Financial Security shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment

42 Page 2 of 2 Policy No. -N made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from an Owner, the Trustee or the Paying Agent to Financial Security which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds. Financial Security may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to Financial Security pursuant to this Policy shall be simultaneously delivered to the Insurer's Fiscal Agent and to Financial Security and shall not be deemed received until received by both and (b) all payments required to be made by Financial Security under this Policy may be made directly by Financial Security or by the Insurer's Fiscal Agent on behalf of Financial Security. The Insurer's Fiscal Agent is the agent of Financial Security only and the Insurer's Fiscal Agent shall in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of Financial Security to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, Financial Security agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to Financial Security to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy sets forth in full the undertaking of Financial Security, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be canceled or revoked. 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, FINANCIAL SECURITY ASSURANCE INC. has caused this Policy to be executed on its behalf by its Authorized Officer. [Countersignature] FINANCIAL SECURITY ASSURANCE INC. By By Authorized Officer A subsidiary of Financial Security Assurance Holdings Ltd. 31 West 52 nd Street, New York, N.Y (212) Form 500NY (5/90)

43 APPENDIX C AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 C-1

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