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HomeMy WebLinkAboutOrd 1806 - waterworks and sewer system revenue refunding bonds, series 2005 }. ), ORDINANCE NO. 1806 ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF WEST UNIVERSITY PLACE, TEXAS, WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2005; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; AUTHORIZING THE ADVANCE REFUNDING OF CERTAIN OUTSTANDING BONDS AND THE EXECUTION AND DELNERY OF AN ESCROW AGREEMENT AND THE SUBSCRIPTION FOR AND PURCHASE OF CERTAIN ESCROWED SECURITIES THE STATE OF TEXAS 9 COUNTY OF HARRIS S CITY OF WEST UNNERSITY PLACE ~ WHEREAS, the City Council of the City of West University Place, Texas (the "City") has heretofore issued its Waterworks and Sewer System Revenue Bonds, Series 1996A, Waterworks and Sewer System Revenue Bonds, Series 1996B and Waterworks and Sewer System Revenue Bonds, Series 1998A; and WHEREAS, the City desires to refund such bonds in advance of their maturities (the "Refunded Bonds"); and WHEREAS, Chapter 1207, Texas Government Code, as amended, authorizes the City to issue refunding bonds payable from taxes, without an election, for the purpose of refunding the Refunded Bonds in advance of their maturities, and to accomplish such refunding by depositing directly with any paying agent (or other qualified escrow agent) for the Refunded Bonds the proceeds of such refunding bonds, together with other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Bonds, and provides that such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; and WHEREAS, the City desires to authorize the execution of an escrow agreement and provide for the deposit of proceeds of the refunding bonds herein authorized, together with other funds, to pay the Refunded Bonds; and WHEREAS, upon the issuance of the refunding bonds herein authorized and the deposit of funds referred to above, the Refunded Bonds shall no longer be regarded as being outstanding, except for the purpose of being paid pursuant to such deposit, and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the ordinances authorizing the issuance of the Refunded Bonds shall be, with respect to the Refunded Bonds, discharged, terminated and defeased; Now, therefore BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF WEST UNIVERSITY PLACE, TEXAS: 1 . ARTICLE I RECITALS: CONSIDERATIONS It is hereby found and determined that the matters and facts set out in the preamble to this Ordinance are true and correct. It is hereby found and determined that the refunding contemplated in this Ordinance will benefit the City by providing a total savings of $203,683.85 and a present value savings of $139,524.55 in debt service payable by the City and permitting the substitution of a surety policy to satisfy the Reserve Requirement Fund, that such benefit is sufficient consideration for the refunding of the Refunded Bonds, and that the issuance of the refunding bonds is in the best interests of the City. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. In this Ordinance, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Act" means, collectively, Chapters 1207, 1371 and 1502, Texas Government Code, as amended. "Additional Parity Bonds" mean the additional parity revenue bonds permitted to be issued by the City pursuant to Section 5.1 of this Ordinance. "Blanket Issuer Letter of Representations" means the Blanket Issuer Letter of Representations between the City, the Registrar and DTC. "Bond Purchase Agreement" means the agreement between the City and the Underwriter described in Section 7.1 of this Ordinance. "Bonds" mean the City of West University Place, Texas, Waterworks and Sewer System Revenue Refunding Bonds, Series 2005 authorized in this Ordinance, unless the context clearly indicates otherwise. "Business Day" means any day which is not a Saturday, Sunday, or a day on which the Registrar is authorized by law or executive order to close. "City" means the City of West University Place, Texas.. "Closing Date" means the date of the initial delivery of and payment for the Bonds.. "Comptroller" means the Comptroller of Public Accounts of the State of Texas.. -2- "Debt Service Fund" means the debt service fund for payment of principal of and interest on the Bonds established by the City in Section 4.3 of this Ordinance. "DTC" means The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" means brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalfDTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Escrow Agent" means JPMorgan Chase Bank, National Association.. "Escrow Agreement" means the agreement between the City and the Escrow Agent relating to the escrow of funds to pay the Refunded Bonds.. "Gross Revenues" mean all revenues, income and receipts of every nature derived or received by the City from the operation and ownership of the System and the interest income from the investment or deposit of money in the Revenue Fund, the Debt Service Fund, and the Reserve Fund.. "Initial Bond" means the Initial Bond authorized by Section 3 .4( d). "Interest Payment Date", when used in connection with any Bond, means February 1, 2006, and each August 1 and February 1 thereafter until maturity or earlier redemption. "Maintenance and Operation Expenses" mean the reasonable and necessary expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service (but only such repairs and extensions as, in the judgment of the governing body of the City, are necessary to keep the System in operation and render adequate service to the City and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair the System), and all payments under contracts now or hereafter defined as operating expenses by the Legislature of Texas. Depreciation shall never be considered as a Maintenance and Operation Expense. "MSRB" means the Municipal Securities Rulemaking Board. "N et Revenues" mean all Gross Revenues remaining after deducting the Maintenance and Operation Expenses. "NRMSIR" means each person whom the SEe or its staffhas determined to be a nationally recognized municipal securities information repository within the meaning of the Rille from time to time. "Ordinance" as used herein and in the Bonds means this ordinance authorizing the Bonds. -3- "Outstanding Bonds" means the City's Waterworks and Sewer System Revenue Bonds, Series 2001A and Series~2001B. "Owner" when used with respect to any Bond, means the person or entity in whose name such Bond is registered in the Register. Any reference to a particular percentage or proportion of the Owners mean the Owners at the particular time of the specified percentage or proportion in aggregate principal amount of all Bonds then outstanding under this Ordinance, exclusive of Bonds held by the City. . "Parity Bonds" mean the Bonds, the Outstanding Bonds, and each series of Additional Parity Bonds from time to time hereafter issued, but only to the extent such Parity Bonds remain outstanding within the meaning of this Ordinance. "Record Date" means, with respect to the Bonds, the close of business on the fifteenth day of the month preceding such Interest Payment Date. "Refunded Bonds" mean the City's Waterworks and Sewer System Revenue Bonds, Series 1996A, dated September 15, 1996, in the aggregate principal amount of $3,385,000, maturing on February 1 in each of the years 2006 through 2016, both inclusive; the City's Waterworks and Sewer System Revenue Bonds, Series 1996B, dated September 1, 1996, in the aggregate principal amount of$1,080,000, maturing on February 1 in each of the years 2006 through 2016, both inclusive, and the City's Waterworks and Sewer System Revenue Bonds, Series 1998A, Series 1998, dated October 1, 1998, in the aggregate principal amount of$4,190,OOO, maturing on February 1 in each of the years 2006 through 2016, both inclusive, and in the years 2019 and 2022. "Register" means the books of registration kept by the Registrar, in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. "Registrar" means JPMorgan Chase Bank, National Association, and its successors in that capacity. "Report" means the report of Grant Thornton LLP, verifying the accuracy of certain mathematical computations relating to the Bonds and the Refunded Bonds. "Reserve Fund Requirement" means the average annual principal and interest requirements on the Parity Bonds, which may be determined and redetennined each year by the City but in no event less frequently than upon the issuance of each series of Parity Bonds. "Reserve Fund Surety Policy" means an insurance policy or other credit agreement as provided in Section 5~6 of this Ordinance. "Rule" means SEe Rule 15c2-12, as amended from time to tirne~ "SEe" means the United States Securities and Exchange Commission. -4- "SID" means the Municipal Advisory Council of Texas, which has been designated by the State of Texas as, and determined by the SEe staff to be, a state information depository within the meaning of the Rule. "Special Project" means, to the extent permitted by law, any waterworks or sanitary sewer system property, improvement or facility declared by the City not to be part of the System and substantially all of the costs of acquisition, construction, and installation of which is paid from proceeds of a financing transaction other than the issuance of bonds payable from ad valorem taxes or Gross Revenues or Net Revenues of the System, and for which all maintenance and operation expenses are payable from sources other than revenues of the System, but only to the extent that and for so long as all or any part of the revenues or proceeds of which are or will be pledged to secure the payment or repayment of such costs of acquisition, construction and installation under such financing transaction. "System" means all properties, facilities, improvements, equipment, interests, and rights constituting the waterworks and sanitary sewer system of the City, including all future extensions, replacements, betterments, additions, and improvements to the System. The System shall not include any Special Project. "Underwriter" means First Southwest Company and Southwest Securities, Inc~ Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders~ The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Parity Bonds and the validity of the lien on and pledge of the Net Revenues to secure the payment of the Parity Bonds. ARTICLE III TERMS OF THE BONDS Section 3.1 : The Bonds shall be issued in fully registered form in the aggregate principal amount $9,020,000 for the purpose of refunding the Refunded Bonds, under and in strict conformity with the Constitution and laws of the State of Texas, particularly Chapter 1207, Texas Government Code, as amended. Section 3.2: Designation~ Dateil and Interest Payment Dates. The Bonds shall be designated as "City of West University Place, Texas, Waterworks and Sewer System Revenue Refunding Bonds, Series 2005," and shall be dated September 1,2005. The Bonds shall bear interest at the rates set out in Section 3.3 of this Ordinance from the later of September 1, 2005, or the most recent Interest Payment Date to which interest has been paid or duly provided for, calculated on the -5- basis of a 360 day year of twelve 30 day months, payable on February 1, 2006, and semiannually thereafter on August 1 and February 1 of each year until maturity or earlier redemption. Section 3.3: Principal Amounts and Interest Rates: Numbers and Denominations. The Bonds shall be issued in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Bonds shall mature on February 1 in each of the years and in the amounts set out in such schedule. The Initial Bond shall be numbered I-I and all other Bonds shall be numbered in sequence beginning with R-l. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Registrar, shall be in the denomination of$5,OOO or integral multiples thereo~ and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Principal Interest Year Amount Rate 2006 $525,000 3.000% 2007 515,000 3.125% 2008 540,000 3.2500/0 2009 555,000 3.5000/0 2010 575,000 3.625% 2011 585,000 3.750% 2012 620,000 3.875% 2013 645,000 4.000% 2014 675,000 4.000% 2015 695,000 4.125% 2016 725,000 4.000% 2017 380,000 4.100% 2018 405,000 4.200% 2019 400,000 4.250% 2020 395,000 4.300% 2021 395,000 4.375% 2022 390,000 4.400% Section 3.4: Execution of Bonds: Seal. (a) The Bonds shall be signed on behalf of the City by the Mayor and countersigned by the City Secretary, by their manual, lithographed, or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. (b) If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of -6- such Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. (c) Except as provided below, no Bond shall be valid or obligatory for anypurposeorbe entitled to any security or benefit of this Ordinance unless and until there appears thereon the Registrar's Authentication Bond substantially in the form provided herein, duly authenticated by manual execution by an officer or duly authorized signatory of the Registrar. In lieu of the executed Registrar's Authentication Bond described above, the Initial Bond delivered at the Closing Date shall have attached hereto the Comptroller's Registration Certificate substantially in the form provided herein, manually executed by the Comptroller, or by his duly authorized agent, which certificate shall be evidence that the Initial Bond has been duly approved by the Attorney General of the State of Texas and that it is a valid and binding obligation of the City, and has been registered by the Comptroller.. (d) On the Closing Date, the Initial Bond, being a single bond representing the entire principal amount of the Bonds, payable in stated installments to the Underwriter or its designee, executed by manual or facsimile signature of the Mayor and City Secretary of the City, approved by the Attorney General, and registered and manually signed by the Comptroller, shall be delivered to the Underwriter or its designee. Upon payment for the Initial Bond, the Registrar shall cancel the Initial Bond and deliver definitive Bonds to DTC. Section 3..5: Payment of Principal and Interest. The Registrar is hereby appointed as the paying agent and registrar for the Bonds. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which, on the date of payment, is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable at the principal payment office of the Registrar in Dallas, Texas. The interest on each Bond shall be payable on each Interest Payment Date, by check mailed by the Registrar on or before the Interest Payment Date to the Owner of record as of the Record Date. If the date for payment of the principal of or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day with the same force and effect as if made on the date payment was originally due. Section 3.6: Successor Registrars. The City covenants that at all times while any Bonds are outstanding it will provide a commercial bank or trust company, organized under the laws of the United States or any state, authorized under such laws to exercise trust powers, and subject to supervision or examination by federal or state authority, to serve as and perform the duties and services of Registrar for the Bonds. The City reserves the right to change the Registrar on not less than 60 days written notice to the Registrar, so long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Bonds~ Promptly upon the appointment of any successor Registrar, the previous Registrar shall deliver the Register or copies thereof to the new Registrar, and the new Registrar shall notify each Owner, by United States mail, first class postage prepaid, of such change and of the address of the new Registrar. Each Registrar -7- hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Section. Section 3.7: Special Record Date. If interest on any Bond is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Owner ofrecord as of the close of business on the day prior to the mailing of such notice. Section 3.8: Ownership: Unclaimed Principal and Interest" The City, the Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the putpose of making and receiving payment of the principal of or interest on such Bond, and for all other putposes, whether or not such Bond is overdue, and neither the City nor the Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this Section shall be valid and effectual and shall discharge the liability of the City and the Registrar upon such Bond to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. Section 3.9: Registration~ Transfer. and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal payment office in Dallas, Texas~ and, subject to such reasonable regulations as it may prescribe, the Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Ordinance. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal payment office of the Registrar in Dallas, Texas, duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Registrar. Upon due presentation of any Bond for transfer, the Registrar shall authenticate and deliver in exchange therefor, within three Business Days after such presentation, a new Bond or Bonds registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal payment office of the Registrar in Dallas, Texas, for a Bond or Bonds of like maturity and interest rate and in any authorized denomination, in an aggregate amount equal to the unpaid principal -8- amount of the Bond or Bonds presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section. Each Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The City or the Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Registrar for such transfer or exchange shall be paid by the City. Section 3.10: Mutilated~ Lost. or Stolen Bonds. Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. If any Bond is lost, apparently destroyed, or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and in the absence ofnotice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authorize and the Registrar shall authenticate and deliver a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Registrar may require the Owner of a mutilated Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Registrar. The City or the Registrar may require the Owner of a lost, apparently destroyed or wrongfully taken Bond, before any replacement Bond is issued, to: (1) furnish to the City and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) furnish such security or indemnity as may be required by the Registrar and the City to save them harmless; (3) pay all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Registrar and any tax or other governmental charge that may be imposed; and (4) meet any other reasonable requirements of the City and the Registrar. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Registrar in connection therewith. -9- If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. Section 3.11: Cancellation of Bonds. All Bonds paid in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be cancelled and destroyed upon the making of proper records regarding such payment. The Registrar shall furnish the City with appropriate certificates of destruction of such Bonds. Section 3.12: Book-Entry System~ (a) The Initial Bond shall be registered in the name of First Southwest Company. Except as provided in Section 15 hereof, all other Bonds shall be registered in the name of Cede & Co., as nominee of DTC. (b) With respect to Bonds registered in the name of Cede & Co., as nominee ofDTC, the City and the Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such DTC Participant holds an interest in the Bonds, except as provided in this Ordinance. Without limiting the immediately preceding sentence, the City and the Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records ofDTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Ordinance to the contrary, the City and the Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute Owner of such Bond for the purpose of payment of principal of and interest on the Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Registrar shall pay all principal ot: premium, ifany, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payments of principal, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a Bond certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Upon delivery by DTC to the Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions of this Ordinance with respect to interest checks being mailed to the Owner of record as of the Record Date, the phrase "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. -10- Section 3.13. Successor Securities Depository: Transfer Outside Book-Entry Only System. In the event that the City in its sole discretion, determines that the beneficial owners of the Bonds be able to obtain certificated Bonds, or in the event DTC discontinues the services described herein, the City shall (i) appoint a successor securities depository, qualified to act as such under Section 17( a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants, as identified by DTC, of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (ii) notify DTC and DTC Participants, as identified by DTC, of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts, as identified by DTC. In such event, the Bonds shall not longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.14. Payments to Cede & Co.. Notwithstanding any other provision of this Ordinance to the contrary, so long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds, and all notices with respect to such Bonds, shall be made and given, respectively, in the manner provided in the Blanket Letter of Representations. Section 3.15. Optional Redemption. The Bonds are subject to optional redemption as set forth in the Form of Bonds in this Ordinance. Principal amounts may be redeemed only in integral multiples of$5,OOO. If a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000. Upon surrender of any Bond for redemption in part, the Registrar, in accordance with Section 3.11 hereof, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity, Issuance Date, and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so sU1Tendered~ Notice of any redemption identifying the Bonds to be redeemed in whole or in part shall be given by the Registrar at least thirty days prior to the date fixed for redemption by sending written notice by first class mail, postage prepaid, to the Owner of each Bond to be redeemed in whole or in part at the address shown on the Register~ Such notices shall state the redemption date, the redemption price, the place at which Bonds are to be surrendered for payment and, if less than all Bonds outstanding of a particular maturity are to be redeemed, the numbers of the Bonds or portions thereof of such maturity to be redeemed. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. By the date fixed for redemption, due provision shall be made with the Registrar for payment of the redemption price of the Bonds or portions thereof to be redeemed, plus accrued interest to the date fixed for redemption. When Bonds have been called for redemption in whole or in part and due provision has been made to redeem the same as herein provided, the Bonds or portions thereof so redeemed shall no longer be regarded as outstanding except for the purpose of receiving payment solely from the funds so provided for redemption, and the rights of the Owners to collect interest -11- which would otherwise accrue after the redemption date on any Bond or portion thereof called for redemption shall terminate on the date fixed for redemption. Section 3.16: Forms. The form of the Bonds, including the form of Registration Certificate of the Comptroller of Public Accounts, which shall be attached or affixed to the Initial Bond, the form of the Registrar's Authentication Certificate, the form of Assignment, and the form of Statement of Insurance, shall be, respectively, substantially as follows, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Ordinance: (a) Form of Bonds. UNITED STATES OF AMERICA STATE OF TEXAS COUNTY OF HARRIS REGISTERED NUMBER REGISTERED DENOMINATION $ CITY OF WEST UNIVERSITY PLACE, TEXAS WATERWORKS AND SEWER SYSTEM REVENUE REFUNDING BOND SERIES 2005 INTEREST RATE: MATURITY DATE: February 1, 20_ ISSUE DATE: September 1, 2005 CUSIP: REGISTERED OWNER: PRINCIP AL AMOUNT: DOLLARS The City of West University Place, Texas, a municipal corporation duly incorporated under the laws of the State of Texas (herein the "City") for value received, promises to pay, but solely from certain Net Revenues as hereinafter provided, to the registered owner identified above or registered assigns, on the maturity date specified above, upon presentation and surrender of this Bond to lPMorgan Chase Bank, National Association (the "Registrar"), at its principal payment office in Dallas, Texas~ the principal amount identified above, payable in any coin or currency of the United States of America which on the date of payment is legal tender for the payment of debts due the United States of America, and to pay, solely from such Net Revenues, interest thereon at the rate shown above, calculated on the basis of a 360 day year of twelve 30 day months, from the later of September 1, 2005, or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable by check on February 1 and August 1, beginning on February 1, 2006, mailed to the registered owner of record as of the close of business on the fifteenth day of the month preceding each interest payment date. -12- THIS BOND is ~one of a duly authorized issue of Bonds, aggregating $9,020,000 (the "Bonds"), issued for the for the purpose of refunding certain outstanding bonds of the City, pursuant to an ordinance adopted by the City Council (the "Ordinance"), which Ordinance is of record in the official minutes of the City Council. THE CITY RESERVES THE RIGHT to redeem the Bonds maturing on or after February 1, 2016, in whole or from time to time in part, in integral multiples of$5,OOO, on February 1,2015, or any date thereafter at par plus accrued interest on the principal amounts called for redemption to the date fixed for redemption. Reference is made to the Ordinance for complete details concerning the manner of redeeming the Bonds. NOTICE OF ANY REDEMPTION shall be given at least thirty (30) days prior to the date . fixed for redemption by first class mail, addressed to the registered owners of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Registrar. When Bonds or portions thereofhave been called for redemption, and due provision has been made to redeem the same, the amounts so redeemed shall be payable solely from the funds provided for redemption, and interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal payment office of the Registrar in Dallas, Texas, duly endorsed for transfer or accompanied by an assigmnent duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Ordinance. THE BONDS ARE EXCHANGEABLE at the principal payment office of the Registrar in Dallas, Texas, for Bonds in the principal amount of$5,OOO or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is either (i) registered by the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto or (ii) authenticated by the Registrar by due execution of the authentication certificate endorsed hereon. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. THE CITY has covenanted in the Ordinance that it will at all times provide a legally qualified registrar for the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the City that, along with the City's outstanding Waterworks and Sewer System. Revenue Bonds, Series 2001A and Series 2001B (the "Outstanding Bonds"), are payable from and are equally and ratably secured by a first lien on the revenues of the City's waterworks and sewer system remaining after -13- \ ~ deduction of the operation and maintenance expenses of that system (the ''Net Revenues"), as defined and provided in the Ordinance, which Net Revenues are required to be set aside and pledged to the payment of the Bonds, the Outstanding Bonds, and all additional bonds issued on a parity therewith, in the Debt Service Fund and the Reserve Fund maintained for the payment of all such bonds, all as more fully described and provided for in the Ordinance. This Bond and the series of which it is a part, together with the interest thereon, are payable solely from such Net Revenues and do not constitute an indebtedness or general obligation of the City. The holder of this obligation is not entitled to demand payment of this obligation out of any money raised by taxation. THE CITY HAS RESERVED THE RIGHT to issue additional parity revenue bonds, subject to the restrictions contained in the Ordinance, which may be equally and ratably payable from, and secured by a first lien on and pledge of, the Net Revenues in the same manner and to the same extent as this Bond and the series of which it is a part. IT IS HEREBY DECLARED AND REPRESENTED that this Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the issuance and delivery of this Bond have been performed, existed, and been done in accordance with law; that the Bonds do not exceed any statutory limitation; and that provision has been made for the payment of the principal of and interest on this Bond and all of the Bonds by the creation of the aforesaid lien on and pledge of the Net Revenues. IN WITNES S WHEREOF, this Bond has been signed with the manual or facsimile signature of the Mayor and countersigned with the manual or facsimile signature of the City Secretary, and the official seal of the City has been du1y impressed, or placed in facsimile, on this Bond. (AUTHENTICATION CERTIFICATE) (SEAL) CITY OF WEST UNNERSITY PLACE, TEXAS Mayor City Secretary -14- t. · (b) Form of Registration Certificate. COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this (SEAL) (c) Comptroller of Public Accounts of the State of Texas Form of Authentication Certificate. AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Bond Ordinance described in the text of this Bond. JPMorgan Chase Bank, National Association As Paying AgentJRegistrar By Authorized Signature Date of Authentication (d) Form of Assignment. ASSIGNMENT For value received, the undersigned hereby sells, asSIgnS, and transfers unto (please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. -15- DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner . NOTICE: The signature above must correspond to the name of the registered owner as shown on the face of this Bond in every particular, without any alteration, enlargement or change whatsoever. (e) Form of Statement of Insurance. STATEMENT OF INSURANCE Financial Security Assurance Inc. ("Financial Security"), New York, New York, has delivered its municipal bond insurance policy with respect to the scheduled payments due of principal of and interest on this Bond to IPMorgan Chase Bank, National Association, or its successor, as paying agent for the Bonds (the "Paying Agent"). Said Policy is on file and available for inspection at the principal office of the Paying Agent and a copy thereof may be obtained from Financial Security or the Paying Agent (f) The Initial Bond shall be in the form set forth in paragraphs (a), (b), (d) and (e) of this Section, except for the following alterations: (i) inunediately under the name of the Bond, the headings "INTEREST RATE" and "MATURITY DATE" shall both be completed with the words "As Shown Below" and the word "CD SIP " deleted; (ii) in the first paragraph of the Bond, the words "on the maturity date specified above" and "at the rate shown above" shall be deleted and the following shall be inserted at the end of the first sentence ".u, with such principal to be paid in installments on February 1 in each of the years and in the principal amounts identified in the following schedule and with such installments bearing interest at the per annum rates set forth in the following schedule: [Information to be inserted from schedule in Section 3.3] (iii) the Initial Bond shall be numbered 1-1. -16- Section 3.17.. CUSIP Numbers: Bond Insurance.. CUSIP Numbers maybe printed on the Bonds, but errors or omissions in the printing of such numbers shall have no effect on the validity of the Bonds.. The purchase of and payment of the premium for municipal bond insurance by the City, in accordance with the terms of a commitment for such insurance from Financial Security Assurance Inc. ("FSA") presented to and hereby approved by the City Council of the City, is hereby authorized. All officials and representatives of the City are authorized and directed to execute such documents and to do any and all things necessary or desirable to obtain such insurance. The provisions regarding the FSA Insurance Policy, attached hereto as Exhibit A are incorporated herein by reference and made a part of this Ordinance.. ARTICLE IV SECURITY AND SOURCE OF PAYMENT FOR ALL P ARlTY BONDS Section 4.. 1 : Pledge and Source of Payment. The City hereby covenants and agrees that all Gross Revenues of the System shall be deposited and paid into the special funds established and maintained for Parity Bonds, as provided in this Ordinance, and shall be applied in the manner set out herein, to provide for the payment of all Maintenance and Operation Expenses and to provide for the payment of principal, interest and any redemption premium of the Parity Bonds and all expenses of paying, securing and insuring the same.. The Parity Bonds shall constitute special obligations of the City that shall be payable solely from, and shall be equally and ratably secured by a first lien on, the Net Revenues, as collected and received by the City, from the operation and ownership of the System, which Net Revenues shall, in the manner herein provided, be set aside for and pledged to the payment of the Parity Bonds in the Debt Service Fund and Reserve Fund as hereinafter provided, and the Parity Bonds shall be in all respects on a parity with and of equal dignity with one another. The owners of the Parity Bonds shall never have the right to demand payment out of any funds raised or to be raised by taxation. Section 4..2: Rates and Charges. So long as any Parity Bonds remain outstanding, the City shall fix, charge and collect rates and charges for the use and services of the System which are fully sufficient to produce Net Revenues in each fiscal year at least equal to 110% of the principal and interest requirements scheduled to occur in such fiscal year on all Parity Bonds then outstanding plus an amount equal to the sum of all deposits required to be made to the Reserve Fund in such fiscal year; but in no event shall Net Revenues ever be less than the amount required to maintain the Debt Service Fund and the Reserve Fund as hereinafter provided, and, to the extent that funds for such purpose are not otherwise available, to pay all other outstanding obligations payable from the Net Revenues of the System, as and when the same become due.. The City will not grant or permit any free service from the System except for public buildings and institutions operated by the City. -17- Section 4.3: Special Funds. The following special Funds created pursuant to the ordinance authorizing the Outstanding Bonds are hereby confirmed, and such Funds shall be maintained and accounted for as hereinafter provided, so long as any Parity Bonds remain outstanding: (a) Waterworks and Sewer System Revenue Fund (the "Revenue Fund"); (b ) Waterworks and Sewer System Revenue Bonds Debt Service Fund (the "Debt Service Fund"); and (c) Waterworks and Sewer System Revenue Bonds Reserve Fund (the "Reserve Fund"). The Revenue Fund shall be maintained as a separate account on the books of the City. The Debt Service Fund and the Reserve Fund shall be maintained at an official depository bank of the City separate and apart from all other funds and accounts of the City and shall constitute trust funds which shall be held in trust for the benefit of the Owners of the Parity Bonds and the proceeds of which shall be and are hereby pledged to the payment of the Parity Bonds. All of the Funds named above shall be used solely as provided in this Ordinance so long as any Parity Bonds remain outstanding. Section 4.4: Flow of Funds. All Gross Revenues of the System (except for interest and earnings on investments in the Reserve Fund and the Debt Service Fund) shall be deposited as collected into the Revenue Fund. Money from time to time on deposit in the Revenue Fund shall be applied as follows in the following order of priority: (a) First, to pay Maintenance and Operation Expenses. (b) Second, to make all deposits into the Debt Service Fund required by this Ordinance, the ordinance authorizing the issuance of the Outstanding Bonds, and any ordinance authorizing the issuance of Additional Parity Bonds. ( c) Third, to make all deposits into the Reserve Fund required by this Ordinance, the Ordinance authorizing the issuance of the Outstanding Bonds, and any ordinance authorizing the issuance of Additional Parity Bonds. (d) Fourth, for any lawful purpose, including transfers to the General Fund as permitted by law. Whenever the total combined amounts on deposit to the credit of the Debt Service Fund and the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all outstanding Parity Bonds plus the aggregate amount of all interest accrued and to accrue thereon, no further payments need be made into the Debt Service Fund or the Reserve Fund. Section 4.5: Debt Service Fund1t On or before the last Business Day of each month so long as any Parity Bonds remain outstanding, after making all required payments and provision for -18- payment of Maintenance and Operation Expenses, there shall be transferred into the Debt Service Fund from the Revenue Fund: (i) such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the interest scheduled to become due on the Parity Bonds on the next interest payment date; and (ii) such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the next maturing principal of the Parity Bonds, including the principal amounts of, and any redemption premium on, any Parity Bonds payable as a result of the exercise or operation of any optional or mandatory redemption provision contained in any ordinance authorizing the issuance of Parity Bonds. Money deposited to the credit of the Debt Service Fund shall be used solely for the purpose of paying principal (at maturity or prior redemption or to purchase Parity Bonds issued as term bonds in the open market to be credited against mandatory redemption requirements), interest and any redemption premium on the Parity Bonds or reimbursing credit providers for amounts advanced for such purpose, plus all bank charges and other costs and expenses relating to such payment. The paying agent shall destroy all paid Parity Bonds and shall provide the City with appropriate certificates of destruction. Section 4.6: Reserve Fund. Unless the Reserve Fund is fully funded, on or before the last Business Day of each month so long as any Parity Bonds remain outstanding, after making all required payments and provision for payment of Maintenance and Operation Expenses, and after making the transfers into the Debt Service Fund required in the preceding Section, there shall be transferred into the Reserve Fund from the Revenue Fund an amount at least equal to one-sixtieth (1/60th) of the average annual principal and interest requirements on the Parity Bonds, so that the Reserve Fund shall contain, in no more than 60 months after the issuance of each such issue of Parity Bonds, money and investments in an aggregate amount at least equal to the average annual principal and interest requirements on all Parity Bonds then outstanding. After such amount has accumulated in the Reserve Fund and so long thereafter as such Fund contains such amount, no further deposits shall be required to be made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund. But if and whenever the balance in the Reserve Fund is reduced below such amount, monthly deposits into such Fund shall be resumed and continued in amounts at least equal to one-sixtieth (1/60th) of the average annual principal and interest requirements on the Parity Bonds until the Reserve Fund has been restored to such amount. The Reserve Fund shall be used to pay the principal of and interest on the Parity Bonds at any time when there is not sufficient money available in the Debt Service Fund for such purpose and it may be used finally to pay and retire the last Parity Bonds to mature or be redeemed. The City expressly reserves the right at any time to satisfy all or any part of the Reserve FWld Requirement by obtaining for the benefit of the Reserve Fund one or more Reserve Fund Surety -19- Policies (as defined below). In the event the City elects to substitute at any time a Reserve Fund Surety Policy for any funded amounts in the Reserve Fund, it may apply any bond proceeds thereby released, including investment earnings on bond proceeds, to anypmposes for which the bonds were issued and any other funds thereby released to any purposes for which such funds may lawfully be used, including the payment of debt service on the Parity Bonds. A Reserve Fund Surety Policy shall be an insurance policy or other instrument issued pursuant to a credit agreement (as such term is defined by Section 1371.001, Government Code) in a principal amount equal to the portion of the Reserve Fund Requirement to be satisfied and issued by a financial institution or insurance company with a rating for its long term unsecured debt or claims paying ability in the highest letter category by two major municipal securities evaluation sources. A Reserve Fund Surety Policy shall be for the pro rata benefit of all Parity Bonds. The premium for any such policy shall be paid from bond proceeds or other funds of the City lawfully available for such purpose. Any Reserve Fund Surety Policy shall be authorized by resolution or ordinance and submitted to the Attorney General for examination and approval.. At any time that there are insufficient funds available in the Debt Service Fund to make any required payment of interest on or principal of the Bonds, or to reimburse the credit providers for amounts advanced for such purpose, there shall be transferred from the Reserve Fund to the Debt Service Fund such amounts as may be necessary for such purpose. In the event the Reserve Fund contains one or more Reserve Fund Surety Policies, the City shall not draw on a Reserve Fund Surety Policy unless no other cash or investments are otherwise available in the Reserve Fund. Ifmore than one Reserve Fund Surety Policy is held in the Reserve Fund, the City shall draw on such policies on a proportionate basis. Whenever amounts have been drawn on one or more Reserve Fund Surety Policies, amounts subsequently transferred to the Reserve Fund shall be used to reimburse the provider (or if more than one, to the providers on a proportionate basis) of such Reserve Fund Surety Policies in accordance with the terms thereof, for the amounts advanced, interest thereon and any associated fees. The issuer(s) of such Reserve Fund Surety Policy or Policies shall be secured with respect to such reimbursement obligations by a lien on the Net Revenues, subject and subordinate to the lien securing the Bonds and the required deposits to the Debt Service Fund, and shall further be secured by a lien on amounts from time to time on deposit in and required to be deposited to the Reserve Fund. Pursuant to Chapter 1502, Texas Government Code, the City hereby authorizes the Mayor, the City Manager or the Finance Director to enter into one or more Reserve Fund Surety Policies issued by FSA for the Parity Bonds, in an amount sufficient to satisfy the Reserve Fund Requirement for all outstanding Parity Bonds, including the Bonds, and to execute any instruments in connection with that transaction. The existing Reserve Fund balance may thereupon be withdrawn and used as provided herein. The provisions regarding the FSA Reserve Fund Surety Policies attached as Exhibit B are incorporated herein by reference and made a part of this Ordinance. Section 4~ 7: Deficiencies in Funds. If in any month there shall not be deposited into any Fund maintained pursuant to this Article the full amounts required herein, amounts equivalent to such deficiency shall be set apart and paid into such Fund or Funds from the first available and unallocated money in the Revenue Fund, and such payment shall be in addition to the amounts otherwise required to be paid into such Funds during the succeeding month or months. To the extent -20- necessary, the rates and charges for the System shall be increased to make up for any such deficiencies. Section 4.8: Investment of Funds: Transfer of Investment Income. (a) Money in the Revenue Fund, the Debt Service Fund and the Reserve Fund may, at the option of the City, be invested as permitted by law; provided that all such deposits and investments shall be made in such manner that the money required to be expended from any Fund will be available at the proper time or times, and provided further that in no event shall such deposits or investments of money in the Reserve Fund mature later than the final maturity date of the Parity Bonds.. Any obligation in which money is so invested shall be kept and held in the Fund from which the investment was made. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds. (b) All interest and income derived from such deposits and investments shall be credited as received to the Fund from which the investment was made. ARTICLE V ADDITIONAL BONDS Section 5..1: Additional Parity Bonds. The City reserves the right to issue, for any lawful purpose (including the refunding of any previously issued Parity Bonds or any other bonds or obligations of the City issued in connection with or payable from the revenues of the System), one or more series of Additional Parity Bonds payable from and secured by a first lien on the Net Revenues of the System on a parity with the Bonds, the Outstanding Bonds, and any previously issued Additional Parity Bonds; provided, however, that no Additional Parity Bonds may be issued unless: (a) The Additional Parity Bonds mature on, and interest is payable on, the same days of the year as the Bonds; and (b) The Debt Service Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; and (c) For either the preceding fiscal year or a 12 consecutive calendar month period ending no more than 90 days prior to adoption of the ordinance authorizing such Additional Parity Bonds, Net Revenues were equal to at least 125% of the average annual principal and interest requirements on all Parity Bonds that will be outstanding after the issuance of the series of Additional Parity Bonds then proposed to be issued, as certified by the City's Finance Director or by an independent certified public accountant or firm of independent certified public accountants; or (d) If the City cannot meet the test described in ( c) above, but a change in the rates and charges applicable to the System becomes effective at -21- { ( least sixty (60) days prior to the adoption of the ordinance authorizing Additional Parity Bonds and the City's Finance Director certifies that, had such change in rates and charges been effective for the preceding fiscal year or 12 consecutive calendar month period ending no more than 90 days prior to adoption of said ordinance, the Net Revenues for such period would have met the test described in ( c) above. Section 5.2: Subordinate Lien Bonds. The City reserves the right to issue, for any lawful purpose, bonds, notes or other obligations secured in whole or in part by liens on the Net Revenues that are junior and subordinate to the lien on the Net Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purpose. Section 5.3: Special Proiect Bonds~ The City reserves the right to issue revenue bonds secured by liens on and pledges of revenues and proceeds derived from Special Projects. ARTICLE VI COVENANTS AND PROVISIONS RELATING TO ALL PARITY BONDS Section 6.1: Punctual Payment of Parity Bonds. The City will punctually payor cause to be paid the interest on and principal of all Parity Bonds according to the terms thereof and will faithfully do and perform, and at all times fully observe, any and all covenants, undertakings, stipulations and provisions contained in this Ordinance and in any ordinance authorizing the issuance of Additional Parity Bonds. Section 6.2: Maintenance of System. So long as any Parity Bonds remain outstanding, the City covenants that it will at all times maintain the System, or within the limits of its authority cause the same to be maintained, in good condition and working order and will operate the same, or cause the same to be operated, in an efficient and economical manner at a reasonable cost and in accordance with sound business principles. In operating and maintaining the System, the City will comply with all contractual provisions and agreements entered into by it and with all valid rules, regulations, directions or orders of any governmental, administrative, or judicial body promulgating same, noncompliance with which would materially and adversely affect the operation of the System. Section 6.3: Sale or Encumbrance of System. So long as any Parity Bonds remain outstanding, the City will not sell, dispose of or, except as permitted in Article VI, further encumber the System; provided, however, that this provision shall not prevent the City from disposing of any portion of the System which is being replaced or is deemed by the City to be obsolete, worn out, surplus or no longer needed for the proper operation of the System. Any agreement pursuant to which the City contracts with a person, corporation, municipal corporation or political subdivision to operate the System or to lease and/or operate all or part of the System shall not be considered as an encumbrance of the System. -22- Section 6.4: Insurance~ The City further covenants and agrees that it will keep the System insured with insurers of good standing against risks, accidents or casualties against which and to the extent customarily insured against by political subdivisions of the State of Texas operating similar systems, to the extent that such insurance is available. The cost of all such insurance together with any additional insurance, shall be a part of the Maintenance and Operation Expenses. All net proceeds of such insurance shall be applied to repair or replace the insured property that is damaged or destroyed, or to make other capital improvements to the System, or to redeem Parity Bonds. Section 6~5: Accounts. Records.. and Audits. So long as any Parity Bonds remain outstanding, the City covenants and agrees that it will maintain a proper and complete system of records and accounts pertaining to the operation of the System in which full, true and proper entries will be made of all dealings, transactions, business and affairs which in any way affect or pertain to the System or the Gross Revenues or the Net Revenues thereof~ The City shall after the close of each of its fiscal years cause an audit report of such records and accounts to be prepared by an independent certified public accountant or independent firm of certified public accountants. Each year promptly after such audit report is prepared, the City shall furnish a copy thereof without cost to the Municipal Advisory Council of Texas, the major municipal rating agencies and any Owner of Parity Bonds who shall request same. All expenses incurred in preparing such audits shall be Maintenance and Operation Expenses.. Section 6..6: Competition. To the extent it legally may, the City will not grant any franchise or permit for the acquisition, construction, or operation of any competing facilities which might be used as a substitute for the System and will prohibit the operation of any such competing facilities. Section 6.7: Pledge and Encumbrance of Net Revenues. The City covenants and represents that it has the lawful power to create a lien on and to pledge the Net Revenues to secure the payment of the Parity Bonds and has lawfully exercised such power under the Constitution and laws of the State of Texas. The City further covenants and represents that, other than to the payment of the Parity Bonds, the Net Revenues are not and will not be made subject to any other lien, pledge or encumbrance to secure the payment of any debt or obligation of the City, unless such lien, pledge or encumbrance is junior and subordinate to the lien and pledge securing payment of the Parity Bonds. Section 6.8: Bondowners'Remedies. This Ordinance shall constitute a contract between the City and the Owners of the Parity Bonds from time to time outstanding (including any bond insurers of Parity Bonds) and shall remain in effect until the Parity Bonds and the interest thereon shall be fully paid or discharged or provision therefor shall have been made as provided herein (including payments of any amounts due to bond insurers of Parity Bonds). In the event of a default in the payment of the principal of or interest on any of the Parity Bonds or a default in the performance of any duty or covenant provided by law or in this Ordinance, the Owner or Owners of any of the Parity Bonds may pursue all legal remedies afforded by the Constitution and laws of the State of Texas to compel the City to remedy such default and to prevent further default or defaults. Without in any way limiting the generality of the foregoing, it is expressly provided that any Owner of any of the Parity Bonds may at law or in equity, by suit, action, mandamus, or other proceedings, enforce and compel performance of all duties required to be performed by the City under this -23- Ordinance, including the making and collection of reasonable and sufficient rates and charges for the use and services of the System, the deposit of the Gross Revenues into the special funds herein provided, and the application of the Gross Revenues and the Net Revenues in the manner required in this Ordinance. Section 6.9: Discharge by Deposit. The City may discharge its obligation to the Owners of any or all of the Parity Bonds to pay principal, interest and redemption premium (if any) thereon in any manner then permitted by law, including by depositing with any paying agent for such Parity Bonds or with the State Treasurer of the State of Texas either: (i) cash in an amount equal to the principal amount and redemption premium, if any, of such Parity Bonds plus interest thereon to the date of maturity or redemption, or (ii) pursuant to an escrow or trust agreement, cash and/or securities of any type authorized by law for refunding escrow account, in principal amounts and maturities and bearing interest at rates sufficient to provide for the timely payment of the principal . amount and redemption premium, if any, of such Parity Bonds plus interest thereon to the date of maturity or redemption; provided, however, that if any of such Parity Bonds are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in the ordinance authorizing such Parity Bonds~ Upon such deposit, such Parity Bonds shall no longer be regarded as outstanding or unpaid. Section 6.10: Paying Agents May Own Parity Bonds. The paying agents for the Parity Bonds, in their individual or any other capacity, may become holders or pledgees of the Parity Bonds with the same rights they would have if they were not paying agents. Section 6.11 : No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Parity Bonds or for any cl(~.im based thereon or on this Ordinance against any official of the City or any person executing any Parity Bonds. ARTICLE VII PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 7.1: Sale: Bond Purchase A~eement. The Bonds are hereby sold and shall be delivered to the Underwriter at a price of$8,961,815.75 plus accrued interest to the date of delivery, in accordance with the terms of the Bond Purchase Agreement of even date herewith, presented to and hereby approved by the City Council, which price and terms are hereby found and determined to be the most advantageous reasonably obtainable by the City. The Mayor and other appropriate officials of the City are hereby authorized and directed to execute the Bond Purchase Agreement on behalf of the City, and the Mayor and all other officers, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Bonds. -24- Section 7.2: Federal Income Tax Exclusion. (a) General. The City intends that the interest on the Bonds shall be excludable from gross income for federal income tax purposes pursuant to sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and the applicable Income Tax Regulations (the "Regulations"). The City covenants and agrees not to take any action, or lmowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Bonds to be includable in gross income, as defined in section 61 of the Code, for federal income tax purposes. In particular, the City covenants and agrees to comply with each requirement of this Section; provided, however, that the City shall not be required to comply with any particular requirement of this Section if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received a Counsel'8 Opinion to the effect that compliance with some other requirement set forth in this Section will satisfy the applicable requirements of the Code and the Regulations, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in this Section. (b) No Private Use or Payment and No Private Loan Financing. The City shall certify, through an authorized officer, employee or agent that based upon all facts and estimates lmown or reasonably expected to be in existence on the date the Bonds are delivered, that the proceeds of the Refunded Bonds have not been used, and that proceeds of the Refunded Bonds and the Bonds will not be used, in a manner that would cause the Bonds to be "private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Refunded Bonds and the Bonds including interest or other investment income derived from Bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the Bonds will not be ''private activity bonds" within the meaning of section 141 of the Code and the Regulations promulgated thereunder. ( c) No Federal Guarantee. The City covenants and agrees that it has not and will not take any action, and has not lmowingly omitted and will not lmowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code and the applicable Regulations thereunder, except as permitted by section 149(b)(3) of the Code and such Regulations. (d) No Hedge Bonds. The City covenants and agrees that it has not and will not take any action, and has not lmowingly omitted and will not lmowingly omit to take any action, within its control, that, if taken or omitted, respectively, would cause the Bonds to be ''hedge bonds" within the meaning of section 149(g) of the Code and the applicable Regulations thereunder. ( e) No Arbitrage. The City shall certify, tlrrough an authorized officer, employee or agent that based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds will not be -25- used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations promulgated thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and the applicable Regulations promulgated thereunder. (t) Arbitrage Rebate. If the City does not qualify for an exception to the requirements of section 148(f) of the Code relating to the required rebate to the United States, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of section 148(f)(6)(B) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records . regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the City allocable to other bond issue of the City or moneys which do not represent gross proceeds of any bonds of the City, (ii) calculate at such times as are required by applicable Regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted under applicable Regulations) all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at ann's length and had the yield on the issue not been relevant to either party. (g) Information Reporting.. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with section 149(e) of the Code and the applicable Regulations promulgated thereunder. (h) Continuing Obligation. Notwithstanding any other provision of this Ordinance, the City's obligations under the covenants and provisions of this Section shall survive the defeasance and discharge of the Bonds. -26- Section 7..3: Use of Proceeds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the City, be applied as follows: (a) Accrued interest shall be deposited into the Debt Service Fund. (b) The balance of the proceeds from the sale of the Bonds, togetherwith other available funds of the City, shall be applied to establish an escrow fund to refund the Refunded Bonds, as more fully provided in Section 7.4 below, and, to the extent not otherwise provided for, to pay all expenses arising in connection with the issuance of the Bonds, and the refunding of the Refunded Bonds~ Any proceeds of the Bonds remaining after making all such deposits and payments, including interest earned on the investment of such proceeds, shall be deposited into the Debt Service Fund~ Section 7.4: Escrow Agreement~ The discharge and defeasance of the Refunded Bonds shall be effectuated pursuant to the terms and provisions of an Escrow Agreement to be entered into by and between the City and the Escrow Agent, the terms and provisions of which are hereby approved, subject to such insertions, additions and modifications as shall be necessary (a) to carry out the program designed for the City by the Underwriter, which shall be certified as to mathematical accuracy by Grant Thornton LLP, (b) to minimize the City's costs of refunding, (c) to comply with all applicable laws and regulations relating to the refunding of the Refunded Bonds and (d) to carry out the other intents and purposes of this Ordinance, and the Mayor or Mayor Pro Tern is hereby authorized to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary or an Assistant City Secretary is hereby authorized to attest thereto and affix the City's seal. Section 7.5: Redemption Prior to Maturity of Certain Refunded Bonds. The City hereby calls the following bonds for redemption prior to maturity on the dates shown below, at a price of par plus accrued interest to the dates fixed for redemption, and authorizes and directs notice of such redemption to be given in accordance with the ordinances authorizing the issuance of such bonds.. Bonds to be Redeemed Waterworks and Sewer System Revenue Bonds, Series 1996A Maturities 2007 through 2016, inclusive Redemption Date F ebmary 1, 2006 WatelWorks and Sewer System Revenue Bonds, Series 1996B Maturities 2007 through 2016, inclusive February 1, 2006 Waterworks and Sewer System Revenue Bonds, Series 1998A Maturities 2009 through 2016, inclusive Maturities 2019 and 2022 February 1, 2008 -27- The ordinance authorizing the issuance of the City's Waterworks and Sanitary Sewer System Revenue Bonds, dated September 14, 1998, contained a clerical error specifying the term bond maturing on February 1, 2019 was in the original principal amount of $1,200,000. Such clerical error is hereby corrected to specify that the term bond maturing on February 1, 2019 was in the original principal amount of$1 , 175,000 in accordance with the City's official statement and the bond purchase agreement for said bonds. Section 7.6~ Purchase of Authorized Securities. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Mayor or Mayor Pro Tern, the Finance Director, and the Escrow Agent are hereby authorized to subscribe for, agree to purchase, and purchase obligations which are authorized investments for escrow accounts pursuant to Section 1207.062, Texas Government Code, in such amounts and maturities and bearing interest at such rates as may be . provided for in the Report, and to execute any and all subscriptions, purchase contracts, commitments, letters of authorization and other documents necessary to effectuate the foregoing, and any actions heretofore taken for such purpose are hereby ratified and approved. ARTICLE VIII CONTINUING DISCLOSURE Section 8.1: Continuing Disclosure Undertaking.. (a) Annual Reports. The City shall provide annually to each NRMSIR and the SID, within six months after the end of each fiscal year, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 9.1 of this Ordinance under the headings "OFFICIAL STATEMENT SUMMARY," "CITY TAX.. DEBT," "TAX.. DATA," "SELECTED FINANCIAL DATA," "INVESTMENT AUTHORITY AND INVESTMENT OBJECTNES OF THE CITY-- Current Investments," and in Appendix "B". The information to be provided shall include the complete financial statements of the City prepared in accordance with the accounting principles the City may be required to employ from time to time pursuant to State law or regulation and audited, if the City commissions an audit and the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the City shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and the SID within such six month period, and audited financial statements when and if the audit report on such statements becomes available.. If the City changes its fiscal year, it will notify each NRMSIR and the SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, ifit is available from the MSRB) that theretofore has been provided to each NRMSIR and the SID or filed with the SEC. -28- (b ) Material Event Notices. The City shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: A. Principal and interest payment delinquencies; B.. Non-payment related defaults; c. Unscheduled draws on debt service reserves reflecting financial difficulties; D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, 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. Defeasances; J. Release, substitution, or sale of property securing repayment of the Bonds; and K. Rating changes. The City shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 8.1(a) of this Ordinance by the time required by such Section. (c) Limitations~ Disclaimers.. and Amendments". The City shall be obligated to observe ahd perform the covenants specified in this Section for so long as, but only for so long as, the City remains an "obligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Texas law that causes Bonds no longer to be outstanding" The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Cityundertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, -29- I ~ (b) Material Event Notices. The City shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: A. Principal and interest payment delinquencies; B.. Non-payment related defaults; c. Unscheduled draws on debt service reserves reflecting financial difficulties; D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, 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. Defeasances; J. Release, substitution, or sale of property securing repayment of the Bonds; and K. Rating changes. The City shall notify the SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 8.1(a) of this Ordinance by the time required by such Section. (c) Limitations" Disclaimers" and Amendments. The City shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the City remains an Ilobligated person" with respect to the Bonds within the meaning of the Rule, except that the City in any event will give notice of any deposit made in accordance with Texas law that causes Bonds no longer to be outstanding. The provisions of this Section are for the sole benefit of the holders and beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, -29- . l FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Section shall comprise a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Section may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, change in law, or change in the identity, nature, status or type of operations of the City, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the initial primary offering in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the holders of a majority in aggregate principal amount of the outstanding Bonds consent to such amendment, or (b) any person unaffiliated with the City (such as nationally recognized bond counsel), determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the agreement if the SEe amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, but only to the extent that its right to do so would not prevent an underwriter from purchasing the Bonds in the initial primary offering in compliance with the Rule. If the City amends its agreement, the City will include in its next annual update an explanation in narrative form of the reasons for the amendment and its impact on the type of operating data or financial information being provided. ARTICLE IX MISCELLANEOUS Section 9.1: Official Statement. The City Council ratifies and confirms its prior approval of the form and content of the Preliminary Official Statement prepared in the initial offering and sale of the Bonds and hereby authorizes the preparation of a final Official Statement reflecting the terms of the Bond Purchase Agreement with the Underwriter and other relevant matters. The use of such Official Statement in the reoffering of the Bonds by the Underwriter is hereby approved and authorized. Section 9.2: Further Proceedings. The Mayor, the Finance Director, the City Secretary, and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. -30- ,I' t ~ Section 9.3: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 9.4: Paying AgentJRegistrar A~eement. The form of agreement setting forth the duties of the Registrar is hereby approved, and an appropriate official of the City is hereby authorized to execute such agreement for and on behalf of the City. Section 9.5: No Personal Liabili~. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Ordinance, against any official or employee of the City or any person executing any Bonds. Section 9.6: Parties Interested. Nothing in this Ordinance expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the City, the Registrar and the Owners of the Bonds, any right, remedy or claim under or by reason of this Ordinance or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Ordinance shall be for the sole and exclusive benefit of the City, the Registrar and the Owners of the Bonds. Section 9.7: Repealer. All orders, resolutions and ordinances, or parts thereof; inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.8: Open Meeting. It is hereby officially found and determined that the meeting at which this Ordinance was adopted was open to the public, and that public notice of the time, place and purpose of said meeting was given, all as required by the Texas Open Meetings Act. -31- t.' . ~ PASSED AND APPROVED on the 8th day of August, 2005. Mayor City of West Universi &- ATTEST: Ci e retary City of West University Place, Texas (SEAL) APPROVED AS TO LEGAL FORM: J City Attorney City of West University Place, Texas I certify that the above and foregoing ordinance complies with a budget appropriation (Account NO"IJ~-~a? ), and that there is or will be enough unencumbered money in that account to meet the obligation when it is due~ ~a~/ Finance Director City of West University Place, Texas -32- /.} l f EXHIBIT A (a) "Insurance Policy" shall be defined as follows: ''the insurance policy issued by the Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due". "Insurer" shall be defined as follows: "Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof'. (b) The prior written consent of the Insurer shall be a condition precedent to the deposit of any credit instrument provided in lieu of a cash deposit into the Debt Service Reserve Fund if any. Notwithstanding anything to the contrary set forth in the Ordinance, amounts on deposit in the Debt Service Reserve Fund shall be applied solely to the payment of debt service due on the Bonds. . (C) The Insurer shall be deemed to be the sole holder of the Insured Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Bonds insured by it are entitled to take pursuant to the section or article of the Ordinance pertaining to (i) defaults and remedies and (ii) the duties and obligations of the Paying Agent Remedies granted to the Bondholders shall expressly include mandamus.. (d) No grace period for a covenant default shall exceed 30 days or be extended for more than 60 days, without the prior written consent of the Insurer. No grace period shall be permitted for payment defaults. ( e) The Insurer shall be included as a third party beneficiary to the Ordinance" (f) Upon the occurrence of an extraordinary optional, special or extraordinary mandatory redemption in part, the selection of Bonds to be redeemed shall be subject to the approval of the Insurer. The exercise of any provision of the Ordinance which permits the purchase of Bonds in lieu of redemption shall require the prior written approval of the Insurer if any Bond so purchased is not cancelled upon purchase.. (g) Any amendment, supplement, modification to, or waiver of, the Ordinance or any other transaction document including any underlying security agreement (each a "Related Document"), that requires the consent of Bondowners or adversely affects the rights and interests of the Issuer shall be subject to the prior written consent of the Insurer. (h) The rights granted to the Insurer under the Ordinance or any other Related Document to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit, or on behalf, of the Bondholders and such action does not evidence any position of the Insurer, affirmative or negative, as to whether the consent of the Bondowners or any other person is required in addition to the consent of the Insurer.. 2428957_1. DOC A-I (i) Only (1) cash, (2) non-callable direct obligations of the United States of America ("Treasuries"), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (4) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated "AAA" and "Aaa" by S&P and Moody's, respectively, or (5) subject to the prior written consent of the Insurer, securities eligible for "AAA" defeasance under then existing criteria of S & P or any combination thereof, shall be used to effect defeasance of the Bonds unless the Insurer otherwise approves. To accomplish defeasance, the Issuer shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Insurer ("Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ("Verification"), (ii) an Escrow Deposit Agreement (which shall be acceptable in form and substance to the Insurer), (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding" under the Ordinance and (iv) a certificate of discharge of the Paying Agent with respect to the Bonds; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the Issuer, Paying Agent and Insurer. The Insurer shall be provided with final drafts of the above-referenced documentation not less than five business days prior to the funding of the escrow. Bonds shall be deemed "Outstanding" under the Ordinance unless and until they are in fact paid and retired or the above criteria are met G) Amounts paid by the Insurer under the Insurance Policy shall not be deemed paid for purposes of the Ordinance and the Bonds relating to such payments shall remain Outstanding and continue to be due and owing until paid by the Issuer in accordance with the Ordinance. The Ordinance shall not be discharged unless all amounts due or to become due to the Insurer have been paid in full or duly provided for. (k) Each of the Issuer and Paying Agent covenant and agree to take such action (including, as applicable, filing of Dee financing statements and continuations thereof) as is necessary from time to time to preserve the priority of the pledge of the Trust Estate under applicable law. (1) Claims Upon the Insurance Policy and Payments by and to the Insurer. If, on the third Business Day prior to the related scheduled interest payment date or principal payment date ("Payment Date") there is not on deposit with the Paying Agent, after making all transfers and deposits required under the Ordinance, moneys sufficient to pay the principal of and interest on the Bonds due on such Payment Date, the Paying Agent shall give notice to the Bond Insurer and to its designated agent (if any) (the "Insurer's Fiscal Agent") by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such Business Day. If, on the second Business Day prior to the related Payment Date, there continues to be a deficiency in the amount 2428957_1. DOC A-2 } } available to pay the principal of and interest on the Bonds due on such Payment Date, the Paying Agent shall make a claim under the Insurance Policy and give notice to the Insurer and the Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the Bonds and the amount required to pay principal of the Bonds, confirmed in writing to the Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time, on such second Business Day by filling in the form of Notice of Claim and Certificate delivered with the Insurance Policy. The Paying Agent shall designate any portion of payment of principal on Bonds paid by the Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Bonds registered to the then current Bondholder, whether DTC or its nominee or otherwise, and shall issue a replacement Bond to the Insurer, registered in the name of Financial Security Assurance Inc., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Paying Agent's failure to so designate any payment or issue any replacement Bond shall have no effect on the amount of principal or interest payable by the Issuer on any Bond or the subrogation rights of the Insurer . The Paying Agent shall keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (defined below) and the allocation of such funds to payment of interest on and principal of any Bond. The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Paying Agent. Upon payment of a claim under the Insurance Policy, the Paying Agent shall establish a separate special purpose trust account for the benefit of Bondholders referred to herein as the "Policy Payments Account" and over which the Paying Agent shall have exclusive control and sole right of withdrawal. The Paying Agent shall receive any amount paid under the Insurance Policy in trust on behalf of Bondholders and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Paying Agent to Bondholders in the same manner as principal and interest payments are to be made with respect to the Bonds under the sections hereof regarding payment of Bonds. It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Funds held in the Policy Payments Account shall not be invested by the Paying Agent and may not be applied to satisfy any costs, expenses or liabilities of the Paying Agent. Any funds remaining in the Policy Payments Account following a Bond payment date shall promptly be remitted to the Insurer. (m) The Insurer shall, to the extent it makes any payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy. Each obligation of the Issuer to the Insurer under 2428957_1. DOC A-3 } ~ 4 \ . the Related Documents shall survive discharge or termination of such Related Documents. (n) The Issuer, to the extent permitted by law, shall payor reimburse the Insurer any and all charges, fees, costs and expenses that the Insurer may reasonably payor incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in any Related Document; (ii) the pursuit of any remedies under the Ordinance or any other Related Document or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Ordinance or any other Related Document whether or not executed or completed, or (iv) any litigation or other dispute in connection with the Ordinance or any other Related Document or the transactions contemplated thereby, other than costs resulting from the failure of the Insurer to honor its obligations under the Insurance Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Ordinance or any other Related Document. (0) After payment of reasonable expenses of the Paying Agent, the application of funds realized upon default shall be applied to the payment of expenses of the Issuer or rebate only after the payment of past due and current debt service on the Bonds and amounts required to restore the Debt Service Reserve Fund to the Debt Service Reserve Requirement. (P) The Insurer shall be entitled to pay principal or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer (as such terms are defined in the Insurance Policy) and any amounts due on the Bonds as a result of acceleration of the maturity thereof in accordance with the Ordinance, whether or not the Insurer has received a Notice of Nonpayment (as such terms are defined in the Insurance Policy) or a claim upon the Insurance Policy. (q) The notice address of the Insurer is: Financial Security Assurance Inc., 31 West 52nd Street, New York, New York 10019, Attention: Managing Director - Surveillance, Re: Policy No., Telephone: (212) 826-0100; Telecopier: (212) 339-3556. In each case in which notice or other communication refers to an Event of Default, then a copy of such notice or other communication shall also be sent to the attention of the General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." (r) The Insurer shall be provided with the following information by the Issuer or Paying Agent, as the case may be: (i) Annual audited financial statements within 150 days after the end of the Issuer's fiscal year (together with a certification of the Issuer that it is not aware of any default or Event of Default under the Ordinance), and the Issuer's annual budget within 30 days after the approval thereof together with such other information, data or reports as the Insurer shall reasonably request from time to time; (ii) Notice of any draw upon the Debt Service Reserve Fund within two Business Days after knowledge thereof other than (i) withdrawals of amounts in excess of 2428957_1.[K)C ~-4 i ~ I 1 ~ the Debt Service Reserve Requirement and (ii) withdrawals in connection with a refunding of Bonds; (iii) Notice of any default known to the Paying Agent or Issuer within five Business Days after knowledge thereof; (iv) Prior notice of the advance refunding or redemption of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof; (v) Notice of the resignation or removal of the Paying Agent and Bond Registrar and the appointment of, and acceptance of duties by, any successor thereto; (vi) Notice of the commencement of any proceeding by or against the Issuer or Obligor commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"); (vii) Notice of the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Bonds; (viii) A full .original transcript of all proceedings relating to the execution of any amendment, supplement, or waiver to the Related Documents; and (ix) All reports, notices and correspondence to be delivered to Bondholders under the terms of the Related Documents. (s) Notwithstanding satisfaction of the other conditions to the issuance of Additional Bonds set forth in the Ordinance, no such issuance may occur (1) if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists unless such default shall be cured upon such issuance and (2) unless the Debt Service Reserve Fund is fully funded at the Debt Service Reserve requirement (including the proposed issue) upon the issuance of such Additional Bonds, in either case unless otherwise permitted by the Insurer. (t) In determining whether any amendment, consent or other action to be taken, or any failure to take action, under the Ordinance would adversely affect the security for the Bonds or the rights of the Bondholders, the Paying Agent shall consider the effect of any such amendment, consent, action or inaction as if there were no Insurance Policy. (u) No contract shall be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the Bonds may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer. (v) If the Refunded Bonds are FSA-insured, at least three business days prior to the proposed date for delivery of the Policy with respect to the Refunding Bonds, the Insurer shall also receive (i) the verification letter, of which Financial Security shall be an addressee, by an independent firm of certified public accountants which is either nationally recognized or 2428957_1. DOC A-5 .. ( ~ ~'~ 1 othetwise acceptable to the Insurer, of the adequacy of the escrow established to provide for the payment .of the Refunded Bonds in accordance with the terms and provisions of the Escrow Deposit Agreement, and (ii) the form of an opinion of Bond Counsel addressed to the Insurer (or a reliance letter relating thereto) to the effect that the Escrow Deposit Agreement is a valid and binding obligation of the parties thereto, enforceable in accordance with its terms (such Escrow Deposit Agreement shall provide that no amendments are permitted without the prior written consent of the Insurer). An executed copy of each of such opinion and reliance letter, if applicable, or Paying Agent's discharge certificate, as the case may be, shall be forwarded to the Insurer prior to delivery of the Bonds. 2428957 _I.DOC A-6 . \ ~ ~'~ ,.. EXHIBIT B 1. Upon any payment by the Insurer under the Reserve Policy, the Insurer shall furnish to the Issuer written instructions as to the manner in which payment of amounts owed to the Insurer as a result of such payment under the Reserve Policy shall be made~ 2. The Issuer shall pay the Insurer the principal amount of any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer and shall pay interest thereon from the date of payment by Financial Security at the Late Payment Rate. "Late Payment Rate" means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time to time by IPMorgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate ("Prime Rate") (any change in such Prime Rate to be effective on the date such change is announced by lPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates, including, particularly, Chapter 1204 of the Texas Government Code, as amended. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event JPMorgan Chase Bank ceases to announce its Prime Rate, the Prime Rate shall be the prime or base lending rate of such national bank as the Insurer shall designate. 3. Repayment of draws and payment of expenses and the interest accrued thereon at the Late Payment Rate (collectively, "Policy Costs") shall conunence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12th of the aggregate of Policy Costs related to such draw, so long as such amount does not exceed 1/60th of the average annual principal and interest requirements on the Parity Bonds. 4. Amounts in respect of Policy Costs paid to the Insurer shall be credited first to interest due, then to the expenses due and then to principal due. 5. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve Policy will be increased by a like amount, subject to the terms of the Reserve Policy. 6. All cash and investments in the Reserve Fund shall be transferred to the debt service fund for payment of debt service on the Bonds before any drawing may be made on the Reserve Policy or on any alternative credit instrument. Payment of any Policy Costs shall be made prior to replenislunent of any such cash amounts. Draws on all alternative credit instruments (including the Reserve Policy) on which there is available coverage shall be made on a pro rata basis (calculated by reference to coverage then available under each such alternative credit instrument) after applying available cash and investments in the Reserve Fund. Payment of Policy Costs and reimbursement of amounts with respect to alternative credit instruments shall be made on a prorate basis prior to replenishment of any cash drawn from the Reserve Fund. 2428957_1.DOC B-1 { \ f- );. .;.. 7. 8. 9. 11. 15. 16. If the Issuer shall fail to pay any Policy Costs in accordance with the requirements of the Ordinance and this Agreement, the Insurer shall be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Ordinance, other than (i) acceleration of the maturity of the Bonds or (ii) remedies which would adversely affect owners of the Bonds. The Ordinance shall not be discharged until all Policy Costs owing to the Insurer shall have been paid in full.. The Issuer's obligation to pay such amounts shall expressly survive payment in full of the Bonds. In order to secure the Issuer's payment obligations with respect to the Policy Costs, there is hereby granted and perfected in favor of the Insurer a security interest (subordinate only to that of the owners of the Bonds) in all revenues and collateral pledged as security for the Bonds. lO~ Policy Costs due and owing shall be included in debt service requirements for purposes of calculation of the additional bonds test and the rate covenant in the Ordinance. The Trustee shall ascertain the necessity for a claim upon the Reserve Policy and provide notice to the Insurer in accordance with the terms of the Reserve Policy at least five business days prior to each date upon which interest or principal is due on the Bonds. Where deposits are required to be made by the Issuer with the Trustee to the debt service fund for the Bonds more often than semiannually, the Trustee shall give notice to the Insurer of any failure of the Issuer to make timely payment in full of such deposits within two business days of the date due. 12. Notices to the Insurer shall be sent to the following address (or such other address as the Insurer may designate in writing): Financial Security Assurance Inc., 31 West 52nd Street, New York, New York 10019 Attention: Managing Director - Surveillance. 13~ This Agreement may be executed in counterparts, each of which alone and all of which together shall be deemed one original Agreement. 14. If anyone or more of the agreements, provisions or terms of this Agreement shall be for any reason whatsoever held invalid, then such agreements, provisions or terms shall be deemed severable from the remaining agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Ordinance. This Agreement and the rights and obligations of the parties of the Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Texas~ 2428957_1. DOC B-2