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R2005-0042 02-14-05
R£SOLUT~ON NO. R~005-42 RESOLUTION OF THE CITY OF PEARLAND, TEXAS APPROVING THE RESOLUTION AUTHORIZING THE ISSUANCE OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005; AUTHORIZING A CONTINUING DISCLOSURE UNDERTAKING IN CONNECTION WITH SUCH BONDS; AUTHORIZING THE EXECUTION OF AN AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECTS WHEREAS, on January 21, 1'995, the voters of the City of Pearland, Texas (the "City") approved the levy of a one-half of one percent sales and use tax (the "Sales Tax") to be used for the benefit of the Pearland Economic Development Corporation (the "Corporation"), including, among other things, for paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the "Project"); WHEREAS, the City, by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises; WHEREAS, on June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes (the "Act"); WHEREAS, the City has previously approved and the Corporation has previously issued its Sales Tax Revenue Bonds, Series 1997 (the "Series 1997 Bonds"); WHEREAS, the Corporation wishes to refund the Series 1997 Bonds in order to (i) enable the Corporation to modify certain restrictive covenants contained in the resolution authorizing the issuance of the Series 1997 Bonds, and (ii) restructure the Corporation's debt service; WHEREAS, pursuant to the Act, the Corporation is authorized to issue bonds for the purposes of paying the costs of the Project and refunding the Series 1997 Bonds, said bonds being payable from and secured by the proceeds of the Sales Tax; WHEREAS, the Corporation desires to issue and sell its Sales Tax Revenue and Refunding Bonds, Series 2005 in an aggregate principal amount of $10,775,000 (the "Series 2005 Bonds") for the purposes of (i) paying the costs of the Project, (ii) refunding the Series 1997 Bonds, and (iii) paying the costs of issuing the Series 2005 Bonds and of refunding the Series 1997 Bonds; HOU:2350994. l 1 WHEREAS, in connection with the issuance of the Series 2005 Bonds, the City has agreed, on behalf of the City and the Corporation, to provide certain financial information and operating data annually in accordance with the Rule (as defined herein); WHEREAS, the City and the Corporation have previously entered into that certain Agreement Regarding the Construction and Maintenance of Street and Bridge Improvements in connection with the Project; and WHEREAS, the City and the Corporation wish to enter into an Amended and Restated Agreement Regarding the Construction and Maintenance of Streets and Roads and Drainage and Related Improvements (the "Amended and Restated Agreement") in order to clarify the obligations of the parties. NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, as follows: 1. Findings and Determinations. It is hereby officially found and determined that all of the facts recited in the preamble hereto are true and correct and the preamble is incorporated into and made a part of this Ordinance. 2. Approval of Amended and Restated Agreement. The Amended and Restated Agreement, substantially in the form attached hereto as Exhibit "A," is hereby approved and the Mayor is hereby authorized to execute and deliver, and the City Secretary is hereby authorized to attest, the Amended and Restated Agreement on behalf of the City. 3. Tax Levy and Pledge. The City has covenanted and agreed in the Amended and Restated Agreement and hereby authorizes the appropriate City officials to take all steps necessary and authorized under the Act and other applicable laws to continuously levy and collect the Sales Tax at the rate of ½% so long as any of the Series 2005 Bonds and any Additional Bonds (as defined in the Amended and Restated Agreement) are outstanding in the manner and to the maximum extent permitted by applicable law. The City hereby agrees that it will not cause a reduction, abatement, or exemption in the Sales Tax, or in the rate in which it is authorized to be collected. The City also agrees that any repeal of the right and power to levy the Sales Tax will not be effective until all the Series 2005 Bonds and any Additional Bonds have been paid in full or until they are legally defeased in accordance with the resolutions authorizing their issuance. The City hereby agrees to pay to the Corporation, by a direct deposit into the Corporation's Sales Tax Revenue Fund, 100% of the revenues collected from the annual levy and assessment of the Sales Tax, less any amounts due to the Comptroller of Public Accounts of the State of Texas for collection costs and other charges, for the term of the Amended and Restated Agreement. 4. ..Approval of Bond Resolution. The City hereby authorizes the Corporation to adopt the resolution authorizing the issuance of the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, in the aggregate principal amount of $10,775,000 (the "Bond Resolution"), substantially in the form attached hereto as Exhibit HOU:2350994.1 2 "B," and hereby approves said Bond Resolution and the issuance of the bonds described therein. 5. Continuing Disclosure Undertaking. (a) The City hereby agrees to provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2005, financial information and operating data with respect to the Corporation and the City of the general type included in the final Official Statement authorized by Section 9.3 of the Bond Resolution, being the financial information and operating data described in the Official Statement under the captions "HISTORICAL PLEDGED REVENUES," DEBT SERVICE SCHEDULE" AND "MANAGEMENT AND OPERATION OF THE CORPORATION" in the Official Statement. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Appendix C to the Official Statement and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any 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 Ordinance. The financial information and operating data to be provided pursuant to this Ordinance may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. (b) The City hereby agrees to notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Series 2005 Bonds, if such event is material within the meaning of the federal securities laws: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults; o Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; o Substitution of credit or liquidity providers, or their failure to perform; HOU:2350994.1 3 o Adverse tax opinions or events affecting the tax-exempt status of the Series 2005 Bonds; o Modifications to rights of holders of the Series 2005 Bonds; Bond calls; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Series 2005 Bonds; and 11. Rating changes. The City shall notify any 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 this Ordinance by the time required by this Ordinance. (c) The City shall be obligated to observe and perform the covenants specified in this Paragraph 5 for so long as, but only for so long as, the City or the Corporation remains an "obligated person" with respect to the Series 2005 Bonds within the meaning of the Rule, except that the City in any event will give the notice required by this Ordinance of any Bond calls and defeasance that cause the City or the Corporation to be no longer such an "obligated person," The provisions of this Paragraph 5 are for the sole benefit of the holders and beneficial owners of the Series 2005 Bonds, and nothing in this Paragraph 5, 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 Paragraph 5 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 Paragraph 5 or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED 1N THIS PARAGRAPH 5, 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. HOU:2350994.1 4 No default by the City in observing or performing its obligations under this Paragraph 5 shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Paragraph 5 is intended or shall act to disclaim, waive, or otherwise limit the dUties of the City or the Corporation under federal and state securities laws. The provisions of this Paragraph 5 may be amended by the City from time to time to adapt the changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City or the Corporation, but only if (1) the provisions of this Paragraph 5, as so amended, would have permitted an underwriter to purchase or sell the Series 2005 Bonds in the primary offering of the Series 2005 Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of the Bond Resolution that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the holder and beneficial owners of the Series 2005 Bonds. If the City so amends the provisions of this Paragraph 5, it shall include with any amended financial information or operating data next provided in accordance with its Paragraph 5 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Paragraph 5 if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Paragraph 5 in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Series 2005 Bonds, giving effect to. (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. (d) As used in this Ordinance, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. HOU:2350994.1 5 "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. 6. Further Actions. The Mayor, City Secretary and the other officials of the City are hereby authorized, jointly and severally, to execute and deliver such certificates, documents, or papers necessary and advisable, and to take such actions as are necessary to carry out the intent and purposes of this Ordinance. 7. Severability. If any word, phrase, clause, sentence, paragraph, section or other part of this Ordinance, or the application thereof to any person or circumstance, shall ever be held to be invalid or unconstitutional by any court of competent jurisdiction, the remainder of this Ordinance and the application of such word, phrase, clause, sentence, paragraph, section or other part of this Ordinance to any other persons or circumstances shall not be affected thereby. 8. Effective Date. This Ordinance shall be in full force and effect from and upon adoption. 9. Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. [Signature Page Follows] HOU:2350994.1 6 PASSED AND APPROVED on this 14th day of February5. \ ) Mayor ATTEST: HOU:2350994. l S- 1 EXHIBIT A AMENDED AND RESTATED AGREEMENT HOU:2350994.1 AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS STATE OF TEXAS § COUNTIES OF HARRIS AND BRAZORIA § This Amended and Restated Agreement Regarding the Construction and Maintenance of Streets and Roads and Drainage and Related Improvements (this "Amended and Restated Agreement" or this "Agreement") is entered into as of the 11th day of October, 2004, between the CITY OF PEARLAND, TEXAS, a municipal corporation and a home-rule city situated in Harris and Brazoria Counties, Texas (the "City") and the PEARLAND ECONOMIC DEVELOPMENT CORPORATION, an industrial development corporation created pursuant to the provisions of Article 5190.6, Section 4B, Vernon's Texas Revised Civil Statutes (the "Corporation"). RECITALS On January 21, 1995, the voters of the City approved the levy of a one-half of one percent sales and use tax (the "Sales Tax") to be used for benefit of the Corporation, including, among other things, paying the costs of the acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the "Project"). The City, by Resolution No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises, including the Project. On June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Section 4B, Texas Revised Civil Statutes (the "Act"). Pursuant to the provisions of the Act, the City desires to collect the Sales Tax and pay it to the Corporation to pay the costs of the Project. Under the Act, the Corporation has all of the powers of a non-profit corporation created under the provisions of the Texas Non-Profit Corporation Act, Article 1396-1.01, et seq., Texas Revised Civil Statutes, and thus is authorized to contract with the City for the acquisition, construction and maintenance of the Project. The City and the Corporation have previously entered into that certain Agreement Regarding the Construction and Maintenance of Street and Bridge Improvements, dated as of April 21, 1997 (the "Original Agreement"), regarding the acquisition, construction and maintenance of the Project. HOU:2351067.1 The City and the Corporation wish to enter into this Amended and Restated Agreement regarding the acquisition, construction and maintenance of the Project, to replace the Original Agreement and clarify the obligations of the parties. AGREEMENT For and in consideration of the respective promises and mutual covenants and benefits hereinafter set forth, the City and the Corporation agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. Throughout this Agreement, the following terms and expressions as used herein shall have the meanings set forth below, unless the context clearly indicates otherwise: "Act" shall mean Article 5190.6, Texas Revised Civil Statutes, as it may be amended from time to time. "Additional Bonds" shall mean any bonds, other than the Bonds, issued by the Corporation (i) to pay the costs of acquiring, constructing and maintaining the Project or (ii) which are secured by the Sales Tax. "Bond Resolutions" shall mean and include any resolution authorizing the issuance of the Bonds or any Additional Bonds. "Bonds" shall mean the Corporation's $10,775,000 Sales Tax Revenue and Refunding Bonds, Series 2004. "City" shall mean the City of Pearland, Texas. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "Corporation" shall mean the Pearland Economic Development Corporation. "Debt Service Fund" shall mean the Debt Service Fund established pursuant to the Bond Resolutions. "Project" shall mean the acquisition and construction of streets and roads and drainage and related improvements in the City; and such other areas as may be agreed upon by the City and the Corporation. "Revenue Fund" shall mean the Sales Tax Revenue Fund established by the Corporation in May, 1997. "Reserve Fund" shall mean the Reserve Fund established pursuant to the Bond Resolutions. HOU:2351067.1 "Sales Tax" shall mean the one-half of one percent sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. "Sales Tax Revenues" shall mean 100% of the funds collected by the City from the levy of the Sales Tax, without deduction, offset, or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund" shall mean the Surplus Fund established pursuant to the Bond Resolutions. Section 1.02. Interpretations. All terms defined herein and all pronouns used in this Agreement shall be deemed to apply equally to singular and plural and to all gender. The titles and headings of the articles and sections of this Agreement have been inserted for convenience and shall not in any way modify or restrict any of the terms and provisions hereof. This Agreement and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SERVICES TO BE PROVIDED Section 2.01. Construction of the Project, The Corporation agrees to develop or cause the City to develop all engineering plans, specifications, and details required for the implementation of the Project. The Corporation further agrees to contract with or cause the City to contract with all individuals or entities necessary to complete the Project in accordance with the engineering plans, specifications and other construction documents. Section 2.02. Maintenance of the Project. Upon full and final completion of the Project, the City agrees to maintain the Project in a reasonably prudent manner during the term of this Agreement and in accordance with the budget approved by the City for such maintenance. Pursuant to this Agreement and notwithstanding any other provision herein, the Corporation shall not have any obligation to maintain the Project and all obligations and liabilities with respect to the Project shall be the responsibility of the City. The City will indemnify and hold harmless the Corporation to the extent permitted by law against losses, claims, .damages or liabilities to which the Corporation may become subject, arising out of or in connection with the Project. Section 2.03. Issuance of the Bonds. The Corporation agrees to sell the Bonds at the earliest, most feasible date. The Corporation agrees to use a portion of the proceeds of the sale of the Bonds to finance the costs of the Project and to pay the costs associated with issuing the Bonds. The Bond Resolution provides that the Bonds will be secured by a pledge of the Sales Tax Revenues and any interest earned thereon. HOU:2351067,1 3 Section 2.04. Use of Sales Tax Revenues. The Corporation agrees to use the Sales Tax Revenues received from the City, and any interest earned thereon, to make deposits into the Debt Service Fund, the Reserve Fund, and all other funds as required by the Bond Resolutions. After such deposits have been made, the Corporation agrees to transfer any excess Sales Tax Revenues, and any interest earned thereon, to the Surplus Fund to be used for any other lawful purpose. ARTICLE III OBLIGATIONS OF THE CITY AND THE CORPORATION Section 3.01. Levy, Collection and Payment of Sales Tax by the Ci_ty. In consideration of the construction of the Project by the Corporation, the City covenants and agrees that it will take all steps necessary and authorized under the Act and other applicable laws to continuously levy and collect the Sales Tax during the term of this Agreement in the manner and to the maximum extent permitted by applicable law. The City also covenants and agrees that it will not cause a reduction, abatement, or exemption in the Sales Tax or in the rate in which it is authorized to be collected. In addition, the City covenants and agrees that any repeal of the right and power to levy the Sales Tax will not be effective until all Bonds and Additional Bonds have been paid in full or until they are legally defeased in accordance with the Bond Resolutions. The City further covenants and agrees that, during the term of this Agreement, within five (5) days of receipt of Sales Tax Revenues from the Comptroller, it will pay to the Corporation by a direct deposit into the Revenue Fund of the Corporation, 100% of the Sales Tax Revenues, without demand, notice, counterclaim, or offset, including any administrative charges or expenses incurred by the City in connection with the levy and collection of the Sales Tax or the Sales Tax Revenues, other than those charged or assessed by the Comptroller. Section 3.02. Payment of Debt Service on the Bonds. The Corporation will use the moneys in the Revenue Fund as follows: first, to pay all principal, all interest, and all paying agent/registrar charges on the Bonds and any Additional Bonds, at the respective times and in the respective amounts as fixed and prescribed in the Bond Resolutions; second, to make any arbitrage rebates required pursuant to the Bond Resolutions; third, to reimburse the issuer of any surety .bond issued in satisfaction of any reserve fund requirement for any advances under any such surety bond; fourth, to pay interest to the issuer of any surety bond issued in satisfaction of any reserve fund requirement for any advances under any such surety bond; fifth, to establish and maintain the Reserve Fund; and sixth, to make the transfers required by all resolutions authorizing the issuance or incurrence of subordinate lien obligations. Thereafter, the Corporation shall transfer any excess funds in the Revenue Fund to the Surplus Fund and shall use such excess funds for any other lawful purpose. Section 3.03. Obligations of Ci_ty to be Absolute. The obligation of the City to make the payments set forth in this Agreement shall be absolute and unconditional, and until such time as the Bonds and any Additional Bonds and the Paying Agent/Registrar's fees have been fully paid or provision for payment thereof shall have been made in HOU:2351067.1 4 accordance with the Bond Resolutions, the City will not suspend or discontinue any payments provided for in this Agreement and will not terminate this Agreement for any cause, including, without limiting the generality of the foregoing, failure of the Corporation to implement the Project at the cost estimated or in accordance with the final plans and specifications; any acts or circumstances that might constitute failure of consideration, eviction, or constructive eviction; destruction of or damage to the Project; commercial frustration of purpose; or any failure of the Corporation to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with this Agreement. Nothing contained in this Section shall be construed to release the Corporation from performance of any of the agreements on its part contained in this Agreement, and in the event the Corporation shall fail to perform any such agreement on its part, the City may institute such action against the Corporation as the City may deem necessary to compel performance so long as this action does not abrogate the City's obligations to make the payments set forth in this Agreement. ARTICLE IV MISCELLANEOUS PROVISIONS Section 4.01. Term. This Agreement shall be in force and effect from the date of execution hereof for a term of twenty-two (22) years. This Agreement shall automatically renew thereafter for additional terms of one year each, unless either party gives to the other party written notice of termination at least ninety (90) days, but not more than one hundred eighty (180) days, prior to the termination of the then-existing term. Section4.02. Amendments and Supplements. This Agreement may be amended, supplemented or extended by mutual agreement of the parties hereto, but not in such manner as to impair the rights of the holders of bonds issued by the Corporation and secured by a pledge of the Sales Tax Revenues. Section 4.03. Merger. This Agreement embodies the entire understanding between the parties hereto and there are no prior effective representation, warranties, or agreements between the parties hereto. Section 4.04. Severability. The provisions of this Agreement are severable, and if any provision or part of this Agreement or the application hereof to any person or circumstance shall ever be held by any court of competent jurisdiction to be invalid or unconstitutional for any reason, the remainder of this Agreement and the application of such provision or part of this Agreement to other persons or circumstances shall not be affected thereby. Section 4.05. Replacement of Original Agreement. The Original Agreement is hereby replaced in its entirety by this Amended and Restated Agreement. [Signature page follows.] HOU:2351067.1 EXECUTED in multiple counterparts as of the date first written above. CITY OF PEARLAND, TEXAS ATTEST: By: Name: Tom Reid Title: Mayor By: Name: Young Lorfing Title: City Secretary (SEAL) HOU:2351067.1 S- 1 PEARLAND ECONOMIC DEVELOPMENT CORPORATION By:. Name: Randall Ferguson Title: Chairman ATTEST: By: Name: Lucy Stevener Title: Secretary HOU:2351067.1 S-2 EXHIBIT B BOND RESOLUTION HOU:2350994.1 DRAFT 01/12/05 RESOLUTION AUTHORIZING THE ISSUANCE OF $10,775,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005; AND CONTAINING OTHER PROVISIONS RELATED THERETO BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION: ARTICLE I FINDINGS AND DETERMINATIONS Section 1.1: Findings and Determinations. It is hereby officially found and determined that: (a) On January 21, 1995, the voters of the City approved the levy of one-half of one percent (1/2%) sales and use tax to be used for the benefit of the Corporation (the "Sales Tax"), including, among other things, paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises. (b) The City Council of the City of Pearland, Texas (the "City"), by Ordinance No. R95- 36 duly adopted on May 22, 1995, authorized the creation of the Pearland Economic Development Corporation (the "Corporation") to act on behalf of the City by receiving and expending sales tax revenues for various projects which promote or develop new or expanded business enterprises. (c) On June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes, as amended (the "Act"). (d) The acquisition and construction of an extension of Kirby Drive within the City from the southern boundary of Clear Creek to Beltway 8, including the water, sewer, bridge and drainage improvements required for such extension (the "Project") is important to the economic growth and development of the City and will benefit the City's residents by aiding the City's efforts to encourage growth and development, stimulate commerce, promote or develop new or expanded business enterprises, and enhance the health, safety, and welfare of the City's residents. (e) The Corporation wishes to refund the Refunded Bonds (as defined herein) in order to (i) enable the Corporation to modify certain restrictive covenants contained in the resolution authorizing the issuance of the Refunded Bonds and (ii) restructure the Corporation's debt service. The Corporation hereby finds and determines that such modification of restrictive covenants and restructuring of debt service are sufficient consideration for the issuance of the Bonds. HOU:2349859.4 (f) As permitted by the Act and Chapter 1207, Texas Government Code, as amended, the Corporation desires to issue sales tax revenue and refunding bonds upon the terms and conditions and for the purposes herein provided. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section2.1: Definitions. In this Resolution, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Act" shall mean Article 5190.6, Texas Revised Civil Statutes, as amended. "Additional Parity Bonds" shall mean the additional bonds permitted to be issued by the Corporation pursuant to Section 6.1 of this Resolution. "Attorney General" shall mean the Attorney General of the State of Texas. "Board of Directors" shall mean the governing body of the Corporation. "Bond Insurance Policy" shall mean the municipal bond new issuance insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds. "Bond Insurer" shall mean , or any successor thereto. "Bond" or "Bonds" shall mean the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, but only to the extent such Bonds are Outstanding within the meaning of this Resolution. "Bond Purchase Agreement" shall mean that certain bond purchase agreement, dated February 14, 2005, by and between the Corporation and the Purchaser. "Business Day" shall mean any day other than (i) a Saturday, Sunday, or other day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, or (ii) a day on which the New York Stock Exchange is closed. "City" shall mean the City of Pearland, Texas, a municipal corporation and home-rule city, and where appropriate, the City Council of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "Construction Fund" shall mean the Construction Fund created pursuant to Section 9.4 of this Resolution. "Corporation" shall mean the Pearland Economic Development Corporation, and any successor thereto. HOU:2349859.4 2 "Debt Service Fund" shall mean the Debt Service Fund created pursuant to Section 5.2 of this Resolution. "Debt Service Requirement" shall mean the amount necessary to pay the principal of, premium, if any, and interest due and owing on the Bonds, and any Additional Parity Bonds, during each Fiscal Year of the Corporation. The Debt Service Schedule for the Bonds is attached to this Resolution as Exhibit A. "Escrow Agent" shall mean JPMorgan Chase Bank (as successor in interest to Texas Commerce Bank National Association), or any successor thereto. "Escrow Agreement" shall mean that certain Escrow Agreement, dated as of February 1, 2005, by and between the Escrow Agent and the Corporation, in substantially the form attached hereto as Exhibit B. "Escrow Fund" shall mean the fund created in Section 3.1 of the Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of the Escrow Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation, which is currently the twelve- month period beginning on October 1 of each year and ending on September 30 of the following year. "Outstanding," when used with reference to the Bonds shall mean, as of a particular date, the principal amount of all such Bonds theretofore delivered by the Corporation as provided in or contemplated by this Resolution, except: (a) any such Bond canceled by or on behalf of the Corporation at or before such date; (b) any such Bond paid or with respect to which provision for payment has been made pursuant to the provisions of this Resolution or otherwise defeased as permitted by applicable law; or (c) any such Bond in lieu of or in substitution for which another Bond shall have been delivered pursuant to this Resolution. "Owner" or "Registered Owner," when used with respect to any Bond, shall mean 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 shall mean the Owners at a particular time of the specified percentage or proportion in aggregate principal amount of all Bonds then Outstanding under this Resolution, exclusive of Bonds held by the Corporation. "Parity Bonds" shall mean the Bonds, each series of Additional Parity Bonds from time to time hereafter issued by the Corporation, and any refunding bonds issued to refund the Bonds or any Additional Parity Bonds, but only to the extent such Parity Bonds remain Outstanding. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Minneapolis, Minnesota, and its successors in that capacity. "Payment Date", when used in connection with any Bond, shall mean September 1, 2005, and each March 1 and September 1 thereafter until maturity or prior redemption. HOU:2349859.4 "Pledged Revenues" shall mean (a) 100% of the Sales Tax Revenues and (b) 100% of all of the interest income from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund. "Project" shall mean the extension of Kirby Drive within the City from the southern boundary of Clear Creek to Beltway 8, including the water, sewer, bridge and drainage improvements required for such extension. "Purchaser" shall mean the initial purchaser of the Bonds as defined in Section 9.1 of this Resolution. "Record Date" shall mean, for any Payment Date, the fifteenth (15th) calendar day of the month next preceding each Payment Date. "Refunded Bonds" shall mean those bonds described in Schedule I attached hereto, which are being refunded and defeased with the proceeds of the Bonds and other legally available funds of the Corporation, if any. "Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. "Report" shall mean the report of Grant Thornton LLP, certified public accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the refunding of the Refunded Bonds. "Reserve Fund" shall mean the Reserve Fund created pursuant to Section 5.2 of this Resolution. "Reserve Fund Requirement" shall mean an amount (which may consist of money or authorized investments, or any combination thereof) equal to 100% of the average annual debt service on the Bonds and any Additional Parity Bonds then Outstanding. "Reserve Fund Surety Bond" shall mean the reserve fund surety bond issued by the Reserve Fund Surety Bond Insurer. "Reserve Fund Surety Bond Insurer" shall mean any successor thereto. , or "Resolution" shall mean this Resolution Authorizing the Issuance of $10,775,000 Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005, and all amendments hereof and supplements hereto. "Revenue Fund" shall mean the Revenue Fund created pursuant to Section 5.2 of this Resolution. HOU:2349859.4 "Sales Tax" shall mean the 1/2 of 1% sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. "Sales Tax Revenues" shall mean 100% of the funds collected by the City from the levy of the Sales Tax, without deduction, offset or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund" shall mean the Surplus Fund created pursuant to Section 5.2 of this Resolution. Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Resolution 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 Resolution 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 Resolution 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 Pledged Revenues to secure the payment of the Parity Bonds. ARTICLE III TERMS OF THE BONDS Section 3.1: Name, Amount, Purpose, Authorization. The Bonds shall be issued in fully registered form, without coupons, in the aggregate principal amount of TEN MILLION SEVEN HUNDRED SEVENTY FIVE THOUSAND AND NO/100 DOLLARS ($10,775,000) for the purposes permitted by the Act, including particularly (1) acquiring and constructing streets and roads, drainage and related improvements within the City, specifically the Project, (2) refunding the Refunded Bonds, and (3) paying the costs of issuing the Bonds and of refunding the Refunded Bonds. Section3.2: Designation, Date, and Payment Dates. The Bonds shall be dated February 15, 2005, and designated as the PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005, and shall bear interest at the rates set forth in Section 3.3 of this Resolution from the later of February 15, 2005, or the most recent Payment Date to which interest has been paid or duly provided for, calculated on the basis of a 360-day year composed of twelve 30-day months, payable on March 1, 2005, and semiannually thereafter on March 1 and September 1 of each year until maturity or prior redemption. Section 3.3: Initial Bonds; Numbers; Denomination; Interest Rates and Maturities. The Bonds shall be initially issued bearing the numbers, in the principal amounts, and bearing interest at the rates set forth below, and may be transferred and exchanged as set out in this Resolution. The Bonds shall mature, subject to prior redemption in accordance with this Resolution, on HOU:2349859.4 September 1 in each of the years and in the amounts set out in the following schedule. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof, and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Bond Year of Principal Interest Number Maturity Amount Rate R-1 2005 $520,000 R-2 2006 310,000 R-3 2007 320,000 R-4 2008 330,000 R-5 2009 340,000 R-6 2010 350,000 R-7 2011 365,000 R-8 2012 380,000 R-9 2013 400,000 R-10 2014 420,000 R-11 2015 440,000 R-12 2016 465,000 R-13 2017 490,000 R-14 2018 510,000 R-15 2019 540,000 R-16 2020 565,000 R-17 2021 595,000 R-18 2022 620,000 R-19 2023 655,000 R-20 2024 685,000 R-21 2025 720,000 R-22 2026 755,000 Section 3.4: Optional Redemption. The Corporation reserves the right, at its option, to redeem Bonds maturing on or after September 1, 2015, in whole, or from time to time in part, on September 1, 2014 or on any date thereafter, at par plus accrued interest on the amounts called for redemption to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the Corporation shall determine the particular Bonds or portions thereof to be redeemed. Principal amounts may be redeemed only in integral multiples of $5,000. 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 Paying Agent/Registrar, in accordance with Section 3.11 of this Resolution, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. HOU:2349859.4 6 Notice of any redemption identifying the Bonds to be redeemed in whole or in part shall be given by the Paying Agent/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, and the place at which Bonds are to be surrendered for payment and, if less than all Bonds outstanding are to be redeemed in any one maturity, the numbers of the Bonds or portions thereof of such maturity to be redeemed. In selecting portions of Bonds for redemption, the Paying Agent/Registrar shall treat each Bond as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. The Paying Agent/Registrar shall select the particular Bonds to be redeemed within any given maturity by lot or other random method. Any notice given as provided in this Section 3.4 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 Paying Agent/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 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. Section3.5: Execution of Bonds. The Bonds shall be signed on behalf of the Corporation by the Chairman and countersigned by the Secretary by their manual, lithographed, or facsimile signatures 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. If any officer of the Corporation whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. Section 3.6: Approval By Attorney General; Registration by Comptroller. The Bonds to be initially issued shall be delivered to the Attorney General for examination and approval and shall be registered by the Comptroller. The manually executed registration certificate of the Comptroller substantially in the form provided in Article IV of this Resolution shall be affixed or attached to the Bonds to be initially issued. Section 3.7: Authentication. Except for the Bonds to be initially issued, which need not be authenticated, only such Bonds as shall bear thereon a certificate of authentication substantially in the form provided in Article IV of this Resolution, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Resolution or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Bond so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.8: Payment of Principal and Interest. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of HOU:2349859.4 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 corporate trust office of the Paying Agent/Registrar. The interest on each Bond shall be payable by check payable on the Payment Date, mailed by the Paying Agent/Registrar on or before each Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register, or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of principal or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Section 3.9: Special Record Date. If interest on any Bond is not paid on any 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 Corporation. 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 Owner or record of an affected Bond as of the close of business on the day prior to the mailing of such notice. Section 3.10: Ownership. The Corporation, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal of or interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the Corporation nor the Paying Agent/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 3.10 shall be valid and effectual and shall discharge the liability of the Corporation and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. Section3.11: Registration, Transfer and Exchange. So long as any Bonds remain outstanding, the Paying Agent/Registrar shall keep the Register at its principal corporate trust office in Minneapolis, Minnesota, and, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Resolution. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Bond in proper form for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within three (3) Business Days after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. HOU:2349859.4 All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section 3.11. Each Bond delivered in accordance with this Section 3.11 shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The Corporation or the Paying Agent/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 Paying Agent/Registrar for such transfer or exchange shall be paid by the Corporation. The Paying Agent/Registrar shall not be required to transfer or exchange any Bond called for redemption, in whole or in part, during the 45-day period immediately prior to the redemption date; provided, however, that such limitation shall not apply to the transfer or exchange by the Owner of the unredeemed portion of a Bond called for redemption in part. Section 3.12: Book-Entry Only System. (a) The definitive Bonds shall be initially issued in the form of a separate single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in subsection (b) hereof, all of the Outstanding Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Upon delivery by DTC to the Paying Agent/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 in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (b) the delivery to any DTC Participant or any other person, other than a holder of the Bond, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a holder of the Bond, as shown in the Register of any amount with respect to principal of Bonds, premium, if any, or interest on the Bonds. Except as provided in subsection (c) of this Section 3.9, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on Bonds, for the purpose of giving notices of HOU:2349859.4 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 Paying Agent/Registrar shall pay all principal of Bonds, premium, if any, and interest on the Bonds only to or upon the order of the respective owners, as shown in the Register as provided in this 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 payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. (b) Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as 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 the Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section3.13: Successor Securities Depository; Transfer Outside Book-Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certified Bonds, the City or the Paying Agent/Registrar shall (a) 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 of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (b) notify 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. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names holders of the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3.14: Cancellation of Bonds. All Bonds paid or redeemed in accordance with this Resolution, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall furnish the Corporation with appropriate certificates of destruction of such Bonds. Section 3.15: Damaged, Mutilated, Lost, or Stolen Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Bond, the Paying Agent/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. The Corporation or the Paying Agent/Registrar may require the Owner of such 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 Paying Agent/Registrar. HOU:2349859.4 10 If any Bond is lost, apparently destroyed, or wrongfully taken, the Corporation, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall execute and the Paying Agent/Registrar shall authenticate and deliver, a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner thereof shall have: furnished to the Corporation and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) fumished such security or indemnity as may be required by the Paying Agent/Registrar and the Corporation to save them harmless; (3) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (4) met any other reasonable requirements of the Corporation and the Paying Agent/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 Corporation and the Paying Agent/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 Corporation or the Paying Agent/Registrar in connection therewith. If any such damaged, mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Corporation in its discretion may, instead of issuing a replacement Bond, authorize the Paying Agent/Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section 3.13 shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. ARTICLE IV FORM OF BONDS AND CERTIFICATES Section 4.1: Forms. The form of the Bonds, including the form of Statement of Insurance, the form of the Paying Agent/Registrar's Authentication Certificate, the form of Assignment and the form of the Comptroller's Registration Certificate which shall be attached or affixed to the Bonds initially issued, shall be, respectively, substantially as follows, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Resolution: HOU:2349859.4 11 FORM OF BOND UNITED STATES OF AMERICA STATE OF TEXAS NUMBER R- REGISTERED DENOMINATION $ REGISTERED PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BOND SERIES 2005 INTEREST RATE: DATED DATE: MATURITY DATE: CUSIP: February 15, 2005 September 1, __ REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS: THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the "Corporation"), a corporation created to act on behalf of the City of Pearland, Texas (the "City"), in the County of Brazoria, in the State of Texas, for value received hereby promises to pay, but solely from certain Pledged Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date specified above, upon presentation and surrender of this Bond at the principal payment office of Wells Fargo Bank, N.A., Minneapolis, Minnesota (the "Paying Agent/Registrar"), the principal amount identified above, in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay, solely from such Pledged Revenues, interest thereon at the rate shown above, calculated on the basis of a 360-day year, composed of twelve 30-day months, from the later of the Dated Date specified above 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 sent by United States mail, first class, postage prepaid, payable on March 1 and September 1, beginning on September 1, 2005, mailed to the registered owner as shown on the books of registration kept by the Paying Agent/Registrar as of the fifteenth (15) calendar day of the month next preceding each interest payment date, or by such other method, acceptable to the Paying Agent/Registrar, requested by and at the risk and expense of the registered owner. Any accrued interest Payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Bond at the principal corporate trust office of the Paying Agent/Registrar. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") aggregating $10,775,000, issued for the purposes permitted by Article 5190.6, Texas Revised Civil Statutes (the "Act"), including particularly (1) acquiring and constructing streets and roads, drainage and related improvements within the City, (2) refunding the Refunded Bonds, and (3) paying the costs of issuing the Bond and of refunding the Refunded Bonds, all under and HOU:2349859.4 12 pursuant to the authority of the Act, Chapter 1207, Texas Government Code, as amended, and all other applicable law, and a resolution adopted by the Corporation on February 14, 2005 (the "Resolution"). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Resolution. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Resolution 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 Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. IN WITNESS WHEREOF, the Corporation has caused this Bond to be executed by the Chairman of the Corporation and countersigned by the Secretary of the Corporation by the manual, lithographed or printed facsimile signatures. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Chairman COUNTERSIGNED: Secretary (Back Panel of Bond) THE CORPORATION RESERVES THE RIGHT to redeem Bonds maturing on or after September 1, 2015, in whole or from time to time in part, in integral multiples of $5,000, on September 1, 2014, or on 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 Resolution 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, postage prepaid, addressed to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Paying Agent/Registrar. When Bonds or portions thereof have been called for redemption, and due provision has been made to redeem the same, the principal amounts so redeemed shall be payable solely from the funds provided for redemption, and HOU:2349859.4 13 interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the Corporation that are payable from and are equally and ratably secured by a first lien on the Pledged Revenues, as defined and provided in the Resolution, which Pledged Revenues are required to be set aside and pledged to the payment of the Bonds, and all additional bonds issued on a parity therewith, in the Debt Service Fund and Reserve Fund maintained for the payment of all such Bonds, and any excess Sales Tax Revenues are to be set aside in the Surplus Fund and used for any purpose authorized under the Act. THIS BOND AND THE SERIES OF WHICH IT IS A PART ARE PAYABLE SOLELY FROM SUCH PLEDGED REVENUES AND NEITHER THE STATE OF TEXAS (THE "STATE"), THE CITY OF PEARLAND, TEXAS (THE "CITY"), NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY OF THE STATE SHALL BE OBLIGATED TO PAY THE SAME OR THE INTEREST THEREON AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE CITY, OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE BONDS. NEITHER THE BONDS NOR ANY INSTRUMENT RELATED TO THE BONDS MAY GIVE A BONDHOLDER A RIGHT TO DEMAND PAYMENT FROM TAX PROCEEDS IN EXCESS OF THOSE COLLECTED FROM THE SALES AND USE TAX IMPOSED BY THE CITY PURSUANT TO THE ACT. THE OWNER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THIS BOND OUT OF ANY FUNDS RAISED OR TO BE RAISED BY AD VALOREM TAXATION. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal payment office of the Paying Agent/Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Resolution. THE BONDS ARE EXCHANGEABLE at the principal payment office of the Paying Agent/Registrar for Bonds in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Resolution. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Resolution. THE CORPORATION has covenanted in the Resolution that it will at all times provide a legally qualified paying agent and registrar for the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. THE CORPORATION HAS RESERVED THE RIGHT to issue additional parity bonds, subject to the restrictions contained in the Resolution, which may be equally and ratably payable from, and secured by a first lien on and pledge of, the Pledged Revenues in the same manner and to the same extent as this Bond and the series of which it is a part. HOU:2349859.4 14 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 Pledged Revenues. FORM OF REGISTRATION CERTIFICATE THE STATE OF TEXAS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS 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 OF OFFICE this (SEAL) Comptroller of Public Accounts of the State of Texas FORM OF AUTHENTICATION CERTIFICATE AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within- mentioned Resolution, and, except for the Bonds initially delivered, this Bond has been issued in exchange for or replacement of a Bond, Bonds or a portion of a Bond or Bonds of an issue which originally was approved by the Attomey General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Wells Fargo Bank, N.A. Minneapolis, Minnesota By:. Authorized Signature Date of Authentication: HOU:2349859.4 15 FORM OF STATEMENT OF INSURANCE STATEMENT OF INSURANCE [TO COMEI FORM OF ASSIGNMENT ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: 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. Section 4.2: Legal Opinion; Cusip Numbers. The approving opinion of Andrews Kurth LLP, Houston, Texas, and CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. HOU:2349859.4 16 ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR ALL PARITY BONDS Section 5.1: Pledge and Source of Payment. The Corporation hereby covenants and agrees that all Pledged Revenues shall be deposited and paid into the special funds established in Section 5.2 of this Resolution, and shall be applied in the manner set out herein, to provide for the payment of principal, interest and any redemption premium of the Parity Bonds and all expenses of paying the same. The Parity Bonds shall constitute special obligations of the Corporation that shall be payable solely from, and shall be equally and ratably secured by a first lien on, the Pledged Revenues, as collected and received by the Corporation, which Pledged Revenues shall, in the manner herein provided, be set aside and pledged to the payment of the Parity Bonds in the Debt Service Fund and Reserve Fund, and any excess Sales Tax Revenues shall be set aside in the Surplus 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 ad valorem taxation. The owners of the Parity Bonds shall never have the right to demand payment from Sales Tax Revenues in excess of those collected from the Sales Tax. Section 5.2: Special Funds. The following special funds are hereby created, and such funds shall be maintained and accounted for as hereinafter provided, so long as any Parity Bonds remain Outstanding: (a) the Revenue Fund; (b) the Debt Service Fund; (c) the Reserve Fund; and (d) the Surplus Fund. The Revenue Fund and the Surplus Fund shall be maintained and accounted for as separate accounts on the books of the Corporation. The Debt Service Fund and any moneys held in the Reserve Fund shall be maintained at an official depository bank of the Corporation separate and apart from all other funds and accounts of the City or the Corporation 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 herein so long as any Parity Bonds remain Outstanding. Section 5.3: Flow of Funds. All Pledged Revenues shall be deposited as collected into the Revenue Fund. Money from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order or priority: (a) First, to make all deposits into the Debt Service Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; HOU:2349859.4 17 (b) Second, to make any rebate payments required pursuant to Section 9.5 of this Resolution; (c) Third, to reimburse the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (d) Fourth, to pay interest to the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, for any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (e) Fifth, to make all deposits into the Reserve Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (f) Sixth, to make the transfers required by any resolutions authorizing the issuance or incurrence of subordinate lien obligations (subject to the prior requirements of any resolutions authorizing the issuance of Additional Parity Bonds); and (g) Seventh, to make all deposits into the Surplus Fund as required by this Resolution, said funds to be used for any lawful purpose. Whenever the total 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 5.4: Debt Service Fund. On or before the last Business Day of each month, beginning March, 2005, so long as any Parity Bonds remain Outstanding, there shall be deposited into the Debt Service Fund from the Revenue Fund such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the Debt Service Requirement on the next Payment Date. If in any month the Corporation shall fail to make the full transfer to the Debt Service Fund required by this Resolution, amounts equivalent to such deficiency shall be transferred to the Debt Service Fund from the first available and unallocated money in the Revenue Fund in the following month or months, and such transfers shall be in addition to the other amounts required to be transferred to the Debt Service Fund. Money deposited to the credit of the Debt Service Fund shall be used soley 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, plus all bank charges and other costs and expenses related to such payment. On or before each Payment Date on the Parity Bonds, the Corporation shall transfer from the Debt Service Fund to the paying agents for the Parity Bonds an amount equal to the principal, interest and any redemption premium payable on the Parity Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The paying agents for the Parity Bonds shall destroy all paid Parity Bonds and shall provide the Corporation with an appropriate certificate of destruction. HOU:2349859.4 18 Section 5.5: Reserve Fund. The Corporation shall initially deposit in the Reserve Fund, within five years from the date of delivery of the Bonds, in equal monthly installments, an amount which after such five-year period shall equal the Reserve Fund Requirement. After such five-year period, so long thereafter as the Reserve Fund contains such amount, no deposits shall be required to be made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund, the Debt Service Fund or the Surplus Fund. But, if and whenever the balance in the Reserve Fund is reduced below such amount, monthly deposits into the Reserve Fund from the first available and unallocated money in the Revenue Fund shall be resumed and continued 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. In lieu of cash or investments, the Reserve Fund Requirement may be satisfied in whole or in part with one or more surety bonds issued by an insurance company rated in the highest rating category by Standard & Poor's Ratings Group and Moody's Investors Service, and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company, including the Reserve Fund Surety Bond pursuant to the Financial Guaranty Agreement, a form of which is attached hereto as Exhibit G, the terms and provisions of which are hereby approved. The Chairman is hereby authorized and directed to execute and deliver such Financial Guaranty Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such Reserve Fund Surety Bond may be drawn upon only after all cash or investments held in the Reserve Fund have been used or applied. If the Reserve Fund Requirement is satisfied with the Reserve Fund Surety Bond and one or more surety bonds authorized under this Section, draws on the Reserve Fund Surety Bond and such other surety bonds shall be made on a pro rata basis. Notwithstanding anything in this Resolution to the contrary, the Bonds may not be redeemed pursuant to Section 3.4 unless all amounts owed to the Reserve Fund Surety Bond Insurer pursuant to the Financial Guaranty Agreement have been paid in full. Section 5.6: Surplus Fund. After making any transfers which may be required into the Debt Service Fund, the Reserve Fund, or any other fund or funds created in any resolution authorizing the issuance of Parity Bonds, any money remaining in the Revenue Fund shall be considered surplus, and may be deposited on any Payment Date into the Surplus Fund and used by the Corporation for any lawful purpose. Section 5.7: 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. Section 5.8: Investment of Funds; Transfer of Investment Income. Money in the Revenue Fund, the Debt Service Fund and the Reserve Fund may, at the option of the HOU:2349859.4 19 Corporation, be invested in any manner permitted by law for public funds; 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. All such investments shall be valued in terms of current market value as of the last Business Day of the Corporation's Fiscal Year. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds. All interest and income derived from such deposits and investments shall be transferred or credited as received to the Revenue Fund, and shall constitute Pledged Revenues. Section 5.9: Security for Uninvested Funds. So long as any Parity Bonds remain Outstanding, all uninvested money on deposit in, or credited to, the Revenue Fund, the Debt Service Fund and the Reserve Fund shall be secured by the pledge of security, as provided by Texas law. ARTICLE VI ADDITIONAL BONDS Section6.1: Additional Parity Bonds. In addition to inferior lien bonds, the Corporation expressly reserves the right hereafter to issue, in one or more series, Additional Parity Bonds for purposes permitted by law, which Additional Parity Bonds, when issued, shall be payable from and secured by liens on and pledges of the Pledged Revenues in the same manner and to the same extent as the Bonds and any other Additional Parity Bonds; and the Additional Parity Bonds, when issued, shall be payable from the Debt Service Fund and shall be in all respects of equal dignity and on a parity with the Bonds and any other Additional Parity Bonds. It is specifically provided, however, that no Additional Parity Bonds shall be issued unless: (a) Principal of the Additional Parity Bonds is payable on September 1 and interest is payable on March 1 and September 1; (b) The Debt Service Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; (c) For any twelve (12) consecutive months of the preceding 18-month period immediately preceding the month in which the resolution authorizing such Additional Parity Bonds is adopted (the "Base Period"), the Pledged Revenues were equal to at least 1.25% 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 Chairman of the Corporation, an authorized officer of the City, or by an independent certified public accountant or firm of independent certified public accountants; and (d) Provision is made in the resolution authorizing the Additional Parity Bonds then proposed to be issued that (1) additional deposits will be made into the Debt Service Fund sufficient to provide for the principal and interest requirements on the Additional Parity Bonds HOU:2349859.4 20 and (2) deposits will be made into the Reserve Fund of such amount, or one or more surety bonds will be provided, so that it will contain a balance not less than the Reserve Fund Requirement on all Parity Bonds that will be Outstanding after the issuance of such series of Additional Parity Bonds. Section 6,2: Subordinate Lien Bonds. The Corporation reserves the right to issue, for any purpose authorized under the Act, bonds, notes or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior and subordinate to the lien on Pledged Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. ARTICLE VII PAYING AGENT/REGISTRAR Section 7.1: Paying Agent/Registrar; Computation of Amount of Interest. (a) Wells Fargo Bank, N.A., Minneapolis, Minnesota, is hereby appointed Paying Agent and Registrar for the Bonds. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit C, the terms and provisions of which are hereby approved, and the Chairman is hereby authorized and directed to execute and deliver such Paying Agent/Registrar Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the Corporation and/or the deposits of money pursuant to this Resolution, shall be deemed to accept and agree to abide by the terms of this Resolution. (b) All money transferred to the Paying Agent/Registrar by the Corporation under this Resolution (except sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the Registered Owners, shall be the property of the Corporation, and shall be disbursed in accordance with this Resolution. (c) The Paying Agent/Registrar, in its individual or any other capacity, may become an Owner or pledgee of Bonds with the same rights it would have if it was not the Paying/Agent Registrar. (d) The dollar amount of interest due and payable from time to time shall be computed by the Paying Agent/Registrar. (e) The Paying Agent/Registrar shall hold in escrow on behalf of the Corporation the Bonds initially issued by the Corporation and approved by the Attorney General and shall deliver such Bonds in accordance with this Resolution and the Bond Purchase Agreement. (f) All matured Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the Corporation. Such Bonds shall be canceled as provided herein. Amounts held by the Paying Agent/Registrar which represent principal of HOU:2349859.4 21 and interest on the Bonds remaining unclaimed by the Owner after the expiration of three (3) years from the date such amounts have become due and payable shall be reported and disposed of by the Paying Agent/Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. The Paying Agent/Registrar shall have no liability to the Owners of the Bonds by virtue of actions taken in compliance with this Section. (g) The Paying Agent/Registrar shall deliver a written demand for payment, in a form acceptable to the Reserve Fund Surety Bond Insurer, at least three business days prior to the date on which a draw under the Reserve Fund Surety Bond will be required. The Paying Agent/Registrar shall maintain adequate records, verified with the Reserve Fund Surety Bond Insurer, regarding the amount available to be drawn at any given time under the Reserve Fund Surety Bond and regarding to the amounts paid and owing to the Reserve Fund Surety Bond Insurer under the terms of the Financial Guaranty Agreement. Section 7.2: Successor Paying Agents/Registrars. If the Paying Agent/Registrar or its successors become unable for any reason to act as Paying Agent/Registrar hereunder, the Corporation covenants that it will appoint a qualified bank or trust company as the Paying Agent/Registrar for the Bonds. No successor Paying Agent/Registrar shall be appointed unless the Corporation shall have the first given 60 days' written notice, by first class mail, to each Registered Owner of Bonds. ARTICLE VIII COVENANTS AND PROVISIONS RELAT1NG TO ALL PARITY BONDS Section 8.1: Punctual Payment of Parity Bonds. The Corporation will punctually pay or cause to be paid the interest and premium, if any, 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 Resolution and in any resolution authorizing the issuance of Additional Parity Bonds. Section 8.2: Accounts, Records, and Audits. So long as any Parity Bonds remain Outstanding, the Corporation covenants and agrees that it will maintain a proper and complete system of records and accounts 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 Sales Tax Revenues or the Pledged Revenues. The Corporation 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 Corporation shall furnish a copy thereof without cost to the Municipal Advisory Council of Texas, the major municipal rating agencies and any owners of Parity Bonds who shall request same. Section8.3: Pledge and Encumbrance of Pledged Revenues. The Corporation covenants and represents that it has the lawful power to create a lien on and to pledge the Pledged Revenues to secure the payment of the Parity Bonds and has lawfully exercised such HOU:2349859.4 22 power under the Constitution and laws of the State of Texas. The Corporation further covenants and represents that, other than to the payment of the Parity Bonds, the Pledged 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 Corporation, unless such lien, pledge or encumbrance is junior and subordinate to the lien and pledge securing payment of the Parity Bonds. The Corporation covenants to take all such actions as may be necessary or required from time to time under Texas law to preserve or perfect the priority of the first lien on Pledged Revenues created in this section. Section8.4: Bondowners' Remedies. This Resolution shall constitute a contract between the Corporation and the Owners of the Parity Bonds from time to time Outstanding and this Resolution shall be and remain irrepealable until the Parity Bonds and the interest thereon shall be fully paid or discharged or provision therefor shall have been made as provided herein. In the event of a default in the payment of the principal of or interest or premium, if any, on any of the Parity Bonds or a default in the performance of any duty or covenant provided by law or in this Resolution, 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 Corporation 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 Corporation under this Resolution, including the deposit of the Pledged Revenues into the special funds herein provided, and the application of such Pledged Revenues in the manner required in this Resolution. Section 8.5: Discharge by Deposit. The Corporation may defease the provisions of this Resolution and discharge its obligation to the Owners of any or all of the Bonds to pay principal thereof and interest and redemption premium, if any, thereon in any manner now or hereafter permitted by law. Upon such defeasance and discharge, such Bonds shall no longer be regarded to be Outstanding or unpaid. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Bond Insurer pursuant to the Bond Insurance Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Corporation, and the assignment and pledge of all covenants, agreements and other obligations of the Corporation to the Owners shall continue to exist and shall run to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to the rights of such Owners. Section 8.6: Confirmation and Levy of Sales Tax. (a) The Corporation hereby represents the City has duly complied with the provisions of the Act for the levy of the Sales Tax at the rate voted at the election held by and within the City on January 21, 1995, and such Sales Tax is being imposed within the corporate limits of the City and the receipts of such Sales Tax are being remitted to the City by the Comptroller of Public Accounts on a monthly basis. (b) While any Bonds are Outstanding, the Corporation covenants, agrees and warrants to take and pursue all action permissible to cause the Sales Tax, at said rate or at a higher rate if legally permitted, to be levied and collected continuously, in the manner and to the maximum HOU:2349859.4 23 extent permitted by law, and to cause no reduction, abatement or exemption in the Sales Tax or rate of tax below the rate stated, confirmed and ordered in subsection (a) of this Section to be ordered or permitted while any Bonds shall remain Outstanding. (c) If hereafter authorized by law to apply, impose and levy the Sales Tax on any taxable items or transactions that are not subject to the Sales Tax on the date of the adoption hereof, to the extent it legally may do so, the Corporation agrees to use its best efforts to cause the City to take such action as may be required to subject such taxable items or transactions to the Sales Tax. (d) The Corporation agrees to take and pursue all action legally permissible to cause the Sales Tax to be collected and remitted and deposited as herein required and as required by the Act, at the earliest and most frequent times permitted by law. (e) The Corporation agrees to use its best efforts to cause the City to comply with the Act and shall cause the Sales Tax Revenues to be deposited to the credit of the Revenue Fund in their entirety immediately upon receipt by the City. In the alternative and if legally authorized, the Corporation shall, by appropriate notice, direction, request or other legal method, use its good- faith efforts to cause the Comptroller of Public Accounts of the State of Texas (the "Comptroller") to pay all Sales Tax Revenues directly to the Corporation for deposit to the Revenue Fund. Section 8.7: Representations as to Security for the Bonds. (a) The Corporation represents and warrants that, except for the Parity Bonds, the Pledged Revenues are and will be and remain free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to, or of equal rank with, the pledge and lien created in or authorized by this Resolution except as expressly provided herein. (b) The Bonds and the provisions of this Resolution are and will be the valid and legally enforceable obligations of the Corporation in accordance with their terms and the terms of this Resolution, subject only to any applicable bankruptcy or insolvency laws or to any laws affecting creditors rights generally. (c) the Corporation shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of the Pledged Revenues and all the rights of the Owners against all claims and demands of all persons whomsoever, and shall take such action necessary to protect the priority of the pledge of the Pledged Revenues. (d) The Corporation will take, and use its best efforts to cause the City to take, all steps reasonably necessary and appropriate to collect all delinquencies in the collection of the Sales Tax to the fullest extent permitted by the Act. (e) The provisions, covenants, pledge and lien on and against the Pledged Revenues, as herein set forth, are established and shall be for the equal benefit, protection and security of the Owners of Parity Bonds without distinction as to priority and rights under this Resolution. HOU:2349859.4 24 Section 8.8: No Recourse Against Corporation Officers. No recourse shall be had for the payment of principal of or interest on any Parity Bonds or for any claim based thereon or on this Resolution against any officer of the Corporation or any person executing any Parity Bonds. Section 8.9: Amendment to Resolution. The Corporation may, with the consent of Owners holding a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of this Resolution; provided that, without the consent of all Owners of Outstanding Bonds, no such amendment, addition or rescission shall (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of Bonds required to be held by Owners for consent to any such amendment, addition or rescission. ARTICLE IX PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 9.1: Sale of Bonds; Insurance. The sale of the Bonds is hereby awarded to (the "Purchaser") at a price of $ (representing the par value thereof, [plus/less] a net original issue [premium/discount] of $ , less an underwriters' discount of $ ), and delivery of the Bonds to the Purchaser shall be made upon payment therefor in accordance with the terms of sale and the terms and conditions of the Bond Purchase Agreement attached hereto as Exhibit D. It is officially found, determined and declared that the foregoing price and terms are the most advantageous reasonably obtainable by the Corporation. The Corporation hereby acknowledges that the sale of the Bonds is contingent upon the issuance of a policy of municipal bond insurance from ( .... ) insuring the timely payment of principal of and interest on the Bonds. The appropriate officials and representatives of the Corporation are hereby authorized and directed to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Bonds of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 9.2: Approval, Registration and Delivery. The Chairman of the Corporation is hereby authorized to have control and custody of the Bonds and all necessary records and proceedings pertaining thereto pending their delivery, and the Chairman and other appropriate officers of the Corporation are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Bonds and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Bonds by the Comptroller. Upon registration of the Bonds, the Comptroller (or the Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein to be attached or affixed to each Bond initially delivered. HOU:2349859.4 25 Section 9.3: Offering Documents; Ratings. The Board of Directors of the Corporation hereby ratifies, authorizes and approves, in connection with the sale of the Bonds, the preparation and distribution of the Official Notice of Sale, Official Bid Form and the Preliminary Official Statement, a copy of which is attached hereto as Exhibit E. A form of final Official Statement is attached hereto as Exhibit F, which is substantially the same as the Preliminary Official, except for the additional information necessary to conform the final Official Statement to the terms of this Resolution. Further, the Board of Directors of the Corporation hereby ratifies, authorizes and approves the actions of the Chairman, the Corporation's financial advisor and other consultants in seeking ratings on the Bonds from one or more of Moody's Investors Service, Inc. or Standard Poor's Ratings Group, and such actions are hereby ratified and confirmed. Section 9.4: Application of Proceeds of Bonds; Appropriation. Proceeds from the sale of the Bonds shall, promptly upon receipt by the Corporation, be applied as follows: (i) Accrued interest shall be deposited into the Debt Service Fund created in Section 5.2 of this Resolution; (ii) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Bonds, including payment of the premiums for the Reserve Fund Surety Policy, if any; (iii) A portion of the proceeds shall be applied to (i) establish the Escrow Fund to refund the Refunded Bonds, as more fully provided below, and (ii) to the extent not otherwise paid, to pay all expenses arising in connection with the issuance of the Bonds, the establishment of the Escrow Fund and the refunding of the Refunded Bonds; and (iv) The remaining proceeds shall be deposited into the Construction Fund, which is hereby created by the Corporation, to be used for the purposes permitted by the Act, including particularly constructing the Project, all under and pursuant to the authority of the Act. Section 9.5: Tax Exemption. The Corporation intends that the interest on the Bonds shall be excludable from gross income of the owners thereof 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 all applicable temporary, proposed and final regulations (the "Regulations") and procedures promulgated thereunder and applicable to the Bonds. For this purpose, the Corporation covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Bonds (including all property the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Bonds) and take or omit to take such other and further actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause interest on the Bonds to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Bonds for federal income tax purposes. Without limiting the generality of the foregoing, the Corporation shall comply with each of the following covenants: HOU:2349859.4 26 (a) (b) (c) (d) (e) (0 (g) The Corporation will use all of the proceeds of the Bonds to (i)make an initial cash deposit and acquire Escrowed Securities (as defined in the Escrow Agreement) sufficient to pay the principal of, premium, if any, and interest on the Refunded Bonds, (ii)provide funds for the Project and (iii)pay the costs of issuing the Bonds and of refunding the Refunded Bonds. All of the proceeds of the Bonds will be used for the purposes set forth above except for amounts, if any, described in the Report (as defined in the Escrow Agreement) as the rounding amount and the ending cash balance in the Escrow Fund (as defined in the Escrow Agreement); The Corporation will not directly or indirectly take any action, or omit to take any action, which action or omission would cause the Bonds or the Refunded Bonds to constitute "private activity bonds" within the meaning of Section 141 (a) of the Code; Principal of and interest on the Bonds will be paid solely from Pledged Revenues levied and collected by the Corporation, investment earnings on such collections, and if available, proceeds of the Bonds; Based upon all facts and estimates now known or reasonably expected to be in existence on the date the Bonds are delivered, the Corporation reasonably expects that the proceeds of the Bonds and the Refunded Bonds will not be used in a manner that would cause the Bonds or any portion thereof to be an "arbitrage bond" within the meaning of Section 148 of the Code; At all times while the Bonds are outstanding, the Corporation will identify and properly account for all amounts constituting gross proceeds of the Bonds in accordance with the Regulations. The Corporation will monitor the yield on the investments of the proceeds of the Bonds and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to a yield which is not materially higher than the yield on the Bonds. To the extent necessary to prevent the Bonds from constituting "arbitrage bonds," the Corporation will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Bonds to be less than the yield that is materially higher than the yield on the Bonds; The Corporation will not take any action or knowingly omit to take any action which, if taken or omitted, would cause the Bonds to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code; The COrporation represents that not more than fifty percent (50%) of the proceeds of any new money portion of, or any new money issue refunded by, the Refunded Bonds was invested in nonpurpose investments (as defined in Section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the Corporation reasonably expected at the time each issue of Refunded Bonds was issued that at least eighty-five percent (85%) of the spendable proceeds of the HOU:2349859.4 27 (h) (i) (J) (k) Refunded Bonds would be used to carry out the governmental purpose of such Refunded Bonds within the corresponding three-year period beginning on the respective dates of issue of the Refunded Bonds; The Corporation will take all necessary steps to comply with the requirement that certain amounts earned by the Corporation on the investment of the gross proceeds of the Bonds, if any, be rebated to the federal government. Specifically, the Corporation will (i) maintain records regarding the receipt, investment, and expenditure of the gross proceeds of the Bonds as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the Corporation allocable to other obligations of the Corporation or moneys which do not represent gross proceeds of any obligations of the Corporation and retain such records for at least six years after the day on which the last outstanding Bond is discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid in whole or in part the requirements of Section 148 of the Code, including any specified method of accounting required by applicable Regulations to be used for all or a portion of any gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the gross proceeds of the Bonds and (iv)timely pay, as required by applicable Regulations, all amounts required to be rebated to the federal government. In addition, the Corporation will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, interest thereon and any penalty; The Corporation will not directly or 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 such arrangement had been at arm's length and had the yield on the Bonds not been relevant to either party; The Corporation will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Bonds on such form and in such place as the Secretary may prescribe; The Corporation will not issue or use the Bonds as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Bonds are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations by (i) enabling the Corporation to exploit the difference HOU:2349859.4 28 between tax-exempt and taxable interest rates to gain a material financial advantage or (ii) increasing the burden on the market for tax-exempt obligations; (1) Proper officers of the Corporation charged with the responsibility for issuing the Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Bonds and stating whether there are facts, estimates or circumstances that would materially change the Corporation's expectations. On or after the date of issuance of the Bonds, the Corporation will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates; and (m) The covenants and representations made or required by this Section are for the benefit of the Bondholders and any subsequent Bondholder, and may be relied upon by the Bondholders and any subsequent Bondholder and bond counsel to the Corporation. In complying with the foregoing covenants, the Corporation may rely upon an unqualified opinion issued to the Corporation by nationally recognized bond counsel that any action by the Corporation or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Bonds to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Resolution, the Corporation's representations and obligations under the covenants and provisions of this Section 9.5 shall survive the defeasance and discharge of the Bonds for as long as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. ARTICLE X MISCELLANEOUS Section 10.1: 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 Corporation and the Escrow Agent, which shall be substantially in the form of Exhibit B, 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 Corporation by RBC Dain Rauscher Inc., as financial advisor to the Corporation, (b) to comply with all applicable laws and regulations relating to the refunding of the Refunded Bonds and (c) to carry out the other intents and purposes of this Resolution, and the Chairman is hereby authorized to execute and deliver such Escrow Agreement on behalf of the Corporation and the Secretary is hereby authorized to attest thereto. Section 10.2: Purchase of United States Treasury_ Obligations. In order to assure the purchase of the escrowed securities referred to in the Escrow Agreement, the Chairman is hereby authorized to subscribe for, agree to purchase and purchase such obligations of the United States of America, in such amounts, maturities and bearing interest at such rates as may be provided for in the Report, and the Chairman is authorized to execute, and the Secretary is authorized to HOU:2349859.4 29 attest, as appropriate, to any and all subscriptions, purchase agreements, forward purchase agreements, commitments, letters of authorization and other documents necessary to effectuate the foregoing, and any actions heretofore taken by the Chairman for such purpose are hereby ratified and approved. Section 10.3: Related Matters. In order that the Corporation shall satisfy, in a timely manner, all of its obligations under this Resolution and the Escrow Agreement, the Chairman, the Secretary and other appropriate officers and agents of the Corporation are hereby authorized and directed to take all other actions that are reasonably necessary to provide for issuance and delivery of the Bonds and the refunding of the Refunded Bonds, including executing by manual or facsimile signature and delivering on behalf of the Corporation all certificates, consents, receipts, requests, notices, investment agreements and other documents as may be reasonably necessary to satisfy the Corporation's obligations under this Resolution and the Escrow Agreement and to direct the transfer and application of funds of the Corporation consistent with the provisions of this Resolution and the Escrow Agreement. If requested by the Attorney General of Texas or his representatives, the Chairman may authorize such ministerial changes in the written text of this Resolution as are necessary to obtain the Attorney General's approval and as he determines are consistent with the intent and purposes of this Resolution, which determination shall be final. Section 10.5: Further Proceedings. The Chairman, Secretary and other appropriate officers of the Corporation are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Resolution. Section 10.6: Severability. If any section, paragraph, clause or provision of this Resolution 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 Resolution. Section 10.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the Corporation at which this Resolution was adopted was posted at a place convenient and readily accessible at all times to the general public at the City Hall of the City for the time required by law preceding this meeting, as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended, and that this meeting has been open to the public as required by law at all times during which this Resolution and the subject matter thereof has been discussed, considered and formally acted upon. The Corporation further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 10.8: No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Resolution, against any officer or employee of the Corporation or any person executing any Bonds. Section 10.9: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. HOU:2349859.4 30 Section 10.10: Governing Law. This Resolution shall be construed in accordance with and governed by the laws of the State of Texas. Section 10.11: Effective Date. This Resolution shall become effective immediately upon passage by this Corporation and signature of the Chairman of the Corporation. [The remainder of this page intentionally left blank.] HOU:2349859.4 31 PASSED AND APPROVED this 14th day of February, 2005. ATTEST: CHAIRMAN SECRETARY Schedules: Schedule I - Schedule of Refunded Bonds Exhibits: A - Debt Service Schedule B - Escrow Agreement C - Paying Agent/Registrar Agreement D - Bond Purchase Agreement E - Preliminary Official Statement F - Official Statement G - Financial Guaranty Agreement HOU:2349859.4 S-1 SCHEDULE I Schedule of Refunded Bonds Pearland Economic Developmem Corporation Sales Tax Revenue Bonds, Series 1997 Maturity Date Interest Rate Par Amount Call Date Price 09/01/2005 7.20% $210,000 N/A N/A 09/01/2006 7.20 220,000 N/A N/A 09/01/2007 6.00 235,000 N/A N/A 09/01/2008 5.20 300,000 09/01/2007 100% 09/01/2009 5.30 320,000 09/01/2007 100 09/01/2010 5.40 340,000 09/01/2007 100 09/01/2011 5.45 360,000 09/01/2007 100 09/01/2012 5.50 385,000 09/01/2007 100 09/01/2013 5.50 410,000 09/01/2007 100 09/01/2014 5.50 435,000 09/01/2007 100 09/01/2015 5.20 460,000 09/01/2007 100 09/01/2016 5.20 490,000 09/01/2007 100 HOU:2349859.4 EXHIBIT A DEBT SERVICE SCHEDULE HOU:2349859.4 EXHIBIT B ESCROW AGREEMENT HOU:2349859.4 EXHIBIT C PAYING AGENT/REGISTRAR AGREEMENT HOU:2349859.4 EXHIBIT D BOND PURCHASE AGREEMENT HOU:2349859.4 EXHIBIT E PRELIMINARY OFFICIAL STATEMENT HOU:2349859.4 EXHIBIT F OFFICIAL STATEMENT HOU:2349859.4 EXHIBIT G BOND INSURANCE COMMITMENT HOU:2349859.4 EXHIBIT H FINANCIAL GUARANTY AGREEMENT HOU:2349859.4 Resolution No. R2005-42 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005 TRANSCRIPT OF PROCEEDINGS VOLUME 1 OF 2 Andrews Kurth LLP 600 Travis Street, Suite 4200 Houston Texas 77002 (713) 220-4200 HOU:2410824.1 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005 INDEX OF DOCUMENTS BOND AUTHORIZATION PROCEEDINGS Corporation's Resolution Calling Public Hearing and Authorizing Publication of Notice of Public Hearing and 1 Right to Petition Affidavit of Publication of Notice of Public Hearing and 2 Right to Petition City's Resolution Authorizing Issuance of the Bonds and 3 Amended and Restated Agreement Regarding Constiuction and Maintenance of Street and Bridge Improvements Corporation's Resolution Authorizing Amended and Restated 4 Agreement Regarding Construction and Maintenance of Street and Bridge Improvements Amended and Restated Agreement Regarding Construction 5 and Maintenance of Street and Bridge Improvements Corporation's Resolution Authorizing Issuance of the Bonds 6 Bond Purchase Agreement 7 Escrow Agreement (with Verification Report) 8 Paying Agent/Registrar Agreement 9 Preliminary Official Statement 10 Official Statement 11 CRRTIFICATES Signature Identification and No -Litigation Certificate 12 General Certificate of the Corporation 13 General Certificate of the City 14 Federal Tax Certificate and Form 8036-G 15 Closing Certificate of the Corporation 16 HOU:2349753.1 Closing Certificate of the City 17 Certificate of Bond Insurer/Surety Bond Provider 18 OPINIONS Opinion of Bond Counsel 19 Supplemental Opinion of Bond Counsel 20 Rscrow/Defeasance Opinion 21 Guaranty Opinion 22 Opinion of Attorney General of Texas with Certificate 23 of Comptroller of Public Accounts Opinion of Counsel to the Bond Insurer/Surety Bond Provider 24 Opinion of Counsel to the Underwriters 25 CLOSING DOCUMENTS Receipt and Cross Receipt 26 Registrar's Receipt 27 Resolution Authorizing Issuance of Refunded Bonds 28 Notice of Redemption 29 Municipal Bond Insurance Policy 30 Escrow Agent's Receipt 31 Surety Bond 32 Financial Guaranty Agreement (for Surety Bond) 33 Reliance Letter 34 Rating Letters 35 Specimen Bond 36 DTC Blanket Letter of Representations 37 Bond Review Board Questionnaire 38 I-IOU:2349753.1 CERTIFICATE FOR RESOLUTION STATE OF TEXAS COUNTY OF HARRIS We, the undersigned officers of the Board of Directors (the "Board') of the Pearland Economic Development Corporation (the "Corporation"), hereby certify as follows: 1. The Board of the Corporation convened in a regular meeting on September 27, 2004, at the regular meeting place thereof, within the City of Pearland, Texas, and the roll was called of the duly constituted officers and members of the Board, to -wit: Randall Ferguson Chairman and President Lucy Stevener Secretary Helen Beckman Director Felicia Kyle Director Steve Saboe Director George Sandars Director Ed Thompson Director and all of such persons were present except Steve Saboe, thus constituting a quorum. Whereupon, among other business, the following was transacted at such meeting* a written RESOLUTION CALLING PUBLIC HEARING, AUTHORIZING PUBLICATION OF NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO was duly introduced for the consideration of the Board. It was then duly moved and seconded that such resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of such resolution, prevailed and carried by the following vote: 6 AYES 0 NOES 2. That a true, full and correct copy of the above -referenced resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate that such resolution has been duly recorded in the Board's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the Board's minutes of such meeting pertaining to the adoption of such resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the Board as indicated therein; that each of the officers and members of the Board was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and purpose of the above -referenced meeting, and that the resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by Chapter 551, Texas Government Code, as amended. HOU:2356701.1 SIGNED AND SEALED this 27th day of September, 2004. 47- Rada'11 Ferguson Chairman and President Stev er Secretary Ste7 er (SEAL) HOU:2356701.1 RESOLUTION CALLING PUBLIC HEARING, AUTHORIZING PUBLICATION OF NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION, AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO WHEREAS, the City of Pearland Texas (the "City"), by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Pearland Economic Development Corporation (the "Corporation") to act on behalf of the City by receiving and expending sales tax revenues for various projects, including the acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the "Project"); and WHEREAS, on January 21 1995, the voters of the City approved the levy of a one-half of one percent sales and use tax to be used for the benefit of the Corporation, including the Project (the "Sales Tax") and WHEREAS, on June 26 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes, as amended (the "Act") and WHEREAS, pursuant to the Act, the Corporation is authorized to issue bonds for the purpose of constructing the Project, said bonds being payable from and secured by the proceeds of the Sales Tax; and WHEREAS pursuant to the Act, the Corporation is required to publish notice of the Corporation's intent to undertake the Project and the Corporation must also hold a public hearing with respect to such Project. WHEREAS, the Corporation has previously called a public hearing and authorized publication of notice of such public hearing and right to petition. WHEREAS, the Corporation has determined that the notice as originally published incorrectly described the Project and has determined to republish a corrected notice and reschedule the public hearing. BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION THAT: Section 1. Findings and Determinations. The facts recited in the preamble hereto are found and declared to be true and correct and are hereby adopted by the Board of Directors of the Corporation (the "Board") and made a part of this Resolution for all purposes. Section 2. Authorization of Notice and Public Hearing. The Board hereby ratifies the publication of the revised Notice of Public Healing and Right To Petition attached hereto as Exhibit A, which was published in a newspaper of general circulation in the City on Wednesday September 22, 2004. The Board further determines that the public hearing on the Project previously scheduled for October 11, 2004, shall be cancelled and a public hearing shall be held HOU.2317163.2 in the City Council Chambers at Pearland City Hall, 3519 Liberty Drive, Pearland, Texas, on Monday, November 29, 2004 at 5:30 p.m. as described on Exhibit A hereto. Section 3. Authorization of Other Matters Relating Thereto. The President and Secretary of the Board, the Executive Director of the Corporation and other officers and agents of the Corporation are hereby authorized and directed to do any and all things necessary or desirable to carry out the provisions of this Resolution. Section 4. Effective Date. This Resolution shall take effect immediately upon passage. Section 5. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution, was given all as required by the Texas Government Code, Chapter 551, as amended. PASSED AND APPROVED this 27th day of September, 2004. PEARLAND ECONOMIC DEVELOPMENT CORP ORATION HOU:2317163.2 EXHIBIT A NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION TO ALL INTERESTED PERSONS AND PARTIES: NOTICE IS HEREBY GIVEN that the Board of Directors of the Pearland Economic Development Corporation (the "Corporation') will meet at its regular meeting place in the City of Pealland (the `City") City Council Chambers at Pearland City Hall, 3519 Liberty Drive, Pearland, Texas at 5:30 p.m. on Monday, November 29, 2004, which is the time and place the Corporation will hold a public hearing on the proposed construction of an extension of Kirby Drive from the southern boundary of Clear Creek to Beltway 8, including the water sewer and drainage improvements required for such extension (collectively, the "Project"). Notice of a public hearing and right to petition was previously published stating that the hearing would be held on October 11, 2004 and that the Project included an extension of Kirby Road instead of Kirby Drive and was from the northern boundary of Clear Creek instead of the southern boundary. The previous notice is hereby corrected and the public hearing previously scheduled for October 11, 2004 is cancelled. A portion of the proceeds from the levy of the one-half of one percent sales and use tax, approved by the voters of the City on January 21, 1995 for the benefit of the Corporation will be used by the Corporation to pay the costs of the Project, including paying principal and interest on bonds issued by the Corporation for the Project. IF WITHIN 60 DAYS after the publication of this corrected notice the Corporation receives a petition from more than 10% of the registered voters of the City requesting that an election be held before the Project is developed or the proceeds of such sales and use tax are used to pay for such Project, then the Corporation will not develop the Project or use the proceeds of the sales and use tax to pay the costs of the Project unless and until approved at an election called and held in the City for such purpose. Petitions may be submitted to the City Secretary, City of Pearland, 3519 Liberty Drive, Pearland, Texas 77581. HOU:2317163.2 AFFIDAVIT OF PUBLICATION The Pearland Reporter News 2404 South Park Pearland, Texas 77581 State of Texas Brazoria and Harris Counties I, Randy Emmons, hereby certify that the notice hereby appended was published in Brazoria and Harris Counties in THE REPORTER NEWS, a newspaper of general circulation in Brazoria, Harris & Galveston Counties, for / issues, as follows: N o. / Date v/ -�� 20 '01 N o. Date 20 No. Date 20 N o Date •20 N o. Date 20 Subscribe and sworn to before me this ••'••••• I.:VU SS • • par PV • • • • • • 0.9 LAURA ANN EMMONS • Notary Public, State of Texas ";,o_,Commission Expires 09 09-2006 ••..••••...,x,••.•.•••••.••••.••,.• Cam, President day of Laura Ann Emmons, Publisher Notary Public, State of Texas NOTICE OF PUBLIC HEARING AND RIGHT TO PETITION TO ALL INTERESTED PERSONS AND PARTIES: NOTICE IS HEREBY GIVEN that the Board of Directors of the Pearland Economic Development Corporation (the "Corporation') will meet at its regular meeting place in the City of Pearland (the `City") City Council Chambers at Pearland City Hall, 3519 Liberty Drive, Pearland, Texas at 5:30 p.m. on Monday, November 29, 2004, which is the time and place the Corporation will hold a public hearing on the proposed construction of an extension of Kirby Drive from the southern boundary of Clear Creek to Beltway 8, including the water sewer and drainage improvements required for such extension (collectively, the "Project"). Notice of a public hearing and right to petition was previously published stating that the hearing would be held on October 11, 2004 and that the Project included an extension of Kirby Road instead of Kirby Drive and was from the northern boundary of Clear Creek instead of the southern boundary. The previous notice is hereby corrected and the pubhc hearing previously scheduled for October 11, 2004 is cancelled. A portion of the proceeds from the levy of the one-half of one percent sales and use tax, approved by the voters of the City on January 21, 1995 for the benefit of the Corporation will be used by the Corporation to pay the costs of the Project, including paying principal and interest on bonds issued by the Corporation for the Project. IF WITHIN 60 DAYS after the publication of this corrected notice the Corporation receives a petition from more than 10% of the registered voters of the City requesting that an election be held before the Project is developed or the proceeds of such sales and use tax are used to pay for such Project, then the Corporation will not develop the Project or use the proceeds of the sales and use tax to pay the costs of the Project unless and until approved at an election called and held in the City for such purpose. Petitions may be submitted to the City Secretary, City of Pearland, 3519 Liberty Drive, Pearland, Texas 77581. vnt I•n1CC1RA7 CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS COUNTIES OF BRAZORIA AND HARRIS CITY OF PEARLAND We, the undersigned officers of the City of Pearland, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on February 14, 2005, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to -wit: Tom Reid Richard Tetens Woodrow Owens Charles Viktorin Larry Marcott Kevin Cole Mayor Mayor Pro Tem Councilmember Councilmember Councilmember Councilmember and all of said persons were present except Woodrow Owens, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written RESOLUTION OF THE CITY OF PEARLAND, TEXAS APPROVING THE RESOLUTION AUTHORIZING THE ISSUANCE OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005; AUTHORIZING A CONTINUING DISCLOSURE UNDERTAKING IN CONNECTION WITH SUCH BONDS, AUTHORIZING THE EXECUTION OF AN AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECTS (the "Resolution") was duly introduced for the consideration of the City Council. It was then duly moved and seconded that the Resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of the Resolution, prevailed and carried by the following vote: AYES • 4 NAYS: 0 2. That a true, full, and correct copy of the Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full, and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Resolution; that the persons named in the above HOU:2350995.1 1 and foregoing paragraph are the duly chosen, qualified, and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place, and subject of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at said meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose that said meeting was open to the public as required by law; and that public notice of the date, hour, place, and subject of such meeting was given as required by Chapter 551, Texas Goverment Code, as amended. SIGNED AND SEALED this February 14 , 2005. Mayor (SEAL) HOU:2350995.1 RESOLUTION OF THE CITY OF PEARLAND, TEXAS APPROVING THE RESOLUTION AUTHORIZING THE ISSUANCE OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS SERIES 2005, AUTHORIZING A CONTINUING DISCLOSURE UNDERTAKING IN CONNECTION WITH SUCH BONDS; AUTHORIZING THE EXECUTION OF AN AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS; AND MAKING VARIOUS FINDINGS AND PROVISIONS RELATED TO THE SUBJECTS WHEREAS, on January 21, 1995, the voters of the City of Pearland, Texas (the "City") approved the levy of a one-half of one percent sales and use tax (the `Sales Tax") to be used for the benefit of the Pearland Economic Development Corporation (the `Corporation"), including among other things, for paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the `Project"); WHEREAS the City, by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises WHEREAS, on June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes (the "Act") WHEREAS, the City has previously approved and the Corporation has previously issued its Sales Tax Revenue Bonds, Series 1997 (the "Series 1997 Bonds"); WHEREAS the Corporation wishes to refund the Series 1997 Bonds in order to (i) enable the Corporation to modify certain restrictive covenants contained in the resolution authorizing the issuance of the Series 1997 Bonds, and (ii) restructure the Corporation's debt service; WHEREAS, pursuant to the Act, the Corporation is authorized to issue bonds for the purposes of paying the costs of the Project and refunding the Series 1997 Bonds, said bonds being payable from and secured by the proceeds of the Sales Tax; WHEREAS, the Corporation desires to issue and sell its Sales Tax Revenue and Refunding Bonds, Series 2005 in an aggregate principal amount of $11,005,000 (the `Series 2005 Bonds") for the purposes of (i) paying the costs of the Project, (n) refunding the Series 1997 Bonds, and (iii) paying the costs of issuing the Series 2005 Bonds and of refunding the Series 1997 Bonds; HOU:2350994.1 1 WHEREAS, in connection with the issuance of the Series 2005 Bonds, the City has agreed, on behalf of the City and the Corporation, to provide certain financial information and operating data annually in accordance with the Rule (as defined herein); WHEREAS, the City and the Corporation have previously entered into that certain Agreement Regarding the Construction and Maintenance of Street and Bridge Improvements in connection with the Project; and WHEREAS, the City and the Corporation wish to enter into an Amended and Restated Agreement Regarding the Construction and Maintenance of Streets and Roads and Drainage and Related Improvements (the "Amended and Restated Agreement") in order to clarify the obligations of the parties. NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, as follows: 1. Findings and Determinations. It is hereby officially found and determined that all of the facts recited in the preamble hereto are true and correct and the preamble is incorporated into and made a part of this Ordinance. 2. Approval of Amended and Restated Agreement. The Amended and Restated Agreement, substantially in the form attached hereto as Exhibit "A,' is hereby approved and the Mayor is hereby authorized to execute and deliver, and the City Secretary is hereby authorized to attest, the Amended and Restated Agreement on behalf of the City. 3. Tax Levy and Pledge. The City has covenanted and agreed in the Amended and Restated Agreement and hereby authorizes the appropriate City officials to take all steps necessary and authorized under the Act and other applicable laws to continuously levy and collect the Sales Tax at the rate of so long as any of the Series 2005 Bonds and any Additional Bonds (as defined in the Amended and Restated Agreement) are outstanding in the manner and to the maximum extent permitted by applicable law The City hereby agrees that it will not cause a reduction, abatement, or exemption in the Sales Tax or in the rate in which it is authorized to be collected. The City also agrees that any repeal of the right and power to levy the Sales Tax will not be effective until all the Series 2005 Bonds and any Additional Bonds have been paid in full or until they are legally defeased in accordance with the resolutions authorizing their issuance. The City hereby agrees to pay to the Corporation, by a direct deposit into the Corporation s Sales Tax Revenue Fund, 100% of the revenues collected from the annual levy and assessment of the Sales Tax, less any amounts due to the Comptroller of Public Accounts of the State of Texas for collection costs and other charges, for the term of the Amended and Restated Agreement. 4. Approval of Bond Resolution. The City hereby authorizes the Corporation to adopt the resolution authorizing the issuance of the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, in the aggregate principal amount of $11,005,000 (the 'Bond Resolution"), substantially in the form attached hereto as Exhibit HOU:2350994.1 2 `B," and hereby approves said Bond Resolution and the issuance of the bonds described therein. 5. Continuing Disclosure Undertaking. (a) The City hereby agrees to provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2005, financial information and operating data with respect to the Corporation and the City of the general type included in the final Official Statement authorized by Section 9 3 of the Bond Resolution, being the financial information and operating data described in the Official Statement under the captions "HISTORICAL PLEDGED REVENUES," DEBT SERVICE SCHEDULE" AND ` MANAGEMENT AND OPERATION OF THE CORPORATION" in the Official Statement. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Appendix C to the Official Statement and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any 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 operatingdata pursuant to this Ordinance. The financial information and operating data to be provided pursuant to this Ordinance may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC (b) The City hereby agrees to notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Series 2005 Bonds, if such event is material within the meaning of the federal securities laws: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults; 3. HOU:2350994.1 Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements difficulties; 5. Substitution of credit or liquidity providers, perform; 3 reflecting financial or their failure to 6. Adverse tax opinions or events affecting the tax-exempt status of the Series 2005 Bonds; 7. Modifications to rights of holders of the Series 2005 Bonds; 8. Bond calls; 9. Defeasances; 10. Release, substitution, or sale of property securing repayment of the Series 2005 Bonds; and 11. Rating changes. The City shall notify any 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 this Ordinance by the time required by this Ordinance. (c) The City shall be obligated to observe and perform the covenants specified in this Paragraph 5 for so long as, but only for so long as, the City or the Corporation remains an "obligated person" with respect to the Series 2005 Bonds within the meaning of the Rule, except that the City in any event will give the notice required by this Ordinance of any Bond calls and defeasance that cause the City or the Corporation to be no longer such an `obligated person. ' The provisions of this Paiagraph 5 are for the sole benefit of the holders and beneficial owners of the Series 2005 Bonds, and nothing in this Paragraph 5, 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 Paragraph 5 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 Paragraph 5 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 BF LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS PARAGRAPH 5, 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 HOU:2350994.1 4 No default by the City in observing or performing its obligations under this Paragraph 5 shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Paragraph 5 is intended or shall act to disclaim waive, or otherwise limit the duties of the City or the Corporation under federal and state securities laws. The provisions of this Paragraph 5 may be amended by the City from time to time to adapt the changed circumstances • that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City or the Corporation, but only if (1) the provisions of this Paragraph 5, as so amended, would have permitted an underwriter to purchase or sell the Series 2005 Bonds in the primary offering of the Series 2005 Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of the Bond Resolution that authorizes such an amendment) of the outstanding Bonds consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the holder and beneficial owners of the Series 2005 Bonds. If the City so amends the provisions of this Paragraph 5, it shall include with any amended financial information or operating data next provided in accordance with its Paragraph 5 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Paragraph 5 if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Paragraph 5 in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Series 2005 Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. (d) As used in this Ordinance, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. HOU:2350994.1 5 "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. 6 Further Actions. The Mayor, City Secretary and the other officials of the City are hereby authorized, jointly and severally, to execute and deliver such certificates, documents or papers necessary and advisable, and to take such actions as are necessary to carry out the intent and purposes of this Ordinance. 7. Severability. If any word, phrase, clause, sentence, paragraph, section or other part of this Oidinance, or the application thereof to any person or circumstance, shall ever be held to be invalid or unconstitutional by any court of competent jurisdiction, the remainder of this Ordinance and the application of such word, phrase, clause, sentence, paragraph, section or other part of this Ordinance to any other persons or circumstances shall not be affected thereby. 8. Effective Date. This Ordinance shall be in full force and effect from and upon adoption. 9. Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. HOU:2350994.1 [Signature Page Follows] 6 PASSED AND APPROVED on this 14th day of February, 2005. e-Thrian ATTEST: HOU:2350994.1 S-1 Mayor EXHIBIT A AMENDED AND RESTATED AGREEMENT See Tab 5 HOU:2350994.1 EXHIBIT B BOND RESOLUTION See Tab 6 HOU:2350994.I CERTIFICATE FOR RESOLUTION STATE OF TEXAS COUNTIES OF HARRIS AND BRAZORIA We, the undersigned officers of the Board of Directors (the "Board') of the Pearland Economic Development Corporation (the "Corporation"), hereby certify as follows: 1. The Board of the Corporation convened in a regular meeting on February 14, 2005, at the regular meeting place thereof, within the City of Pearland, Texas, and the roll was called of the duly constituted officers and members of the Board, to -wit: Randall Ferguson Lucy Stevener Helen Beckman Felicia Kyle Steve Saboe George Sandars Ed Thompson Chairman Secretary Director Director Director Director Director and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at such meeting: a written RESOLUTION AUTHORIZING AN AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS was duly introduced for the consideration of the Board. It was then duly moved and seconded that said resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of said resolution, prevailed and carried by the following vote: 7 AYES 0 NOES 2. That a true, full and correct copy of the aforesaid resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate that such resolution has been duly recorded in the Board s minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the Board's minutes of such meeting pertaining to the adoption of such resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the Board as indicated therein; that each of the officers and members of the Board was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and purpose of the aforesaid meeting, and that the resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as HOU:2354618.1 required ' •ed by law, and that public notice of the date, hour, place and subject of such meeting was given as required byChapter 551, Texas Government Code, as amended. p ' VFebruary, 2005. this, dayof Febi y, SIGNED AND SEALED • 2 HOU:2354618.1 RESOLUTION AUTHORIZING AN AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS WHEREAS, on January 21 1995, the voters of the City of Pearland, Texas (the `City") approved the levy of a one-half of one percent sales and use tax (the `Sales Tax") to be used for the benefit of the Pearland Economic Development Corporation (the "Corporation"), including among other things, for paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the "Project); and WHEREAS, the City, by Ordinance No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises; and WHEREAS, on June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes (the "Act"); and WHEREAS, the City and the Corporation have previously entered into that certain Agreement Regarding the Construction and Maintenance of Street and Bridge Improvements in connection with the Project (the "Original Agreement"); and WHEREAS, the City and the Corporation wish to enter into an Amended and Restated Agreement Regarding the Construction and Maintenance of Streets and Roads and Drainage and Related Improvements (the "Amended and Restated Agreement") in order to clarify the obligations of the parties. NOW, THEREFORE BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION THAT: 1. Findings and Determinations. The facts recited in the preamble hereto are found and declared to be true and correct and are hereby adopted by the Board of Directors (the `Board") of the Corporation and made a part of this Resolution for all purposes. 2. Authorization of Agreement. The Amended and Restated Agreement, substantially in the form attached hereto as Exhibit A, is hereby approved and the President is hereby authorized to execute and deliver, and the Secretary is hereby authorized to attest, the Amended and Restated Agreement on behalf of the Corporation. 3. Pledge of Funds. The Corporation has covenanted and agreed in the Amended and Restated Agreement that it will use the funds received from the City's annual levy and assessment of the Sales Tax and deposited in the Corporation s Sales Tax Revenue Fund created May, 1997, for the purpose of (a) making transfers to the Debt Service Fund established pursuant to the Bond Resolutions (as defined in the Amended and Restated 1 HOU:2354614.1 Agreement) for payment of the debt service requirements of bonds secured by the Sales Tax revenues, (b) making any rebate payments required pursuant to the Bond Resolutions, (c) reimbursing the issuer of any surety bond issued in satisfaction of the any Reserve Fund Requirement, pursuant to the Bond Resolutions, for any advances under any such surety bond (d) paying interest to the issuer of any surety bond issued in satisfaction of any Reserve Fund Requirement, pursuant to the Bond Resolutions, for any advances under any such surety bond (e) making transfers to the Reserve Fund established pursuant to the Bond Resolutions, (f) making any transfers required by any resolutions authorizing the issuance or incurrence of subordinate lien obligations and (g) making transfers to the Sales Tax Surplus Fund established pursuant to the Bond Resolutions to be used for any other lawful purpose. 4. Further Actions. The President, Secretary and the other officials of the Corporation are hereby authorized, jointly and severally, to execute and deliver such certificates, documents, or papers necessary and advisable, and to take such actions as are necessary to carry out the intent and purposes of this Resolution and the Amended and Restated Agreement. 5. Open Meeting Sufficient written notice of the date, hour, place and subject of the meeting of the Board at which this Resolution was adopted was posted for the time required by law preceding this meeting and such meeting was open to the public as required by law and at all times during which this Resolution and the subject matter thereof were discussed, considered and formally acted upon, all as required by the Texas Open Meetings Act, Texas Government Code, Chapter 551. 2 HOU:2354614.1 PASSED AND APPROVED this 14t" day of February, 2005. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: S-1 HOU:2354614.1 EXHIBIT A AMENDED AND RESTATED AGREEMENT See Tab 5 HOU:2354614. l AMENDED AND RESTATED AGREEMENT REGARDING THE CONSTRUCTION AND MAINTENANCE OF STREETS AND ROADS AND DRAINAGE AND RELATED IMPROVEMENTS STATE OF TEXAS § COUNTIES OF HARRIS AND BRAZORIA § This Amended and Restated Agreement Regarding the Construction and Maintenance of Streets and Roads and Drainage and Related Improvements (this `Amended and Restated Agreement' or this "Agreement PEARLAND, tTEXAS,a municipal as of the day of February, 2005, between the CITY OF corporation and a home -rule city situated in Harris and Brazoria Counties, Texas (the "City") and the PEARLAND ECONOMIC DEVELOPMENT CORPORATION, an industrial development corporation created pursuant to the provisions of Article 5190.6, Section 4B, Vernon's Texas Revised Civil Statutes (the ` Corporation"). RECITALS On January 21, 1995, the voters of the City approved the levy of a one-half of one percent sales and use tax (the "Sales Tax') to be used for benefit of the Corporation, including, among other things, paying the costs of the acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises (the "Project"). The City, by Resolution No. R95-36 duly adopted on May 22, 1995, authorized the creation of the Corporation to act on behalf of the City by receiving and expending revenues from the Sales Tax for various projects which promote or develop new or expanded business enterprises, including the Project. On June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Section 4B, Texas Revised Civil Statutes (the "Act"). Pursuant to the provisions of the Act, the City desires to collect the Sales Tax and pay it to the Corporation to pay the costs of the Project. Under the Act, the Corporation has all of the powers of a non-profit corporation created under the provisions of the Texas Non -Profit Corporation Act, Article 1396-1.01, et seq. Texas Revised Civil Statutes, and thus is authorized to contract with the City for the acquisition, construction and maintenance of the Project. The City and the Corporation have previously entered into that certain Agreement Regarding the Construction and Maintenance of Street and Bridge Improvements, dated as of April 21, 1997 (the "Original Agreement"), regarding the acquisition, construction and maintenance of the Project. 1 HOU:2351067.1 The City and the Corporation wish to enter into this Amended and Restated Agreement regarding the acquisition, construction and maintenance of the Project, to replace the Original Agreement and clarify the obligations of the parties. AGREEMENT For and in consideration of the respective promises and mutual covenants and benefits hereinafter set forth, the City and the Corporation agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. Throughout this Agreement, the following terms and expressions as used herein shall have the meanings set forth below, unless the context clearly indicates otherwise: "Act" shall mean Article 5190.6, Texas Revised Civil Statutes, as it may be amended from time to time. "Additional Bonds" shall mean any bonds, other than the Bonds, issued by the Corporation (i) to pay the costs of acquiring, constructing and maintaining the Project or (ii) which are secured by the Sales Tax. "Bond Resolutions" shall mean and include any resolution authorizing the issuance of the Bonds or any Additional Bonds. "Bonds" shall mean the Corporation's $11,005,000 Sales Tax Revenue and Refunding Bonds, Series 2005. "City" shall mean the City of Pearland, Texas. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "Corporation" shall mean the Pearland Economic Development Corporation. "Debt Service Fund" shall mean the Debt Service Fund established pursuant to the Bond Resolutions. "Project' shall mean the acquisition and construction of streets and roads and drainage and related improvements in the City; and such other areas as may be agreed upon by the City and the Corporation. "Revenue Fund" shall mean the Sales Tax Revenue Fund established by the Corporation in May, 1997. "Reserve Fund" shall mean the Reserve Fund established pursuant to the Bond Resolutions. 2 HOU:2351067.1 "Sales Tax" shall mean the one-half of one percent sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. "Sales Tax Revenues" shall mean 100% of the funds collected by the City from the levy of the Sales Tax, without deduction, offset, or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund" shall mean the Surplus Fund established pursuant to the Bond Resolutions. Section 1.02. Interpretations All terms defined herein and all pronouns used in this Agreement shall be deemed to apply equally to singular and plural and to all gender. The titles and headings of the articles and sections of this Agreement have been inserted for convenience and shall not in any way modify or restrict any of the terms and provisions hereof This Agreement and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein. ARTICLE II SERVICES TO BE PROVIDED Section 2.01. Construction of the Project. The Corporation agrees to develop or cause the City to develop all engineering plans, specifications, and details required for the implementation of the Project. The Corporation further agrees to contract with or cause the City to contract with all individuals or entities necessary to complete the Project in accordance with the engineering plans, specifications and other construction documents. Section 2.02. Maintenance of the Project. Upon full and final completion of the Project, the City agrees to maintain the Project in a reasonably prudent manner during the term of this Agreement and in accordance with the budget approved by the City for such maintenance. Pursuant to this Agreement and notwithstanding any other provision herein the Corporation shall not have any obligation to maintain the Project and all obligations and liabilities with respect to the Project shall be the responsibility of the City. The City will indemnify and hold harmless the Corporation to the extent permitted by law against losses, claims, damages or liabilities to which the Corporation may become subject, arising out of or in connection with the Project. Section 2.03. Issuance of the Bonds. The Corporation agrees to sell the Bonds at the earliest, most feasible date. The Corporation agrees to use a portion of the proceeds of the sale of the Bonds to finance the costs of the Project and to pay the costs associated with issuing the Bonds. The Bond Resolution provides that the Bonds will be secured by a pledge of the Sales Tax Revenues and any interest earned thereon. 3 HOU:2351067.1 Section 2.04. Use of Sales Tax Revenues. The Corporation agrees to use the Sales Tax Revenues received from the City, and any interest earned thereon, to make deposits into the Debt Service Fund, the Reserve Fund, and all other funds as required by the Bond Resolutions. After such deposits have been made, the Corporation agrees to transfer any excess Sales Tax Revenues, and any interest earned thereon, to the Surplus Fund to be used for any other lawful purpose. ARTICLE III OBLIGATIONS OF THE CITY AND THE CORPORATION Section 3.01. Levy, Collection and Payment of Sales Tax by the City. In consideration of the construction of the Project by the Corporation, the City covenants and agrees that it will take all steps necessary and authorized under the Act and other applicable laws to continuously levy and collect the Sales Tax during the term of this Agreement in the manner and to the maximum extent permitted by applicable law. The City also covenants and agrees that it will not cause a reduction, abatement, or exemption in the Sales Tax or in the rate in which it is authorized to be collected. In addition, the City covenants and agrees that any repeal of the right and power to levy the Sales Tax will not be effective until all Bonds and Additional Bonds have been paid in full or until they are legally defeased in accordance with the Bond Resolutions. The City further covenants and agrees that, during the term of this Agreement, within five (5) days of receipt of Sales Tax Revenues from the Comptroller, it will pay to the Corporation by a direct deposit into the Revenue Fund of the Corporation, 100% of the Sales Tax Revenues, without demand, notice, counterclaim, or offset, including any administrative charges or expenses incurred by the City in connection with the levy and collection of the Sales Tax or the Sales Tax Revenues, other than those charged or assessed by the Comptroller. Section 3.02. Payment of Debt Service on the Bonds The Corporation will use the moneys in the Revenue Fund as follows: first, to pay all principal, all interest, and all paying agent/registrar charges on the Bonds and any Additional Bonds, at the respective times and in the respective amounts as fixed and prescribed in the Bond Resolutions; second, to make any arbitrage rebates required pursuant to the Bond Resolutions; third, to reimburse the issuer of any surety bond issued in satisfaction of any reserve fund requirement for any advances under any such surety bond; fourth, to pay interest to the issuer of any surety bond issued in satisfaction of any reserve fund requirement for any advances under any such surety bond; fifth, to establish and maintain the Reserve Fund; and sixth, to make the transfers required by all resolutions authorizing the issuance or incurrence of subordinate lien obligations. Thereafter, the Corporation shall transfer any excess funds in the Revenue Fund to the Surplus Fund and shall use such excess funds for any other lawful purpose. Section 3.03. Obligations of City to be Absolute. The obligation of the City to make the payments set forth in this Agreement shall be absolute and unconditional and until such time as the Bonds and any Additional Bonds and the Paying Agent/Registrar's fees have been fully paid or provision for payment thereof shall have been made in 4 HOU:2351067.I accordance with the Bond Resolutions, the City will not suspend or discontinue any payments provided for in this Agreement and will not terminate this Agieement for any cause, including, without limiting the generality of the foregoing, failure of the Corporation to implement the Project at the cost estimated or in accordance with the final plans and specifications any acts or circumstances that might constitute failure of consideration, eviction, or constructive eviction; destruction of or damage to the Project; commercial frustration of purpose; or any failure of the Corporation to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with this Agreement. Nothing contained in this Section shall be construed to release the Corporation from performance of any of the agreements on its part contained in this Agreement, and in the event the Corporation shall fail to perform any such agreement on its part, the City may institute such action against the Corporation as the City may deem necessary to compel performance so long as this action does not abrogate the City's obligations to make the payments set forth in this Agreement. ARTICLE IV MISCELLANEOUS PROVISIONS Section 4.01. Term. This Agreement shall be in force and effect from the date of execution hereof for a term of twenty-two (22) years. This Agreement shall automatically renew thereafter for additional terms of one year each, unless either party gives to the other paity written notice of termination at least ninety (90) days, but not more than one hundred eighty (180) days, prior to the termination of the then -existing term. Section 4.02. Amendments and Supplements. This Agreement may be amended, supplemented or extended by mutual agreement of the parties hereto, but not in such manner as to impair the rights of the holders of bonds issued by the Corporation and secured by a pledge of the Sales Tax Revenues. Section 4.03. Merger. This Agreement embodies the entire understanding between the parties hereto and there are no prior effective representation, warranties, or agreements between the parties hereto. Section 4.04. Severability. The provisions of this Agreement are severable, and if any provision or part of this Agreement or the application hereof to any person or circumstance shall ever be held by any court of competent jurisdiction to be invalid or unconstitutional for any reason, the remainder of this Agreement and the application of such provision or part of this Agreement to other persons or circumstances shall not be affected thereby. Section 4.05. Replacement of Original Agreement. The Original Agreement is hereby replaced in its entirety by this Amended and Restated Agreement. [Signature page follows.] 5 HOU:2351067.1 EXECUTED in multiple counterparts as of the date first written above. CITY OF PEARLAND, TEXAS ATTEST: By: Na- Yo Ti - City Secretary HOU:2351067.1 By: c Name. Tom Reid Title: Mayor (SEAL) S-1 ATTEST: By: Na e` Lucy v- ner Title: Secretary HOU:2351067.1 PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: Name:ndall Ferguson Title/ Chairman S-2 CERTIFICATE FOR RESOLUTION STATE OF TEXAS COUNTIES OF HARRIS AND BRAZORIA We, the undersigned officers of the Board of Directors (the "Board') of the Pearland Economic Development Corporation (the "Corporation"), hereby certify as follows: 1. The Board of the Corporation convened in a regular meeting on February 14, 2005, at the regular meeting place thereof, within the City of Pearland, Texas, and the roll was called of the duly constituted officers and members of the Board, to -wit Randall Ferguson Lucy Stevener Helen Beckman Felicia Kyle Steve Saboe George Sandars Ed Thompson Chairman Secretary Director Director Director Director Director and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at such meeting: a written RESOLUTION AUTHORIZING THE ISSUANCE OF $11,005,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS SERIES 2005; AND CONTAINING OTHER PROVISIONS RELATED THERETO was duly introduced for the consideration of the Board and read in full. It was then duly moved and seconded that said resolution be adopted; and, after due discussion, such motion, carrying with it the adoption of said resolution, prevailed and carried by the following vote: 7 AYES 0 NOES 2. That a true, full and correct copy of the aforesaid resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate that such resolution has been duly recorded in the Board s minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the Board's minutes of such meeting pertaining to the adoption of such resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the Board as indicated therein; that each of the officers and members of the Board was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and purpose of the aforesaid meeting, and that the resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as HOU:2349847.1 required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by Chapter 551, Texas Government Code, as amended. SIGNED AND SEALED this �`� day of February, 2005. 2 HOU:2349847.1 RESOLUTION AUTHORIZING THE ISSUANCE OF $11,005,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS SERIES 2005; AND CONTAINING OTHER PROVISIONS RELATED THERETO BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION: ARTICLE I FINDINGS AND DETERMINATIONS Section 1.1: Findings and Determinations. It is hereby officially found and determined that: (a) On January 21, 1995, the voters of the City approved the levy of one-half of one percent (1/2%) sales and use tax to be used for the benefit of the Corporation (the "Sales Tax"), including, among other things, paying the costs of acquisition and construction of streets and roads and drainage and related improvements which promote or develop new or expanded business enterprises. (b) The City Council of the City of Pearland, Texas (the "City"), by Ordinance No. R95- 36 duly adopted on May 22, 1995, authorized the creation of the Pearland Economic Development Corporation (the "Corporation') to act on behalf of the City by receiving and expending sales tax revenues for various projects which promote or develop new or expanded business enterprises. (c) On June 26, 1995, the Corporation was duly created, incorporated, chartered and organized pursuant to Article 5190.6, Texas Revised Civil Statutes, as amended (the "Act"). (d) The acquisition and construction of an extension of Kirby Drive within the City from the southern boundary of Clear Creek to Beltway 8, including the water sewer bridge and drainage improvements required for such extension (the "Project") is important to the economic growth and development of the City and will benefit the City's residents by aiding the City's efforts to encourage growth and development, stimulate commerce, promote or develop new or expanded business enterprises, and enhance the health, safety, and welfare of the City's residents (e) The Corporation wishes to refund the Refunded Bonds (as defined herein) in order to (i) enable the Corporation to modify certain restrictive covenants contained in the resolution authorizing the issuance of the Refunded Bonds and (ii) restructure the Corporation s debt service. The Corporation hereby finds and determines that such modification of restrictive covenants and restructuring of debt service are sufficient consideration for the issuance of the Bonds. HOU:2349859.8 (f) As permitted by the Act, the Corporation desires to issue sales tax revenue and refunding bonds upon the terms and conditions and for the purposes herein provided. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. In this Resolution, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Act" shall mean Article 5190.6, Texas Revised Civil Statutes, as amended. "Additional Parity Bonds" shall mean the additional bonds permitted to be issued by the Corporation pursuant to Section 6.1 of this Resolution. "Attorney General" shall mean the Attorney General of the State of Texas. "Board of Directors" shall mean the governing body of the Corporation. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds, as provided therein. "Bond Insurer" shall mean Ambac Assurance Corporation, a Wisconsin domiciled stock insurance company, or any successor thereto. "Bond" or "Bonds' shall mean the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, but only to the extent such Bonds are Outstanding within the meaning of this Resolution "Bond Purchase Agreement" shall mean that certain bond purchase agreement, dated February 14, 2005, by and between the Corporation and the Purchaser. "Business Day" shall mean any day other than (i) a Saturday, Sunday, or other day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to close, or (ii) a day on which the New York Stock Exchange is closed. "City" shall mean the City of Pearland, Texas, a municipal corporation and home -rule city, and where appropriate, the City Council of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "Construction Fund" shall mean the Construction Fund created pursuant to Section 9.4 of this Resolution. 2 HOU:2349859.8 "Corporation" shall mean the Pearland Economic Development Corporation, and any successor thereto. "Debt Service Fund" shall mean the Debt Service Fund created pursuant to Section 5.2 of this Resolution. "Debt Service Requirement" shall mean the amount necessary to pay the principal of, premium, if any, and interest due and owing on the Bonds, and any Additional Parity Bonds, during each Fiscal Year of the Corporation. The Debt Service Schedule for the Bonds is attached to this Resolution as Exhibit B. "Escrow Agent" shall mean JPMorgan Chase Bank (as successor in interest to Texas Commerce Bank National Association), or any successor thereto. "Escrow Agreement" shall mean that certain Escrow Agreement, dated as of February 1, 2005, by and between the Escrow Agent and the Corporation, in substantially the form attached hereto as Exhibit C. "Escrow Fund" shall mean the fund created in Section 3.1 of the Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of the Escrow Agreement. "Fiscal Year" shall mean the fiscal year of the Corporation, which is currently the twelve- month period beginning on October 1 of each year and ending on September 30 of the following year. "Outstanding," when used with reference to the Bonds shall mean, as of,a particular date, the principal amount of all such Bonds theretofore delivered by the Corporation as provided in or contemplated by this Resolution, except: (a) any such Bond canceled by or on behalf of the Corporation at or before such date; (b) any such Bond paid or with respect to which provision for payment has been made pursuant to the provisions of this Resolution or otherwise defeased as permitted by applicable law; or (c) any such Bond in lieu of or in substitution for which another Bond shall have been delivered pursuant to this Resolution. "Owner" or "Registered Owner ' when used with respect to any Bond, shall mean 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 shall mean the Owners at a particular time of the specified percentage or proportion in aggregate principal amount of all Bonds then Outstanding under this Resolution exclusive of Bonds held by the Corporation. "Parity Bonds" shall mean the Bonds, each series of Additional Parity Bonds from time to time hereafter issued by the Corporation, and any refunding bonds issued to refund the Bonds or any Additional Parity Bonds, but only to the extent such Parity Bonds remain Outstanding. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Minneapolis, Minnesota, and its successors in that capacity. `Payment Date", when used in connection with any Bond, shall mean September 1, 2005, and each March 1 and September 1 thereafter until maturity or prior redemption. 3 HOU:2349859.8 "Pledged Revenues" shall mean (a) 100% of the Sales Tax Revenues and (b) 100% of all of the interest income from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund. "Project" shall mean the extension of Kirby Drive within the City from the southern boundary of Clear Creek to Beltway 8, including the water, sewer, bridge and drainage improvements required for such extension. "Purchaser" shall mean the initial purchaser of the Bonds as defined in Section 9.1 of this Resolution. "Record Date" shall mean, for any Payment Date, the fifteenth (15th) calendar day of the month next preceding each Payment Date. "Refunded Bonds" shall mean those bonds described in Schedule I attached hereto, which are being refunded and defeased with the proceeds of the Bonds and other legally available funds of the Corporation, if any. "Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. "Report" shall mean the report of Grant Thornton LLP, certified public accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the refunding of the Refunded Bonds. "Reserve Fund" shall mean the Reserve Fund created pursuant to Section 5.2 of this Resolution. "Reserve Fund Requirement" shall mean an amount (which may consist of money or authorized investments, or any combination thereof) equal to 100% of the average annual debt service on the Bonds and any Additional Parity Bonds then Outstanding. "Reserve Fund Surety Bond" shall mean the surety bond issued by the Reserve Fund Surety Bond Insurer guaranteeing certain payments into the Reserve Fund with respect to the Bonds, as provided therein and subject to the limitations set forth therein. "Reserve Fund Surety Bond Insurer" shall mean Ambac Assurance Corporation, a Wisconsin domiciled stock insurance company, or any successor thereto. "Resolution" shall mean this Resolution Authorizing the Issuance of $11,005,000 Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005, and all amendments hereof and supplements hereto. "Revenue Fund" shall mean the Revenue Fund created pursuant to Section 5 2 of this Resolution. 4 HOU:2349859.8 "Sales Tax' shall mean the 1/2 of 1% sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995 "Sales Tax Revenues' shall mean 100% of the funds collected by the City from the levy of the Sales Tax, without deduction, offset or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund" shall mean the Surplus Fund created pursuant to Section 5.2 of this Resolution. Section 2 2: Interpretations. All terms defined herein and all pronouns used in this Resolution 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 Resolution 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 Resolution 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 Pledged Revenues to secure the payment of the Parity Bonds. ARTICLE III TERMS OF THE BONDS Section 3.1: Name, Amount, Purpose, Authorization. The Bonds shall be issued in fully registered form, without coupons, in the aggregate principal amount of ELEVEN MILLION FIVE THOUSAND AND NO/100 DOLLARS ($11,005,000) for the purposes permitted by the Act, including particularly (1) acquiring and constructing streets and roads, drainage and related improvements within the City, specifically the Project, (2) refunding the Refunded Bonds, and (3) paying the costs of issuing the Bonds and of refunding the Refunded Bonds. Section 3.2: Designation, Date, and Payment Dates. The Bonds shall be dated February 15, 2005, and designated as the PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005, and shall bear interest at the rates set forth in Section 3.3 of this Resolution from the later of February 15, 2005, or the most recent Payment Date to which interest has been paid or duly provided for, calculated on the basis of a 360-day year composed of twelve 30-day months payable on September 1, 2005, and semiannually thereafter on March 1 and September 1 of each year until maturity or prior redemption. Section 3.3: Initial Bonds; Numbers; Denomination; Interest Rates and Maturities Except for the initial Bond, the Bonds shall be initially issued bearing the numbers, in the principal amounts, and bearing interest at the rates set forth below, and may be transferred and exchanged as set out in this Resolution. The Bonds shall mature, subject to prior redemption 5 HOU:2349859.8 in accordance with this Resolution, on September 1 in each of the years and in the amounts set out in the following schedule. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof, and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Bond Number R-1 R-2 R-3 R-4 R-5 R-6 R-7 R-8 R-9 R-10 R-11 R-12 R-13 R-14 R-15 R-16 R-17 R-18 R-19 R-20 R-21 R-22 Year of Maturity 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Principal Amount $415,000 345,000 350,000 360,000 375,000 385,000 400,000 410,000 425,000 445,000 460,000 480,000 505,000 530,000 555,000 575,000 600,000 625,000 650,000 675,000 705,000 735,000 Interest Rate 3.000% 2.500 2.750 3.000 3.000 3.250 3.250 3.500 4.000 4.000 4.000 5.000 5.000 5.000 4.000 4.000 4.100 4.100 4.125 4.200 4.250 4.250 Section 3.4: Optional Redemption. The Corporation reserves the right, at its option, to redeem Bonds maturing on or after September 1, 2016, in whole, or from time to time in part on September 1, 2015 or on any date thereafter, at par plus accrued interest on the amounts called for redemption to the date fixed for redemption. If less than all of the Bonds are to be redeemed, the Corporation shall determine the particular Bonds or portions thereof to be redeemed. Principal amounts may be redeemed only in integral multiples of $5,000. 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 Paying Agent/Registrar in accordance with Section 3.11 of this Resolution, shall authenticate and deliver in exchange therefor a Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. 6 HOU:2349859.8 Notice of any redemption identifying the Bonds to be redeemed in whole or in part shall be given by the Paying Agent/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, and the place at which Bonds are to be surrendered for payment and, if less than all Bonds outstanding are to be redeemed in any one maturity the numbers of the Bonds or portions thereof of such maturity to be redeemed. In selecting portions of Bonds for redemption, the Paying Agent/Registrar shall treat each Bond as representing that number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond by $5,000. The Paying Agent/Registrar shall select the particular Bonds to be redeemed within any given maturity by lot or other random method. Any notice given as provided in this Section 3.4 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 Paying Agent/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 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 5: Execution of Bonds. The Bonds shall be signed on behalf of the Corporation by the Chairman and countersigned by the Secretary by their manual, lithographed, or facsimile signatures 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. If any officer of the Corporation whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. Section 3.6: Approval By Attorney General; Registiation by Comptroller. The Bonds to be initially issued shall be delivered to the Attorney General for examination and approval and shall be registered by the Comptroller. The manually executed registration certificate of the Comptroller substantially in the form provided in Article IV of this Resolution shall be affixed or attached to the Bonds to be initially issued. Section 3.7: Authentication. Except for the Bonds to be initially issued, which need not be authenticated, only such Bonds as shall bear thereon a certificate of authentication substantially in the form provided in Article IV of this Resolution, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Resolution or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Bond so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.8: Payment of Principal and Interest. The principal of the Bonds shall be payable, without exchange or collection charges in any coin or currency of the United States of 7 HOU:2349859.8 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 corporate trust office of the Paying Agent/Registrar. The interest on each Bond shall be payable by check payable on the Payment Date mailed by the Paying Agent/Registrar on or before each Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register, or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the Owner. If the date for the payment of principal or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Section 3.9: Special Record Date. If interest on any Bond is not paid on any 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 Corporation. 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 Owner or record of an affected Bond as of the close of business on the day prior to the mailing of such notice. Section 3.10: Ownership. The Corporation, the Paying Agent/Registrar and any other person may treat the person in whose name any Bond is registered as the absolute Owner of such Bond for the purpose of making and receiving payment of the principal of or interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the Corporation nor the Paying Agent/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 3.10 shall be valid and effectual and shall discharge the liability of the Corporation and the Paying Agent/Registrar upon such Bond to the extent of the sums paid. Section 3.11: Registration, Transfer and Exchange. So long as any Bonds remain outstanding, the Paying Agent/Registrar shall keep the Register at its principal corporate trust office in Minneapolis, Minnesota, and, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Resolution. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar Upon due presentation of any Bond in proper form for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within three (3) Business Days after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees in the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented 8 HOU:2349859.8 All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate tiust office of the Paying Agent/Registrar for a Bond or Bonds of the same maturity and interest rate, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section 3.11. Each Bond delivered in accordance with this Section 3.11 shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The Corporation or the Paying Agent/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 Paying Agent/Registrar for such transfer or exchange shall be paid by the Corporation. The Paying Agent/Registrar shall not be required to transfer or exchange any Bond called for redemption, in whole or in part, during the 45-day period immediately prior to the redemption date; provided, however, that such limitation shall not apply to the transfer or exchange by the Owner of the unredeemed portion of a Bond called for redemption in part. Section 3.12: Book -Entry Only System. (a) The definitive Bonds shall be initially issued in the form of a separate single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in subsection (b) hereof, all of the Outstanding Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Upon delivery by DTC to the Paying Agent/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 in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Bonds Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Bonds, (b) the delivery to any DTC Participant or any other person, other than a holder of the Bond, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a holder of the Bond, as shown in the Register of any amount with respect to principal of Bonds, premium, if any, or interest on the Bonds. Except as provided in subsection (c) of this Section 3.9, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Bond is registered in the Register as the absolute owner of such Bond for the purpose of payment of principal of, premium, if any, and interest on Bonds, for the purpose of giving notices of 9 HOU:2349859.8 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 Paying Agent/Registrar shall pay all principal of Bonds, premium, if any, and interest on the Bonds only to or upon the order of the respective owners as shown in the Register as provided in this 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 payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. (b) Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as 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 the Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section 3 13: Successor Securities Depository; Transfer Outside Book -Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certified Bonds, the City or the Paying Agent/Registrar shall (a) 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 of the appointment of such successor securities depository and transfer one or more separate Bonds to such successor securities depository or (b) notify 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. In such event, the Bonds shall no longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names holders of the Bonds transferring or exchanging Bonds shall designate, in accordance with the provisions of this Ordinance. Section 3 14: Cancellation of Bonds. All Bonds paid or redeemed in accordance with this Resolution, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall furnish the Corporation with appropriate certificates of destruction of such Bonds Section 3.15: Damaged, Mutilated, Lost, or Stolen Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Bond, the Paying Agent/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. The Corporation or the Paying Agent/Registrar may require the Owner of such 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 Paying Agent/Registrar. 10 HOU:2349859.8 If any Bond is lost, apparently destroyed, or wrongfully taken, the Corporation, pursuant to the applicable laws of the State of Texas and in the absence of notice of knowledge that such Bond has been acquired by a bona fide purchaser, shall execute and the Paying Agent/Registrar shall authenticate and deliver, a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner thereof shall have: (1) furnished to the Corporation and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the Corporation to save them harmless; paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (3) (4) met any other reasonable requirements of the Corporation and the Paying Agent/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 Corporation and the Paying Agent/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 Corporation or the Paying Agent/Registrar in connection therewith. If any such damaged, mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the Corporation in its discretion may, instead of issuing a replacement Bond, authorize the Paying Agent/Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section 3.13 shall be entitled to the benefits and security of this Resolution to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. ARTICLE IV FORM OF BONDS AND CERTIFICATES Section 4.1: Forms. The form of the Bonds, including the form of Statement of Insurance, the form of the Paying Agent/Registrar's Authentication Certificate, the form of Assignment and the form of the Comptroller's Registration Certificate which shall be attached or affixed to the Bonds initially issued, shall be, respectively, substantially as shown in Exhibit A hereto, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Resolution. 11 HOU:2349859.8 Section 4.2: Legal Opinion; Cusip Numbers. The approving opinion of Andrews Kurth LLP, Houston Texas, and CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR ALL PARITY BONDS Section 5.1: Pledge and Source of Payment. The Corporation hereby covenants and agrees that all Pledged Revenues shall be deposited and paid into the special funds established in Section 5.2 of this Resolution, and shall be applied in the manner set out herein, to provide for the payment of principal, interest and any redemption premium of the Parity Bonds and all expenses of paying the same. The Parity Bonds shall constitute special obligations of the Corporation that shall be payable solely from, and shall be equally and ratably secured by a first lien on, the Pledged Revenues as collected and received by the Corporation, which Pledged Revenues shall, in the manner herein provided, be set aside and pledged to the payment of the Parity Bonds in the Debt Service Fund and Reserve Fund, and any excess Sales Tax Revenues shall be set aside in the Surplus 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 ad valorem taxation. The owners of the Parity Bonds shall never have the right to demand payment from Sales Tax Revenues in excess of those collected from the Sales Tax. Section 5.2: Special Funds. The following special funds are hereby created, and such funds shall be maintained and accounted for as hereinafter provided, so long as any Parity Bonds remain Outstanding: (a) the Revenue Fund, (b) the Debt Service Fund; (c) the Reserve Fund; and (d) the Surplus Fund. The Revenue Fund and the Surplus Fund shall be maintained and accounted for as separate accounts on the books of the Corporation. The Debt Service Fund and any moneys held in the Reserve Fund shall be maintained at an official depository bank of the Corporation separate and apart from all other funds and accounts of the City or the Corporation 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 herein so long as any Parity Bonds remain Outstanding. 12 HOU:2349859.8 Section 5.3: Flow of Funds. All Pledged Revenues shall be deposited as collected into the Revenue Fund. Money from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order or priority: (a) First, to make all deposits into the Debt Service Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (b) Second, to make any rebate payments required pursuant to Section 9.5 of this Resolution; (c) Third, to reimburse the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (d) Fourth, to pay interest to the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, for any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (e) Fifth, to make all deposits into the Reserve Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (f) Sixth to make the transfers required by any resolutions authorizing the issuance or incurrence of subordinate lien obligations (subject to the prior requirements of any resolutions authorizing the issuance of Additional Parity Bonds); and (g) Seventh, to make all deposits into the Surplus Fund as required by this Resolution, said funds to be used for any lawful purpose. Whenever the total 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 5.4: Debt Service Fund. On or before the last Business Day of each month, beginning April, 2005, so long as any Parity Bonds remain Outstanding, there shall be deposited into the Debt Service Fund from the Revenue Fund such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the Debt Service Requirement on the next Payment Date. If in any month the Corporation shall fail to make the full transfer to the Debt Service Fund required by this Resolution, amounts equivalent to such deficiency shall be transferred to the Debt Service Fund from the first available and unallocated money in the Revenue Fund in the following month or months, and such transfers shall be in addition to the other amounts required to be transferred to the Debt Service Fund. Money deposited to the credit of the Debt Service Fund shall be used soley 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), 13 HOU:2349859.8 interest, and any redemption premium on the Parity Bonds, plus all bank charges and other costs and expenses related to such payment. On or before each Payment Date on the Parity Bonds, the Corporation shall transfer from the Debt Service Fund to the paying agents for the Parity Bonds an amount equal to the principal, interest and any redemption premium payable on the Parity Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The paying agents for the Parity Bonds shall destroy all paid Parity Bonds and shall provide the Corporation with an appropriate certificate of destruction. Section 5.5: Reserve Fund. The Corporation shall initially deposit in the Reserve Fund, within five years from the date of delivery of the Bonds, in equal monthly installments, an amount which after such five-year period shall equal the Reserve Fund Requirement. After such five-year period, so long thereafter as the Reserve Fund contains such amount, no deposits shall be required to be made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund, the Debt Service Fund or the Surplus Fund. But, if and whenever the balance in the Reserve Fund is reduced below such amount monthly deposits into the Reserve Fund from the first available and unallocated money in the Revenue Fund shall be resumed and continued 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. In lieu of cash or investments, the Reserve Fund Requirement may be satisfied in whole or in part with one or more surety bonds issued by an insurance company rated in the highest rating category by Standard & Poor's Ratings Group and Moody's Investors Service, and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company, including the Reserve Fund Surety Bond pursuant to the Financial Guaranty Agreement, a form of which is included in Exhibit H hereto, the terms and provisions of which are hereby approved. The Chairman is hereby authorized and directed to execute and deliver such Guaranty Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such Reserve Fund Surety Bond may be drawn upon only after all cash or investments held in the Reserve Fund have been used or applied. If the Reserve Fund Requirement is satisfied with the Reserve Fund Surety Bond and one or more surety bonds authorized under this Section, draws on the Reserve Fund Surety Bond and such other surety bonds shall be made on a pro rata basis. The provisions of Exhibit H relating to the Reserve Fund Surety Bond Insurer are hereby incorporated herein for all purposes. Notwithstanding anything in this Resolution to the contrary, the Bonds may not be redeemed pursuant to Section 3.4 unless all amounts owed to the Reserve Fund Surety Bond Insurer pursuant to the Guaranty Agreement have been paid in full. Section 5.6: Surplus Fund. After making any transfers which may be required into the Debt Service Fund, the Reserve Fund, or any other fund or funds created in any resolution authorizing the issuance of Parity Bonds, any money remaining in the Revenue Fund shall be considered surplus, and may be deposited on any Payment Date into the Surplus Fund and used by the Corporation for any lawful purpose. 14 HOU:2349859.8 Section 5.7: 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. Section 5.8: Investment of Funds; Transfer of Investment Income. Money in the Revenue Fund, the Debt Service Fund and the Reserve Fund may, at the option of the Corporation, be invested in any manner permitted by law for public funds; 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. All such investments shall be valued in terms of current market value as of the last Business Day of the Corporation's Fiscal Year. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds All interest and income derived from such deposits and investments shall be transferred or credited as received to the Revenue Fund, and shall constitute Pledged Revenues. Section 5.9: Security for Uninvested Funds. So long as any Parity Bonds remain Outstanding, all uninvested money on deposit in, or credited to, the Revenue Fund, the Debt Service Fund and the Reserve Fund shall be secured by the pledge of security, as provided by Texas law. ARTICLE VI ADDITIONAL BONDS Section 6.1: Additional Parity Bonds. In addition to inferior lien bonds, the Corporation expressly reserves the right hereafter to issue, in one or more series, Additional Parity Bonds for purposes permitted by law, which Additional Parity Bonds, when issued, shall be payable from and secured by liens on and pledges of the Pledged Revenues in the same manner and to the same extent as the Bonds and any other Additional Parity Bonds and the Additional Parity Bonds, when issued, shall be payable from the Debt Service Fund and shall be in all respects of equal dignity and on a parity with the Bonds and any other Additional Parity Bonds. It is specifically provided, however, that no Additional Parity Bonds shall be issued unless: (a) Principal of the Additional Parity Bonds is payable on September 1 and interest is payable on March 1 and September 1; (b) The Debt Service Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; (c) For any twelve (12) consecutive months of the preceding 18-month period immediately preceding the month in which the resolution authorizing such Additional Parity 15 11OU:2349859.8 Bonds is adopted (the "Base Period"), the Pledged Revenues were equal to at least 1.25% 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 Chairman of the Corporation, an authorized officer of the City, or by an independent certified public accountant or firm of independent certified public accountants; and (d) Provision is made in the resolution authorizing the Additional Parity Bonds then proposed to be issued that (1) additional deposits will be made into the Debt Service Fund sufficient to provide for the principal and interest requirements on the Additional Parity Bonds and (2) deposits will be made into the Reserve Fund of such amount, or one or more surety bonds will be provided so that it will contain a balance not less than the Reserve Fund Requirement on all Parity Bonds that will be Outstanding after the issuance of such series of Additional Parity Bonds. Section 6.2: Subordinate Lien Bonds. The Corporation reserves the right to issue, for any purpose authorized under the Act, bonds, notes or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior and subordinate to the lien on Pledged Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. ARTICLE VII PAYING AGENT/REGISTRAR Section 7.1: Paying Agent/Registrar; Computation of Amount of Interest. (a) Wells Fargo Bank, N.A., Minneapolis Minnesota, is hereby appointed Paying Agent and Registrar for the Bonds. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit D, the terms and provisions of which are hereby approved, and the Chairman is hereby authorized and directed to execute and deliver such Paying Agent/Registrar Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the Corporation and/or the deposits of money pursuant to this Resolution, shall be deemed to accept and agree to abide by the terms of this Resolution. (b) All money transferred to the Paying Agent/Registrar by the Corporation under this Resolution (except sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the Registered Owners, shall be the property of the Corporation, and shall be disbursed in accordance with this Resolution. (c) The Paying Agent/Registrar, in its individual or any other capacity, may become an Owner or pledgee of Bonds with the same rights it would have if it was not the Paying/Agent Registrar. 16 HOU:2349859.8 (d) The dollar amount of interest due and payable from time to time shall be computed by the Paying Agent/Registrar. (e) The Paying Agent/Registrar shall hold in escrow on behalf of the Corporation the Bonds initially issued by the Corporation and approved by the Attorney General and shall deliver such Bonds in accordance with this Resolution and the Bond Purchase Agreement. (f) All matured Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the Corporation. Such Bonds shall be canceled as provided herein. Amounts held by the Paying Agent/Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three (3) years from the date such amounts have become due and payable shall be reported and disposed of by the Paying Agent/Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. The Paying Agent/Registrar shall have no liability to the Owners of the Bonds by virtue of actions taken in compliance with this Section. (g) The Paying Agent/Registrar shall deliver a written demand for payment, in a form acceptable to the Reserve Fund Surety Bond Insurer, at least three business days prior to the date on which a draw under the Reserve Fund Surety Bond will be required The Paying Agent/Registrar shall maintain adequate records, verified with the Reserve Fund Surety Bond Insurer, regarding the amount available to be drawn at any given time under the Reserve Fund Surety Bond and regarding to the amounts paid and owing to the Reserve Fund Surety Bond Insurer under the terms of the Guaranty Agreement. Section 7.2: Successor Paying Agents/Registrars. If the Paying Agent/Registrar or its successors become unable for any reason to act as Paying Agent/Registrar hereunder, the Corporation covenants that it will appoint a qualified bank or trust company as the Paying Agent/Registrar for the Bonds. No successor Paying Agent/Registrar shall be appointed unless the Corporation shall have the first given 60 days' written notice, by first class mail, to each Registered Owner of Bonds. ARTICLE VIII COVENANTS AND PROVISIONS RELATING TO ALL PARITY BONDS Section 8.1: Punctual Payment of Parity Bonds. The Corporation will punctually pay or cause to be paid the interest and premium, if any, 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 Resolution and in any resolution authorizing the issuance of Additional Parity Bonds. Section 8.2: Accounts, Records, and Audits. So long as any Parity Bonds remain Outstanding, the Corporation covenants and agrees that it will maintain a proper and complete system of records and accounts in which full, true and pioper entries will be made of all dealings, transactions, business and affairs which in any way affect or pertain to the Sales Tax Revenues 17 HOU:2349859.8 or the Pledged Revenues. The Corporation 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 Corporation shall furnish a copy thereof without cost to the Municipal Advisory Council of Texas, the major municipal rating agencies and any owners of Parity Bonds who shall request same. Section 8.3: Pledge and Encumbrance of Pledged Revenues. The Corporation covenants and represents that it has the lawful power to create a lien on and to pledge the Pledged 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 Corporation further covenants and represents that, other than to the payment of the Parity Bonds, the Pledged 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 Corporation, unless such lien, pledge or encumbrance is junior and subordinate to the lien and pledge securing payment of the Parity Bonds. The Corporation covenants to take all such actions as may be necessary or required from time to time under Texas law to preserve or perfect the priority of the first lien on Pledged Revenues created in this section. Section 8.4: Bondowners' Remedies. This Resolution shall constitute a contract between the Corporation and the Owners of the Parity Bonds from time to time Outstanding and this Resolution shall be and remain irrepealable until the Parity Bonds and the interest thereon shall be fully paid or discharged or provision therefor shall have been made as provided herein. In the event of a default in the payment of the principal of or interest or premium, if any, on any of the Parity Bonds or a default in the performance of any duty or covenant provided by law or in this Resolution, 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 Corporation 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 Corporation under this Resolution, including the deposit of the Pledged Revenues into the special funds herein provided, and the application of such Pledged Revenues in the manner required in this Resolution. Section 8.5: Discharge by Deposit. The Corporation may defease the provisions of this Resolution and discharge its obligation to the Owners of any or all of the Bonds to pay principal thereof and interest and redemption premium, if any, thereon in any manner now or hereafter permitted by law. Upon such defeasance and discharge, such Bonds shall no longer be regarded to be Outstanding or unpaid. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Bond Insurer pursuant to the Bond Insurance Policy, the Bonds shall remain outstanding for all purposes not be defeased or otherwise satisfied and not be considered paid by the Corporation, and the assignment and pledge. of all covenants, agreements and other obligations of the Corporation to the Owners shall continue to exist and shall run to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to the rights of such Owners. 18 HOU:2349859.8 Section 8.6: Confirmation and Levy of Sales Tax. (a) The Corporation hereby represents the City has duly complied with the provisions of the Act for the levy of the Sales Tax at the rate voted at the election held by and within the City on January 21, 1995,.and such Sales Tax is being imposed within the corporate limits of the City and the receipts of such Sales Tax are being remitted to the City by the Comptroller of Public Accounts on a monthly basis. (b) While any Bonds are Outstanding, the Corporation covenants, agrees and warrants to take and pursue all action permissible to cause the Sales Tax, at said rate or at a higher rate if legally permitted, to be levied and collected continuously, in the manner and to the maximum extent permitted by law, and to cause no reduction, abatement or exemption in the Sales Tax or rate of tax below the late stated, confirmed and ordered in subsection (a) of this Section to be ordered or permitted while any Bonds shall remain Outstanding. (c) If hereafter authorized by law to apply, impose and levy the Sales Tax on any taxable items or transactions that are not subject to the Sales Tax on the date of the adoption hereof, to the extent it legally may do so, the Corporation agrees to use its best efforts to cause the City to take such action as may be required to subject such taxable items or transactions to the Sales Tax. (d) The Corporation agrees to take and pursue all action legally permissible to cause the Sales Tax to be collected and remitted and deposited as herein required and as required by the Act, at the earliest and most frequent times permitted by law. (e) The Corporation agrees to use its best efforts to cause the City to comply with the Act and shall cause the Sales Tax Revenues to be deposited to the credit of the Revenue Fund in their entirety immediately upon receipt by the City. In the alternative and if legally authorized the Corporation shall, by appropriate notice, direction, request or other legal method, use its good - faith efforts to cause the Comptroller of Public Accounts of the State of Texas (the `Comptroller') to pay all Sales Tax Revenues directly to the Corporation for deposit to the Revenue Fund Section 8.7: Representations as to Security for the Bonds. (a) The Corporation represents and warrants that, except for the Parity Bonds, the Pledged Revenues are and will be and remain free and clear of any pledge, lien, charge or encumbrance thereon or with respect thereto prior to or of equal rank with, the pledge and lien created in or authorized by this Resolution except as expressly provided herein. (b) The Bonds and the provisions of this Resolution are and will be the valid and legally enforceable obligations of the Corporation in accordance with their terms and the terms of this Resolution, subject only to any applicable bankruptcy or insolvency laws or to any laws affecting creditors rights generally. (c) The Corporation shall at all times, to the extent permitted by law, defend, preserve and protect the pledge of the Pledged Revenues and all the rights of the Owners against all claims and demands of all persons whomsoever, and shall take such action necessary to protect the priority of the pledge of the Pledged Revenues. 19 HOU:2349859.8 (d) The Corporation will take, and use its best efforts to cause the City to take, all steps reasonably necessary and appropriate to collect all delinquencies in the collection of the Sales Tax to the fullest extent permitted by the Act. (e) The provisions, covenants, pledge and lien on and against the Pledged Revenues, as herein set forth, are established and shall be for the equal benefit, protection and security of the Owners of Parity Bonds without distinction as to priority and rights under this Resolution. Section 8.8: No Recourse Against Corporation Officers. No recourse shall be had for the payment of principal of or interest on any Parity Bonds or for any claim based thereon or on this Resolution against any officer of the Corporation or any person executing any Parity Bonds. Section 8.9: Amendment to Resolution. The Corporation may, with the consent of Owners holding a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of this Resolution provided that, without the consent of all Owners of Outstanding Bonds, no such amendment, addition or rescission shall (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of Bonds required to be held by Owners for consent to any such amendment, addition or rescission. ARTICLE IX PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF BONDS Section 9 1: Sale of Bonds; Insurance. The sale of the Bonds is hereby awarded to UBS Financial Services Inc., as manager of a syndicate of underwriters (the "Purchaser') at a price of $11,083,412.45 .(representing the par value thereof, plus a net original issue premium of $155,447.45, less an underwriters discount of $77,035.00) plus accrued interest on the Bonds to the date of delivery of the Bonds, and delivery of the Bonds to the Purchaser shall be made upon payment therefor in accordance with the terms of sale and the terms and conditions of the Bond Purchase Agreement attached hereto as Exhibit E It is officially found, determined and declared that the foregoing price and terms are the most advantageous reasonably obtainable by the Corporation. The Corporation hereby acknowledges that the sale of the Bonds is contingent upon the issuance of a policy of municipal bond insurance from the Bond Insurer insuring the timely payment of principal of and interest on the Bonds. The appropriate officials and representatives of the Corporation are hereby authorized and directed to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Bonds of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. The provisions of Exhibit H relating to the Bond Insurer are hereby incorporated herein for all purposes. 20 HOU:2349859.8 Section 9.2: Approval, Registration and Delivery. The Chairman of the Corporation is hereby authorized to have control and custody of the Bonds and all necessary records and proceedings pertaining thereto pending their delivery, and the Chairman and other appropriate officers of the Corporation are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the thedelivery Attorof they Bondsneral and dthe o assure the investigation, examination and approval thereofby registration of the initial Bonds by the Comptroller. Upon registration of the Bonds, the Comptroller (or the Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein to be attached or affixed to each Bond initially delivered. Section_ 9.3: Offering Documents; Ratings. The Board of Directors of the Corporation hereby ratifies authorizes and approves, in connection with the sale of the Bonds, the preparation and distribution of the Preliminary Official Statement, a copy of which is attached hereto as Exhibit A form of final Official Statement is attached hereto as Exhibit G which is substantially the same as the Preliminary Official, except for the additional information necessary to conform the final Official Statement to the terms of this Resolution. Further, the Board of Directors of the Corporation hereby ratifies, authorizes and approves the actions of the Chairman, the Corporation's financial advisor and other consultants in seeking ratings on the Bonds from one or more of M o and Investors Service, Inc. or Standard Poor's Ratings Group, and such actions are hereby d. Section n 9.4: Application of Proceeds of Bonds; Appropriation. Proceeds from the sale of the Bonds shall, promptly upon receipt by the Corporation be applied as follows: (i) Accrued interest shall be deposited into the Debt Service Fund created in Section 5.2 of this Resolution; ion (ii) A portion of the proceeds shall be applied to ayrnentenses of thearising premiumsnfortthe with the issuance of the Bonds, including p Reserve Fund Surety Policy, if any; ) A portion of the proceeds shall be apphed to (i) establish the Escrow Fund to refund the Refunded Bonds as more fully provided below, and (ii) to the extent not otherwise paid, to pay all expenses arising in connection with the issuance of the Bonds, the establishment of the Escrow Fund and the refunding of the Refunded Bonds; and (iv) The remaining proceeds shall be deposited into the Construction for the purposes permt ed by the which is hereby created by the Corporation, to Act, including particularly constructing the Project, all under and pursuant to the authority of the Act. terest on e Bonds Section : Tax Exemption. The Corporation he thereof fortends hat the federahnncome taxhpurposes shall be excludable from gross income of the ownersf pursuant to Sections 103 and 141 through 150 of the d Internal and final regulaevenue tionsde o(the 198"Regul6, as ) (the "Code"), and all applicable temporary, proposed ( 21 HOU:2349859.8 and procedures promulgated thereunder and applicable to the Bonds. For this purpose, the Corporation covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Bonds (including all property the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Bonds) and take or omit to take such other and furthei actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause interest on the Bonds to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Bonds for federal income tax purposes. Without limiting the generality of the foregoing, the Corporation shall comply with each of the following covenants: (a) The Corporation will use all of the proceeds of the Bonds to (i) make an initial cash deposit and acquire Escrowed Securities (as defined in the Escrow Agreement) sufficient to pay the principal of, premium, if any, and interest on the Refunded Bonds, (ii) provide funds for the Project and (iii) pay the costs of issuing the Bonds and of refunding the Refunded Bonds All of the proceeds of the Bonds will be used for the purposes set forth above except for amounts, if any, described in the Report (as defined in the Escrow Agreement) as the rounding amount and the ending cash balance in the Escrow Fund (as defined in the Escrow Agreement); (b) The Corporation will not directly or indirectly take any action, or omit to take any action, which action or omission would cause the Bonds or the Refunded Bonds to constitute "private activity bonds" within the meaning of Section 141(a) of the Code; (c) Principal of and interest on the Bonds will be paid solely from Pledged Revenues levied and collected by the Corporation, investment earnings on such collections, and if available, proceeds of the Bonds; (d) Based upon all facts and estimates now known or reasonably expected to be in existence• on the date the Bonds are delivered, the Corporation reasonably expects that the proceeds of the Bonds and the Refunded Bonds will not be used in a manner that would cause the Bonds or any portion thereof to be an "arbitrage bond" within the meaning of Section 148 of the Code; (e) At all times while the Bonds are outstanding, the Corporation will identify and properly account for all amounts constituting gross proceeds of the Bonds in accordance with the Regulations. The Corporation will monitor the yield on the investments of the proceeds of the Bonds and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to a yield which is not materially higher than the yield on the Bonds To the extent necessary to prevent the Bonds from constituting `arbitrage bonds," the Corporation will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Bonds to be less than the yield that is materially higher than the yield on the Bonds; 22 HOU:2349859.8 The Corporation will not take any action or knowingly omit to take any action which, if taken or omitted would cause the Bonds to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code; The Corporation represents that not more than fifty percent (50%) of the proceeds of any new money portion of, or any new money issue refunded by, the Refunded Bonds was invested in nonpurpose investments (as defined in Section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the Corporation reasonably expected at the time each issue of Refunded Bonds was issued that at least eighty-five percent (85%) of the spendable proceeds of the Refunded Bonds would be used to carry out the governmental purpose of such Refunded Bonds within the corresponding three-year period beginning on the respective dates of issue of the Refunded Bonds; (h) The Corporation will take all necessary steps to comply with the requirement that certain amounts earned by the Corporation on the investment of the gross proceeds of the Bonds, if any, be rebated to the federal government. Specifically, the Corporation will (i) maintain records regarding the receipt, investment, and expenditure of the gross proceeds of the Bonds as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the Corporation allocable to other obligations of the Corporation or moneys which do not represent gross proceeds of any obligations of the Corporation and retain such records for at least six years after the day on which the last outstanding Bond is discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid in whole or in part the requirements of Section 148 of the Code, including any specified method of accounting .required by applicable Regulations to be used for all or a portion of any gross proceeds, (hi) calculate, at such times as are required by apphcable Regulations, the amount of excess arbitrage profits, if any earned from the investment of the gross proceeds of the Bonds and (iv) timely pay as required by applicable Regulations, all amounts required to be rebated to the federal government. In addition, the Corporation will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, interest thereon and any penalty; (i) The Corporation will not directly or 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 such arrangement had been at arm's length and had the yield on the Bonds not been relevant to either party; HOU:2349859.8 23 (j) The Corporation will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Bonds on such form and in such place as the Secretary may prescribe* (k) The Corporation will not issue or use the Bonds as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing the Bonds are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations by (i) enabling the Corporation to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage or (ii) increasing the burden on the market for tax-exempt obligations; (1) Proper officers of the Corporation charged with the responsibility for issuing the Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Bonds and stating whether there are facts, estimates or circumstances that would materially change the Corporation's expectations. On or after the date of issuance of the Bonds, the Corporation will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates; and (m) The covenants and representations made or required by this Section are for the benefit of the Bondholders and any subsequent Bondholder, and may be relied upon by the Bondholders and any subsequent Bondholder and bond counsel to the Corporation. In complying with the foregoing covenants, the Corporation may rely upon an unqualified opinion issued to the Corporation by nationally recognized bond counsel that any action by the Corporation or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Bonds to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Resolution, the Corporation's representations and obligations under the covenants and provisions of this Section 9.5 shall survive the defeasance and discharge of the Bonds for as long as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. ARTICLE X MISCELLANEOUS Section 10.1 • 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 Corporation and the Escrow Agent, which shall be substantially in the form of Exhibit C, 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 Corporation by RBC Dain Rauscher Inc., as financial advisor to the 24 HOU:2349859.8 Corporation, (b) to comply with all applicable laws and regulations relating to the refunding of the Refunded Bonds and (c) to carry out the other intents and purposes of this Resolution, and the Chairman is hereby authorized to execute and deliver such Escrow Agreement on behalf of the Corporation and the Secretary is hereby authorized to attest thereto. Section 10.2: Purchase of United States Treasury Obligations. In order to assure the purchase of the escrowed securities referred to in the Escrow Agreement, the Chairman is hereby authorized to subscribe for, agree to purchase and purchase such obligations of the United States of America, in such amounts, maturities and bearing interest at such rates as may be provided for in the Report, and the Chairman is authorized to execute and the Secretary is authorized to attest, as appropriate, to any and all subscriptions, purchase agreements, forward purchase agreements, commitments, letters of authorization and other documents necessary to effectuate the foregoing, and any actions heretofore taken by the Chairman for such purpose are hereby ratified and approved. Section 10.3 • Related Matters. In order that the Corporation shall satisfy, in a timely manner, all of its obligations under this Resolution and the Escrow Agreement, the Chairman, the Secretary and other appropriate officers and agents of the Corporation are hereby authorized and directed to take all other actions that are reasonably necessary to provide for issuance and delivery of the Bonds and the refunding of the Refunded Bonds, including executing by manual or facsimile signature and delivering on behalf of the Corporation all certificates, consents, receipts, requests, notices, investment agreements and other documents as may be reasonably necessary to satisfy the Corporation's obligations under this Resolution and the Escrow Agreement and to direct the transfer and application of funds of the Corporation consistent with the provisions of this Resolution and the Escrow Agreement. If requested by the Attorney General of Texas or his representatives, the Chairman may authorize such ministerial changes in the written text of this Resolution as are necessary to obtain the Attorney General's approval and as he determines are consistent with the intent and purposes of this Resolution, which determination shall be final. Section 10.5: Further Proceedings. The Chairman, Secretary and other appropriate officers of the Corporation are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Resolution. Section 10.6: Severabilrty. If any section, paragraph, clause or provision of this Resolution 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 Resolution. Section 10.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the Corporation at which this Resolution was adopted was posted at a place convenient and readily accessible at all times to the general public at the City Hall of the City for the time required by law preceding this meeting, as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended, and that this meeting has been open to the public as required by law at all times during which this Resolution and the subject matter thereof has been discussed, considered and formally 25 HOU:2349859.8 acted upon. The Corporation further ratifies, approves and confirms such written notice and the contents and posting thereof Section 10.8: No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Resolution, against any offices or employee of the Corporation or any person executing any Bonds. Section 10.9 Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 10 10: Governing Law. This Resolution shall be construed in accordance with and governed by the laws of the State of Texas. Section 10.11: Effective Date. This Resolution shall become effective immediately upon passage by this Corporation and signature of the Chairman of the Corporation. [The remainder of this page intentionally left blank) 26 HOU:2349859.8 PASSED AND APPROVED this 14th day of February, 2005. Schedules: Schedule I — Schedule of Refunded Bonds Exhibits: A — Debt Service Schedule B — Escrow Agreement C — Paying Agent/Registrar Agreement D — Bond Purchase Agreement E — Preliminary Official Statement F — Official Statement G — Financial Guaranty Agreement CH ' AN i HOU:2349859.5 S-1 SCHEDULE I Schedule of Refunded Bonds Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 1997 Maturity Date 09/01/2005 09/01/2006 09/01/2007 09/01/2008 09/01/2009 09/01/2010 09/01/2011 09/01/2012 09/01/2013 09/01/2014 09/01/2015 09/01/2016 Interest Rate 7.20% 7.20 6.00 5.20 5.30 5.40 5.45 5.50 5.50 5.50 5.20 5.20 Par Amount $210,000 220,000 235,000 300,000 320,000 340,000 360,000 385,000 410,000 435,000 460,000 490,000 Call Date N/A N/A N/A 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 Price N/A N/A N/A 100% 100 100 100 100 100 100 100 100 HOU:2349859.8 EXHIBIT A FORM OF BOND UNITED STATES OF AMERICA STATE OF TEXAS NUMBER DENOMINATION R- $ REGISTERED REGISTERED PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BOND SERIES 2005 'INTEREST RATE* REGISTERED OWNER: PRINCIPAL AMOUNT: DATED DATE* 2MATURITY DATE 2CUSIP: February 15, 2005 September 1, DOLLARS: 3THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the "Corporation"), a corporation created to act on behalf of the City of Pearland, Texas (the `City"), in the County of Brazoria, in the State of Texas, for value received hereby promises to pay but solely from certain Pledged Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date specified above upon presentation and surrender of this Bond at the principal payment office of Wells Fargo Bank, N.A., Minneapolis, Initial Bond shall be numbered T-1. 2 Omitted from initial Bond. 3 The first sentence of the initial Bond shall read as follows: "THE PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the "Corporation"), a corporation created to act on behalf of the City of Pearland, Texas (the ` City") in the County of Brazoria, in the State of Texas, for value received hereby promises to pay, but solely from certain Pledged Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on September 1 of each of the years and in the principal amounts set forth in the following schedule: [Insert information regarding years of maturity, principal amounts and interest rates from Section 3.3 of the Resolution.] upon presentation and surrender of this Bond at the principal payment office of Wells Fargo Bank, N A., Minneapolis, Minnesota, or its successor (the ' Paying Agent/Registrar") the principal amounts identified above, payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay, solely from such Pledged Revenues, interest thereon at the rate shown above, calculated on the basis of a 360-day year,composed of twelve 30-day months, from the later of the Dated Date specified above or the most recent interest payment date to which interest has been paid or duly provided for " A-1 HOU:2349859.8 Minnesota, or its successor (the "Paying Agent/Registrar"), the principal amount identified above, payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, and to pay, solely from such Pledged Revenues interest thereon at the rate shown above, calculated on the basis of a 360-day year, composed of twelve 30-day months, from the later of the Dated Date specified above 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 sent by United States mail, first class, postage prepaid, payable on March 1 and September 1, beginning on September 1, 2005, mailed to the registered owner as shown on the books of registration kept by the Paying Agent/Registrar as of the fifteenth (15) calendar day of the month next preceding each interest payment date, or by such other method, acceptable to the Paying Agent/Registrar requested by and at the risk and expense of the registered owner. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Bond at the principal corporate trust office of the Paying Agent/Registrar. THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Bonds") aggregating $11,005,000, issued for the purposes permitted by Article 5190.6 Texas Revised Civil Statutes (the "Act' ), including particularly (1) acquiring and constructing streets and roads, drainage and related improvements within the City, (2) refunding the Refunded Bonds, and (3) paying the costs of issuing the Bond and of refunding the Refunded Bonds, all under and pursuant to the authority of the Act and all other applicable law, and a resolution adopted by the Corporation on February 14, 2005 (the ` Resolution"). Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Resolution. 'REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Resolution unless this Bond is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. 4 This paragraph shall be omitted from the initial Bond and any other Bond for which text does not appear on the back of a printed bond certificate. s In the initial Bond, this paragraph shall read: "THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Resolution unless this Bond is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon. ' A-2 HOU:2349859.8 IN WITNESS WHEREOF the Corporation has caused this Bond to be executed by the Chairman of the Corporation and countersigned by the Secretary of the Corporation by the manual, lithographed or printed facsimile signatures. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Chairman COUNTERSIGNED: Secretary * * * (Back Panel of Bond) THE CORPORATION RESERVES THE RIGHT to redeem Bonds maturing on or after September 1, 2016, in whole of from time to time in part, in integral multiples of $5,000, on September 1, 2015, or on 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 Resolution 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, postage prepaid, addressed to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the books of registration kept by the Paying Agent/Registrar. When Bonds or portions thereof have been called for redemption, and due provision has been made to redeem the same, the principal amounts so redeemed shall be payable solely from the funds provided for redemption, and interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption. THIS BOND AND THE SERIES OF WHICH IT IS A PART are special obligations of the Corporation that are payable from and are equally and ratably secured by a first hen on the Pledged Revenues, as defined and provided in the Resolution, which Pledged Revenues are required to be set aside and pledged to the payment of the Bonds, and all additional bonds issued on a parity therewith, in the Debt Service Fund and Reserve Fund maintained for the payment of all such Bonds, and any excess Sales Tax Revenues are to be set aside in the Suiplus Fund and used for any purpose authorized under the Act. THIS BOND AND THE SERIES OF WHICH IT IS A PART ARE PAYABLE SOLELY FROM SUCH PLEDGED REVENUES AND NEITHER THE STATE OF TEXAS (THE `STATE"), THE CITY OF PEARLAND, TEXAS (THE "CITY '), NOR ANY POLITICAL CORPORATION, SUBDIVISION OR AGENCY OF THE STATE SHALL BE OBLIGATED A-3 HOU:2349859.8 TO PAY THE SAME OR THE INTEREST THEREON AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE CITY, OR ANY OTHER POLITICAL CORPORATION SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE BONDS. NEITHER THE BONDS NOR ANY INSTRUMENT RELATED TO THE BONDS MAY GIVE A BONDHOLDER A RIGHT TO DEMAND PAYMENT FROM TAX PROCEEDS IN EXCESS OF THOSE COLLECTED FROM THE SALES AND USE TAX IMPOSED BY THE CITY PURSUANT TO THE ACT. THE OWNER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THIS BOND OUT OF ANY FUNDS RAISED OR TO BE RAISED BY AD VALOREM TAXATION. THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal payment office of the Paying Agent/Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Resolution. THE BONDS ARE EXCHANGEABLE at the principal payment office of the Paying Agent/Registrar for Bonds in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Resolution. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Resolution. THE CORPORATION has covenanted in the Resolution that it will at all times provide a legally qualified paying agent and registrar for the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. THE CORPORATION HAS RESERVED THE RIGHT to issue additional parity bonds, subject to the restrictions contained in the Resolution, which may be equally and ratably payable from, and secured by a first lien on and pledge of, the Pledged 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 Pledged Revenues. A-4 HOU:2349859.8 FORM OF REGISTRATION CERTIFICATE THE STATE OF TEXAS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS 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 OF OFFICE this (SEAL) • Comptroller of Public Accounts of the State of Texas FORM OF AUTHENTICATION CERTIFICATE AUTHENTICATION CERTIFICATE This Bond is one of the Bonds described in and delivered pursuant to the within - mentioned Resolution, and, except for the Bonds initially delivered, this Bond has been issued in exchange for or replacement of a Bond, Bonds or a portion of a Bond or Bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Wells Fargo Bank, N.A. Minneapolis, Minnesota By: Authorized Signature Date of Authentication: A-5 HOU:2349859.8 FORM OF STATEMENT OF INSURANCE STATEMENT OF INSURANCE Financial Guaranty Insurance Policy No. 23609BE (the "Policy") with respect to payments due for principal of and interest on this Bond has been issued by Ambac Assurance Corporation ( `Ambac Assurance"). The Policy has been delivered to The Bank of New York, New York, New York, as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from Ambac Assurance or the Insurance Trustee. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of Ambac Assurance as more fully set forth in the Policy. FORM OF ASSIGNMENT ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: 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. HOU:2349859.8 A-6 EXHIBIT B DEBT SERVICE SCHEDULE HOU:2349859.8 Dated Date = 02/15/2005 City of Pearland - Economic Series 2005 EDC Development New Money Bonds Corporation Delivery Date = 03/15/2005 Tenn Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 09/01/2005 - 415,000.00 416,888.25 3.000 2.000000 100.455000 235,935.00 650,935.00 650,935.00 650,935.00 09/01/2006 - 345,000.00 345,983.25 2.500 2.300000 100.285000 420,900.00 765,900.00 765,900.00 765,900.00 09/01/2007 - 350,000.00 352,488.50 2.750 2.450000 100.711000 412,275.00 762,275.00 762,275.00 762,275.00 09/01/2008 • 360,000.00 , 364,136.40 3.000 2.650000 101.149000 402,650.00 762,650.00 762,650.00 762,650.00 09/01/2009 - 375,000.00 378,120.00 3.000 2.800000 100.832000 391,850.00 766,850.00 766,850.00 766,850.00 09/01/2010 - 385,000.00 390,782.70 3.250 2.950000 101.502000 380,600.00 765,600.00 765,600.00 765,600.00 09/01/2011 - 400,000.00 402,784.00 3.250 3.130000 100.696000 368,087.50 768,087.50 768,087.50 768,087.50 09/01/2012 - 410,000.00 416,191,00 3.500 3.270000 101.510000 355,087.50 765,087.50 765,087.50 765,087.50 09/01/2013 425,000.00 442,021.25 4.000 3.450000 104.005000 340,737.50 765,737.50 765,737.50 765,737.50 09/01/2014 • 445,000.00 460,241 25 4.000 3.570000 103.425000 323,737.50 768,737.50 768,737.50 768,737.50 09/01/2015 • 460,000.00 473,082.40 4.000 3.670000 102.844000 305,937.50 765,937.50 765,937.50 7,400,937.50 09/01/2016 - 480,000.00 • 532,392.00 5.000 3.730000 110.915000 287 537 50 767 537 50 767,537.50 - 09/01/2017 - 505,000.00 • 556,898.85 5.000 3.800000 110.277000 263,537.50 768,537.50 768,537.50 09/01/2018 • 530,000.00 ' 582,067.20 5.000 3.850000 109.824000 238,287.50 768,287.50 768,287.50 09/01/2019 • 555,000.00 ' 552,574.65 4.000 4.040000 99.563000 211,787.50 766,787.50 766,787.50 09/01/2020 4. 575,000.00 • 568,450.75 4.000 4.100000 98.861000 189,587.50 764,587.50 764,587.50 09/01/2021 - 600,000.00 ' 595,728.00 4.100 4.160000 99.288000 166,587.50 766,587.50 766,587.50 - 09/01/2022 - 625,000.00 • 615,787.50 4.100 4.220000 98.526000 141,987.50 766,987.50 766,987.50 • 09/01/2023 - 650,000.00 • 638,033.50 4.125 4.270000 98.159000 116,362.50 766,362.50 766,362.50 - 09/01/2024 675,000.00 • 664,395.75 4.200 4.320000 98,429000 89,550.00 764,550.00 764,550.00 09/01/2025 705,000.00 • 693,621 30 4.250 4.370000 98.386000 61,200.00 766,200.00 766,200.00 09/01/2026 - 735,000.00 * 717,778.95 4.250 4.420000 97.657000 31,237,50 766,237.50 766,237.50 Total 11,005,000.00 11,160,447.45 5,735,460.00 16,740,460.00 16,740,460.00 14,942,797.50 Ace Int • - -36,112.50 -36,112.50 • ;rand Totals - 11,005,000.00 11,160,447.45 5,699,347.50 16,704,347.50 16,740,460.00 14,942,797.50 * - Bonds callable ... 09/01/2015 © 100.000 TIC (Incl. all expenses) .... 3.99619913% Average Coupon 4.16438040% Net Eff. Int. Rate (Texas Vemon's) = 4.051514% (with Adjstmnt of $0.00). TIC (Arbitrage TIC) 3.97707067% Average Life (yrs) ... 12.51 IRS Form 8038-G NIC = 4.019710% (with Adjstmnt of $0.00). Bond Years 137,726.61 WAM (yrs) 12.357739 NIC = 4.051514% (with Adjstmnt of $0.00). PEARLAND_EDC: NEW2005ALL Prepared by: RBC Daln Rauscher - Houston, Texas 0211412005 @ 14:42 v7.12 EXHIBIT C ESCROW AGREEMENT See Tab 8 HOU:2349859.8 EXHIBIT D PAYING AGENT/REGISTRAR AGREEMENT See Tab 9 HOU:2349859.8 EXHIBIT E BOND PURCHASE AGREEMENT See Tab 7 HOU:2349859.8 EXHIBIT F PRELIMINARY OFFICIAL STATEMENT See Tab 10 HOU:2349859.8 EXHIBIT G OFFICIAL STATEMENT See Tab 11 HOU:2349859.8 EXHIBIT H BOND INSURANCE/SURETY BOND PROVISIONS For so long as the Bond Insurance Policy and/or the Reserve Fund Surety Bond remain in effect, as applicable, the provisions of this Exhibit H shall control, anything in the Resolution to the contrary notwithstanding. A. Consent Generally. Any provision of this Resolution expressly recognizing or granting rights in or to the Bond Insurer may not be amended in any manner which affects the rights of the Bond Insurer hereunder without the prior written consent of the Bond Insurer. The Bond Insurer reserves the right to charge the Corporation a fee for any consent or amendment to the Resolution while the Bond Insurance Policy is outstanding. Any provision of this Resolution expressly recognizing or granting rights in or to the Reserve Fund Surety Bond Insurer may not be amended in any manner which affects the rights of the Reserve Fund Surety Bond Insurer hereunder without the prior written consent of the Reserve Fund Surety Bond Insurer. The Reserve Fund Surety Bond Insurer reserves the right to charge the Corporation a fee for any consent or amendment to the Resolution while the Reserve Fund Surety Bond is outstanding. B. Consent in lieu of Owner Consent. Unless otherwise provided in this Exhibit H, the Bond Insurer's consent shall be required in lieu of Owner consent, when required, for the following purposes: (i) execution and delivery of any supplemental Resolution (ii) removal of the Paying Agent/Registrar and selection and appointment of any successor Paying Agent/Registrar; and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Owner consent. Unless otherwise provided in this Exhibit H, the Reserve Fund Surety Bond Insurer's consent shall be required in lieu of Owner consent, when required, for the following purposes: (i) execution and delivery of any supplemental Resolution; (ii) removal of the Paying Agent/Registrar and selection and appointment of any successor Paying Agent/Registrar; and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Owner consent. C. Consent in the Event of Insolvency. Any reorganization or liquidation plan with respect to the Corporation must be acceptable to the Bond Insurer. In the event of any reorganization or liquidation, the Bond Insurer shall have the right to vote on behalf of all Owners who hold Bonds insured by the Bond Insurer, absent a default by the Bond Insurer under the Bond Insurance Policy insuring such Bonds. HOU:2349859.8 D. Consent Upon Default. Anything in this Resolution to the contrary notwithstanding, upon the occurrence and continuance of an event of default as defined herein, the Bond Insurer shall be entitled to control and direct the enforcement of all lights and remedies granted to the Owners or the Trustee for the benefit of the Holders under this Resolution. E. Notices to be sent to the attention of the SURVEILLANCE DEPARTMENT: 1. While the Bond Insurance Policy or the Reserve Fund Surety Bond, as applicable, is in effect, the Corporation shall furnish to the Bond Insurer and/or the Reserve Fund Surety Bond Insurer, upon request, the following: (a) a copy of any financial statement, audit and/or annual report of the Corporation and (b) such additional information it may reasonably request. Upon request, such information shall be delivered at the Corporation's expense to the attention of the Surveillance Department, unless otherwise indicated. 2. A copy of any notice to be given to the registered owners of the Bonds, including, without limitation, notice of any redemption of or defeasance of the Bonds and any certificate rendered pursuant to this Resolution relating to the security of the Bonds F. Notices to be sent to the attention of the GENERAL COUNSEL OFFICE: 1. The Corporation shall notify the Bond Insurer and the Reserve Fund Surety Bond Insurer of any failure of the Corporation to provide relevant notices, certificates, etc. 2. Notwithstanding any other provision of this Resolution the Paying Agent/Registrar shall immediately notify the Bond Insurer and the Reserve Fund Bond Insurer if at any time there are insufficient moneys to make any payments of principal and interest as required and immediately upon the occurrence of any event of default hereunder. G. Other Information: The Corporation will permit the Bond Insurer and the Reserve Fund Bond Insurer to discuss the affairs, finances and accounts of the Corporation or any information the Bond Insurer or the Reserve Fund Surety Bond Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the Corporation. The Paying Agent/Registrar or the Corporation, as appropriate, will permit the Bond Insurer and the Reserve Fund Surety Bond Insurer to have access to and to make copies of all books and records relating to the Bonds at any reasonable time. HOU:2349859.8 The Bond Insurer shall have the right to direct an accounting at the Corporation's expense, and the Corporation's failure to comply with such direction within thirty (30) days after receipt of written notice of the direction from the Bond Insurer shall be deemed a default hereunder; provided, however, that if compliance cannot occur within such period then such period will be extended so long as comphance is begun within such period and diligently pursued, but only if such extension would not materially adversely affect the interests of any registered owner of the Bonds. [The remainder of this page intentionally left blank.] HOU:2349859.8 H. Guaranty Agreement. The terms and provisions of the following form of Guaranty Agreement between the Corporation and the Reserve Fund Surety Bond Insurer are hereby approved. HOU:2349859.8 EXHIBIT t-i GUARANTY AGREEMENT GUARANTY AGREEMENT dated as of , 200_ by and between , a public body corporate organized and existing under the laws of the State of (the "Obligor"); and AMBAC ASSURANCE CORPORATION ("Ambac '), a Wisconsin domiciled stock insurance company. WITNESSETH: WHEREAS, the Obligor has or will issue_(the "[Obligations]"); and WHEREAS Ambac will issue its Surety Bond (the ' Surety Bond"), substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Obligor subject to the terms and limitations of the Surety Bond; and WHEREAS, to induce Ambac to issue the Surety Bond, the Obligor has agreed to pay the premium for such Surety Bond and to reimburse Ambac for all payments made by Ambac under the Surety Bond from Legally Available Funds, all as more fully set forth in this Agreement; and WHEREAS, the Obligor understands that Ambac expressly requires the delivery of this Agreement as part of the consideration for the execution by Ambac of the Surety Bond and NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of' the execution of the Surety Bond, the Obligor and Ambac agree as follows: ARTICLE I DEFINITIONS; SURETY BOND Section 1.01. Definitions. Except as otherwise expressly provided herein or unless the context otherwise requires, the terms which are capitalized herein shall have the meanings specified in Annex B hereto. Section 1.02. Surety Bond. (a) Ambac will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment. (b) The maximum liability of Ambac under the Surety Bond and the coverage and term thereof shall be subject to and limited by the Surety Bond Coverage and the terms and conditions of the Surety Bond. (c) Payments made under the Surety Bond will reduce the Surety Bond Coverage to the extent of that payment, provided that the Surety Bond Coverage shall be automatically reinstated to the extent of the reimbursement of principal by the Obligor of any payment made by Ambac. Ambac shall notify the Paying Agent in writing no later than the fifth (5th) day following the reimbursement by the Obligor that the Surety Bond has been reinstated to the extent of such reimbursement. Section 1.03. Premium. In consideration of Ambac agreeing to issue the Surety Bond hereunder, the Obligor hereby agrees to pay or cause to be paid from Legally Available Funds the premium set forth in the Commitment. Section 1.04. Certain Other Expenses. The Obligor will pay all reasonable fees and disbursements of Ambac's counsel related to any modification of this Agreement or the Surety Bond 15 ARTICLE II REIMBURSEMENT OBLIGATIONS OF OBLIGOR AND SECURITY THEREFORE Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses. (a) The Obligor will reimburse Ambac, from Legally Available Funds within the Reimbursement Period, without demand or notice by Ambac to the Obligor or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement by the Obligor at the Effective Interest Rate. The Obligor agrees that it shall make monthly level principal repayments for each Surety Bond Payment during the Reimbursement Period. Interest on each Surety Bond Payment shall be paid monthly during the Reimbursement Period. To the extent that interest payments due hereunder are not paid on a monthly basis, or are not paid as each principal repayment is made, interest shall accrue on such unpaid amounts at a rate equal to the Effective Interest Rate. (b) The Obligor also agrees to reimburse Ambac, from Legally Available Funds, immediately and unconditionally upon demand for all reasonable expenses incurred by Ambac in connection with the Surety Bond and the enforcement by Ambac of the Obligor's obligations under this Agreement together with interest on all such expenses from and including the date which is 30 days from the date a statement for such expenses is received by the Obligor incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01. Section 2.02. Allocation of Payments. Ambac and the Obligor hereby agree that each repayment of principal received by Ambac from or on behalf of the Obligor as a reimbursement to Ambac as required by Section 2.01(a) hereof shall be applied to reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment. Any interest payable pursuant to Section 2.01(a) hereof shall not be applied to the reinstatement of any portion of the Surety Bond Coverage. Section 2.03. Security for Payments; Instruments of Further Assurance. To the extent, but only to the extent, that the Resolution pledges to the Owners or any paying agent therefor, or grants a security interest or lien in or on any collateral property, revenue or other payments ("Collateral and Revenues") in order to secure the [Obligations] or provide a source of payment for the [Obligations], the Obligor hereby grants to Ambac a security interest in or hen on, as the case may be, and pledges to Ambac all such Collateral and Revenues as security for payment of all amounts due hereunder, which security interest, lien and/or pledge created or granted under this Section 2 03 shall be subordinate only to the interests of the Owners and any paying agent therefor in such Collateral and Revenues. The Obligor agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed acknowledged and delivered any and all financing statements, if applicable and all other further instruments as may be required by law or as shall reasonably be requested by Ambac for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of Ambac under this Section 2.03. Section 2.04. Unconditional Obligation. The obligations of the Obligor hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, irrespective of: (a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Resolution or the [Obligations]; (b) any exchange, release or nonperfection of any security interest in property securing the [Obligations] or this Agreement or any obligations hereunder; (c) any circumstances which might otherwise constitute a defense available to, or discharge of, the Obligor with respect to the [Obligations]; 16 (d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated. ARTICLE III EVENTS OF DEFAULT; REMEDIES • Section 3.01. Events of Default. The following events shall constitute Events of Default hereunder: (a) The Obligor shall fail to pay to Ambac any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; (b) Any material representation or warranty made by the Obligor hereunder or under the Resolution or any statement in the application for the Surety Bond or any report, certificate, financial statement or other instrument provided in connection. with the Commitment, the Surety Bond or herewith shall have been materially false at the time when made; (c) Except as otherwise provided in this Section 3.01, the Obligor shall fail to perform any of its other obligations under this Agreement, provided that such failure continues for more than thirty (30) days after receipt by the Obligor of notice of such failure to perform; (d) The Obligor shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the. filing of any such petition, (iii) apply for or consent to the appointment of a receiver, paying agent, custodian, sequestrator or similar official for the Obligor or for a substantial part of its property, (iv) file an answer admitting the matenal allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or (e) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Obligor, or of a substantial part of its property under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, paying agent, custodian, sequestrator or similar official for the Obligor or for a substantial part of its property; and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for thirty (30) days. Section 3 02. Remedies. If an Event of Default shall occur and be continuing, then Ambac may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or any related instrument and enforce any obligation, agreement or covenant of the Obligor under this Agreement; provided, however, that Ambac may not take any action to direct or require acceleration or other early redemption of the [Obligations] or adversely affect the rights of the Owners. All rights and remedies of Ambac under this Section 3.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies. 17 ARTICLE IV SETTLEMENT Ambac shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against Ambac, the Obligor or any other party on the Surety Bond shall or shall not be paid, compromised resisted, defended, tried or appealed, and Ambac's decision thereon, if made in good faith, shall be final and binding upon the Obligor. An itemized statement of payments made by Ambac, certified by an officer of Ambac or the voucher or vouchers for such payments, shall be pnma facie evidence of the liability of the Obligor, and if the Obligor fails to reimburse Ambac, pursuant to subsection (b) of Section 2.01 hereof, upon the receipt of such statement of payments interest shall be computed on such amount from the date of any payment made by Ambac at the rate set forth in subsection (a) of Section 2.01 hereof. ARTICLE V MISCELLANEOUS Section 5.01. Computations. All computations of premium, interest and fees hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days. Section 5.02. Exercise of Rights. No failure or delay on the part of Ambac to exercise any right, power or privilege under this Agreement and no course of dealing between Ambac and the Obligor or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which Ambac would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand. Section 5.03 Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Obligor and Ambac. The Obligor hereby agrees that upon the written request of the Paying Agent, Ambac may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted .Surety Bond. Ambac agrees to deliver to the Obligor and to the company or companies, if any, rating the [Obligations], a copy of such substituted Surety Bond. Section 5.04. Successors and Assigns, Descriptive Headings. (a) This Agreement shall bind, and the benefits thereof shall inure to, the Obligor and Ambac and their respective successors and assigns, provided, that the Obligor may not transfer or assign any or all of its nghts and obligations hereunder without the prior written consent of Ambac. (b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 5.05. Other Sureties. If Ambac shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Obligor to enforce this Agreement, and "Ambac," wherever used herein, shall be deemed to include such reinsunng surety, as its respective interests may appear. 18 Section 5.06. Signature on Obligation. The Obligor's liability shall not be affected by its failure to sign the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained. Section 5.07. Waiver. The Obligor waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was .executed pursuant to the Obligor's request and in reliance on the Obligor's promise to execute this Agreement. Section 5.08. Notices. Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as either of the parties hereto or the Paying Agent may hereafter specify in writing to the others: If to the Obligor: > If to the Paying Agent: > If to Ambac: Ambac Assurance Corporation One State Street Plaza 17th Floor New York, New York 10004 Attention: General Counsel Section 5.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond. Section 5.10. Governing Law. This Agreement and therights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State. Section 5.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an onginal instrument. Complete counterparts of this Agreement shall be lodged with the Obligor and Ambac. Section 5.12 Severabihty. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. [OBLIGOR] (Seal) Attest: By Title: Title: AMBAC ASSURANCE CORPORATION Attest: By Title: Title: 19 ANNEX A SURETY BOND 20 ANNEX B DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context othervv ise requires, all capitalized terms shall have the meaning as set out below. "Agreement" means this Guaranty Agreement. "Ambac" has the same meaning as set forth in the first paragraph of this Agreement. "Collateral and Revenues" has the same meaning as set forth in Section 2.03 hereof. "Commitment" means the Ambac Commitment for Surety Bond in the form attached hereto as Annex C. "Debt Service Payments" means those payments required to be made by the Obligor which will be applied to payment of principal of and interest on the [Obligations]. `Effective Interest Rate" means the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law; provided, however, that the Effective Interest Rate shall in no event be less than the interest rate on the [Obligations] "Event of Default" shall mean those events of default set forth in Section 3.01 of this Agreement. "Legally Available Funds" means any moneys legally available to the Obligor for the payment of its obligations. "[Obligations]" has the same meaning as set forth in the second paragraph of this Agreement. "Obligor" has the same meaning as set forth in the first paragraph of this Agreement. "Owners" means the registered owner of any [Obligation] as indicated in the books maintained by the applicable paying agent, the Obligor or any designee of the Obligor for such purpose. The term "Owner" shall not include the Obligor or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the [Obligations]. "Paying Agent" means "Reimbursement Period" means, with respect to a particular Surety Bond Payment the period commencing on the date of such Surety Bond Payment and ending 12 months following such Surety Bond Payment. "Reimbursement Rate" means Citibank's prime rate plus two (2) percent per annum, as of the date of such Surety Bond Payment, said "prime rate' being the rate of interest announced from time to time by Citibank, New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of a 360 day year. 21 "Resolution" means "State" means the State of "Surety Bond" means the Surety Bond issued by Ambac substantially in the form attached to this Agreement as Annex A "Surety Bond Coverage" means the amount available at any particular time to be paid to the Paying Agent under the terms of the Surety Bond, which amount shall never exceed $ "Surety Bond Payment" means an amount equal to the Debt Service Payment less (i) that portion of the Debt Service Payment paid by the Obligor, and (ii) other funds legally available to the Paying Agent for payment to the Owners, all as certified by the Paying Agent in a demand for payment rendered pursuant to the terms of the Surety Bond. 22 ANNEX C COMMITMENT 23 BOND PURCHASE AGREEMENT $11,005,000 PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005 February 14, 2005 Pearland Economic Development Corporation 3519 Liberty Drive Pearland, Texas 77581 Attention: Executive Director The undersigned, UBS Financial Services Inc., on behalf of itself, Coastal Securities L.P. and Edward D. Jones & Co., L.P. (collectively, the Underwriters'), offers to enter into the following agreement (this "Agreement ) with the Pearland Economic Development Corporation (the "Issuer") which, upon the Issuer's written acceptance of this offer, will be binding upon the Issuer and upon the Underwriters This offer is made subject to the Issuer's written acceptance hereof on or before 10:30 p.m. Central Standard Time on. February 14, 2005 and, if not so accepted, will be subject to withdrawal by the Underwriters upon notice delivered to the Issuer at any time prior to the acceptance hereof by the Issuer. Capitalized terms not otherwise defined in this Agreement shall have the same meanings set forth in the Resolution (as defined herein) or to the Official Statement (as defined herein). 1. Purchase and Sale of the Bonds. Subject to the terms and conditions and in reliance upon the representations warranties and agreements set forth herein, the Underwriters hereby agree to purchase from the Issuer, and the Issuer hereby agrees to sell and deliver to the Underwriters, all, but not less than all, of the Issuer s $11,005,000 Sales Tax Revenue and Refunding Bonds, Series 2005 (the `Bonds"). Inasmuch as this purchase and sale represents a negotiated transaction the Issuer understands, and hereby confirms, that the Underwriters are not acting as a fiduciary of the Issuer, but rather are acting solely in their capacity as Underwriters for their own account The Underwriters have been duly authorized to execute this Agreement and to act hereunder. The principal amount of the Bonds to be issued, the maturity dates, interest rates per annum, and yields therefor, and the redemption provisions relating thereto are set forth in Schedule I hereto. The Bonds shall be as described in and shall be issued and secured under and pursuant to the provisions of a resolution adopted by the Issuer on February 14, 2005 authorizing the issuance of the Bonds (the "Resolution"). The purchase price (the `Purchase Price") for the Bonds shall be $11,083,412.45 (representing the par amount of the Bonds of $11,005,000 less an underwriters' discount of $77,035, plus a net original issue premium of $155,447.45),.plus accrued interest on the Bonds to the Closing Date (as defined herein). 2. Public Offering. The Underwriters agree to make a bona fide public offering of all of the Bonds at a price not to exceed the public offering price set forth on the inside front cover of the Official Statement and may subsequently change such offering price without any requirement of prior notice. The Underwriters may offer and sell Bonds to certain dealers (including dealers depositing Bonds into ws4A.tmp investment trusts) and others at prices lower than the public offering price stated on the inside front cover of the Official Statement 3. The Official Statement. (a) Attached hereto as Exhibit A is either a draft of the final Official Statement or a copy of the Preliminary Official Statement dated February 2, 2005 (the "Preliminary Official Statement' ), including the cover page and Appendices thereto, of the Issuer relating to the Bonds. The final Official Statement relating to the Bonds and reflecting the maturity, pricing and redemption information provided herein will be dated the date hereof and is hereinafter referred to as the "Official Statement." (b) The Preliminary Official Statement has been prepared for use in connection with the public offering, sale and distribution of the Bonds by the Underwriters The Issuer hereby represents and warrants that the Preliminary Official Statement was deemed final by the Issuer as of its date, except for the omission of such information which is dependent upon the final pricing of the Bonds for completion, all as permitted to be excluded by Section (b)(1) of Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule"). (c) The Issuer hereby authorizes the Official Statement and the information contained therein to be used by the Underwriters in connection with the public offering and the sale of the Bonds. The Issuer consents to the use by the Underwriters prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Bonds The Issuer shall provide, or cause to be provided, to the Underwriters as soon as practicable after the date of the Issuer's acceptance of this Agreement (but in any event, not later than within seven business days after the Issuer's acceptance of this Agreement and in sufficient time to accompany any confirmation that requests payment from any customer), copies of the Official Statement which is complete as of' the date of its delivery to the Underwriters in such quantity as the Underwriters shall request in order for the Underwriters to comply with Section (b)(4) of the Rule and the rules of the Municipal Securities Rulemaking Board. (d) If, after the date of this Agreement to and including the date the Underwriters are no longer required to provide an Official Statement to potential customers who request the same pursuant to the Rule (the earlier of (i) 90 days from the "end of the underwriting period" (as defined in the Rule) and (ii) the time when the Official Statement is available to any person from a nationally recognized municipal securities information repository, but in no case less than 25 days after the "end of the underwriting period" for the Bonds), the Issuer becomes aware of any fact or event which might or would cause the Official Statement as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or if it is necessary to amend or supplement the Official Statement to comply with law, the Issuer will notify the Underwriters (and for the purposes of this clause provide the Underwriters with such information as it may from time to time request), and if in the opinion of the Underwriters, such fact or event requires preparation and publication of a supplement or amendment to the Official Statement, the Issuer will forthwith prepare and furnish, at the Issuer's own expense (in a form and manner approved by the Underwriters), a reasonable number of copies of either amendments or supplements to the Official Statement so that the statements in the Official Statement as so amended and supplemented will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or so that the Official Statement will comply with law. If such notification shall be subsequent to the Closing, the Issuer shall furnish such legal opinions, certificates, instruments and other documents as the Underwriters may deem necessary to evidence the truth and accuracy of such supplement or amendment to the Official Statement. ws4A.tmp -2- (e) The Underwriters hereby agree to timely file the Official Statement with a nationally recognized municipal securities information repository Unless otherwise notified in writing by the Underwriters, the Issuer can assume that the "end of the underwriting period" for purposes of the Rule is the Closing Date. 4. Representations, Warranties, and Covenants of the Issuer. The Issuerhereby represents and warrants to and covenants with the Underwriters that: (a) The Issuer is a non-profit corporation created by the City of Pearland, Texas (the "City") and organized and existing as such under the Constitution and laws of the State of Texas (the "State' ). The Issuer is authorized by the provisions of Section 4B of Article 5190 6, Texas Revised Civil Statutes, as amended, and Chapter 1207, Texas Government Code, as amended (collectively, the "Act"), among other things, (i) to sell, issue and deliver the Bonds to the Underwriters as provided herein, (ii) to enter into, execute and deliver this Agreement and the Resolution and all documents required hereunder and thereunder to be executed and delivered by the Issuer (this Agreement, the Resolution, the Escrow Agreement, the Paying Agent/Registrar Agreement, and the Construction and Maintenance Agreement are hereinafter referred to as the ` Issuer Documents' ), and (iii) to carry out and consummate the transactions contemplated by the Issuer Documents and the Official Statement. The Issuer has complied, and will at the Closing be in compliance in all respects, with the terms of the Act and the Issuer Documents as they pertain to such transactions; (b) By all necessary official action of the Issuer prior to or concurrently with the acceptance hereof, the Issuer has duly authorized all necessary action to be taken by it for (i) the adoption of the Resolution and the issuance and sale of the Bonds, (ii) the approval, execution and delivery of, and the performance by the Issuer of the obligations on its part contained in, the Bonds and the Issuer Documents• and (iii) the consummation by it of all other transactions contemplated by the Official Statement and the Issuer Documents and any and all such other agreements and documents as may be required to be executed, delivered and/or received by the Issuer in order to carry out, give effect to, and consummate the transactions contemplated herein and in the Official Statement; (c) The Issuer Documents constitute legal, valid and binding obligations of the Issuer, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; the Bonds, when issued, delivered and paid for in accordance with the Resolution and this Agreement, will constitute legal, valid and binding obligations of the Issuer entitled to the benefits of the Resolution and enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws and principles of equity relating to or affecting the enforcement of creditors' rights; upon the issuance, authentication and delivery of the Bonds as aforesaid, the Resolution will provide, for the benefit of the holders from time to time, of the Bonds, the legally valid and binding pledge of and lien it purports to create as set forth in the Resolution; (d) The Issuer is not in breach of or default in any material respect under any applicable constitutional provision, law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note resolution, agreement or other instrument to which the Issuer is a party or to which the Issuer is or any of its property or assets are otherwise subject, and no event has occurred and is continuing which constitutes or with the passage of time or the giving of notice, or both, would constitute a material default or event of default by the Issuer under any of the foregoing; and the execution and delivery of the Bonds and the Issuer Documents, and the adoption of the Resolution and compliance with the provisions on the Issuer's part contained therein will not conflict with or constitute a breach of or default under any constitutional provision, administrative regulation, judgment, decree loan agreement, indenture bond, note, resolution, agreement ws4A.tmp -3- or other instrument to which the Issuer is a party or to which the Issuer is or to which any of its property or assets are otherwise subject nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer to be pledged to secure the Bonds or under the terms of any such law, regulation or instrument, except as provided by the Bonds and the Resolution; (e) Except for the approval of the Bonds by the Attorney General of the State of Texas, the registration thereof by the Comptroller of Public Accounts of the State of Texas and the approval of the Resolution by the City, all authorizations approvals, licenses, permits, consents and orders of' any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization of, which would constitute a condition precedent to, or the absence of which would materially adversely affect the due performance by the Issuer of its obligations under the Issuer Documents, have been duly obtained except for such approvals, consents and orders as may be required under the Blue Sky or securities laws of any jurisdiction in connection with the offering and sale of the Bonds; (f) The Bonds and the Resolution conform to the descriptions thereof contained in the Official Statement under the captions "DESCRIPTION OF THE BONDS" and "SECURITY FOR THE BONDS," respectively, and the proceeds of the sale of the Bonds will be applied generally as described to the Official Statement under the caption "PROJECT AND PLAN OF FINANCE —Sources and Uses of Funds"; (g) There is no litigation, action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or, to the best knowledge of the Issuer after due inquiry, threatened against the Issuer, affecting the existence of the Issuer or the titles of its officers to their respective offices, or affecting or seeking to prohibit restrain or enjoin the sale, issuance or delivery of the Bonds, or the collection of taxes pledged to the payment of principal of and interest on the Bonds, or the construction or operation of any project financed with the proceeds of the Bonds pursuant to the Resolution or in any way contesting or affecting the validity or enforceability of the Bonds, the Issuer Documents, or contesting the exclusion from gross income of interest on the Bonds for federal income tax purposes, or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto, or contesting the powers of the Issuer or any authority for the issuance of the Bonds, the adoption of the Resolution or the execution and delivery of the Issuer Documents, nor, to the best knowledge of the Issuer, is there any basis therefor, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the Bonds or the Issuer Documents; (h) As of the date thereof, the Preliminary Official Statement did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (i) At the time of the Issuer's acceptance hereof and (unless the Official Statement is amended or supplemented pursuant to Section 3(d) of this Agreement) at all times subsequent thereto during the period up to and including the Closing Date the Official Statement does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (j) If the Official Statement is supplemented or amended pursuant to Section 3(d) of this Agreement, at the time of each supplement or amendment thereto and (unless subsequently again ws4A.tmp '4" supplemented or amended pursuant to such paragraph) at all times subsequent thereto during the period up to and including the Closing Date, the Official Statement as so supplemented or amended will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) The Issuer will apply or cause to be applied the proceeds from the sale of the Bonds as provided in and subject to all of the terms and provisions of the Resolution and not take or omit to take any action which action or omission will adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Bonds; (I) The Issuer will furnish such information and execute such instruments and take such action in cooperation with the Underwriters as the Underwriters may reasonably request to (i) qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions in the United States as the Underwriters may designate; (ii) determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions; and (iii) continue such qualifications in effect so long as required for the distribution of the Bonds (provided however, that the Issuer will not be required to qualify as a foreign corporation or to file any general or special consents to service of process under the laws of any jurisdiction) and will advise the Underwriters immediately of receipt by the Issuer of' any notification with respect to the suspension of the qualification of the Bonds for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose; (m) The financial statements of, and other financial information regarding, the Issuer included in the Official Statement fairly present the financial position and results of the Issuer as of the dates and for the periods therein set forth. Prior to the Closing, there will be no adverse change of a material nature in such financial position, results of operations or condition, financial or otherwise, of the Issuer. The Issuer is not a party to any litigation or other proceeding pending or, to its knowledge, threatened which, if decided adversely to the Issuer, would have a materially adverse effect on the financial condition of the Issuer; (n) Prior to the Closing, the Issuer will not offer or issue any bonds, notes or other obligations for borrowed money or incur any material liabilities direct or contingent, payable from or secured by any of the revenues or assets which will secure the Bonds without the prior approval of the Underwriters; and (o) Any certificate, signed by any official of the Issuer authorized to do so in connection with the transactions contemplated by this Agreement, shall be deemed a representation and warranty by the Issuer to the Underwriters as to the statements made therein. 5. Closing. (a) At 10:00 a.m. Central Standard Time, on March 15, 2005, or at such other time and date as shall have been mutually agreed upon by the Issuer and the Underwriters (the "Closing Date"), the Issuer will, subject to the terms and conditions hereof, deliver the Bonds to the Underwriters duly executed and authenticated, together with the other documents hereinafter mentioned, and the Underwriters will subject to the terms and conditions hereof, accept such delivery and pay the Purchase Price of the Bonds as set forth in Section 1 of this Agreement by wire transfer payable in immediately available funds to the order of the Issuer (such transactions on the Closing Date between the Issuer and the Underwriters are referred to herein as the "Closing"). Payment for the Bonds as aforesaid shall be made at the offices of Bond Counsel, or such other place as shall have been mutually agreed upon by the Issuer and the Underwriters. ws4A.tmp _5_ (b) Delivery of the Bonds in definitive form shall be made to The Depository Trust Company ("DTC"), or to the Paying Agent/Registrar pursuant to DTC's FAST System. The Bonds shall be prepared and delivered as fully registered bonds in authorized denominations, shall be registered in the name of Cede & Co. (all as provided in the Resolution) and shall be made available to the Underwriters at least one business day before the Closing Date for purpose of inspection 6. Closing Conditions. The Underwriters have entered into this Agreement in reliance upon the representations, warranties and agreements of the Issuer contained herein, and in reliance upon the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing and upon the performance by the Issuer of its obligations hereunder, both as of the date hereof and as of the Closing Date. Accordingly, the Underwriters' obligations under this Agreement to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon the performance by the Issuer of its obligations to be performed hereunder and under such documents and instruments at or prior to the Closing, and shall also be subject to the following additional conditions including the delivery by the Issuer of such documents as are enumerated herein, in form and substance reasonably satisfactory to the Underwriters: (a) The representations and warranties of the Issuer contained herein shall be true, complete and correct on the date hereof and on and as of the Closing Date, as if made on the Closing Date; (b) The Issuer shall have performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to the Closing; (c) At the time of the Closing, (i) the Issuer Documents and the Bonds shall be in full force and effect in the form heretofore approved by the Underwriters and shall not have been amended, modified or supplemented, and the Official Statement shall not have been supplemented or amended, except in any such case as may have been agreed to by the Underwriters, and (ii) all actions of the Issuer required to be taken by the Issuer shall be performed in order for Bond Counsel and Counsel to the Underwriters to deliver their respective opinions referred to hereafter; (d) At the time of the Closing, all official action of the Issuer and the City relating to the Bonds and the Issuer Documents shall be in full force and effect and shall not have been amended, modified or supplemented; (e) At or prior to the Closing the Issuer Documents shall have been duly executed and delivered by the Issuer, and the Issuer shall have duly executed and delivered and the Paying Agent/Registrar shall have duly authenticated the Bonds; (f) At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the project to be financed with the proceeds of the Bonds, in the condition, financial or otherwise, or in the revenues or operations of the Issuer, from that set forth in the Official Statement that in the judgment of the Underwriters is material and adverse and that makes it, in the judgment of the Underwriters, impracticable to market the Bonds on the terms and in the manner contemplated in the Official Statement; (g) The Issuer shall not have failed to pay principal or interest when due on any of its outstanding obligations for borrowed money; ws4A.tmp -6- (h) All steps to be taken and all instruments and other documents to be executed, and all other legal _matters in connection with the transactions contemplated by this Agreement, shall be in legal form and effect reasonably satisfactory to the Underwriters; (i) At or prior to the Closing, the Underwriters shall have received copies of each of the following documents: (1) The Official Statement, and each supplement or amendment thereto, if any; (2) A certified copy of the Resolution with such supplements or amendments as may have been agreed to by the Underwriters; (3) The approving opinion of Bond substantially the form attached to the Official Statement; (4) a supplemental opinion of Bond substantially to the effect that (i) the Resolution has been duly adopted and is in full force and effect; Counsel with respect to the Bonds, in Counsel addressed to the Underwriters, (ii) the Bonds are exempted securities under the Securities Act of 1933, as amended (the "1933 Act') and the Trust Indenture Act of 1939, as amended (the `Trust Indenture Act") and it is not necessary, in connection with the offering and sale of the Bonds, to register the Bonds under the 1933 Act or to qualify the Resolution under the Trust Indenture Act and (iii) the information appearing in the Official Statement under the captions "PROJECT AND PLAN OF FINANCE" (except for the subcaptions "Purpose," 'The Project" and `Sources and Uses of' Funds") "DESCRIPTION OF THE BONDS" (except for the subcaption "Book -Entry -Only System"), ` SECURITY FOR THE BONDS ' "TAX EXEMPTION " TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS," "LEGAL INVESTEMENTS IN TEXAS," `LEGAL MATTERS - General' (insofar as such information relates to the opinions of Bond Counsel), and "CONTINUING DISCLOSURE OF INFORMATION" (except the subcaption "Compliance With Prior Undertakings '), and ` APPENDIX A —EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION' fairly summarizes the procedures and documents referred to therein and is correct as to matters of law. (5) An opinion, dated the Closing Date and addressed to the Underwriters, of counsel for the Underwriters, to the effect that: (i) the Bonds are exempt securities under the. 1933 Act and the Trust Indenture Act and it is not necessary, in connection with the offering and sale of the Bonds to register the Bonds under the 1933 Act and the Resolution need not be qualified under the Trust Indenture Act; and (ii) based upon their participation in the preparation of the Official Statement as counsel for the Underwriters and their participation at conferences at which the Official Statement was discussed, but without having undertaken to determine ws4A.tmp independently the accuracy, completeness or fairness of the statements contained in the Official Statement, such counsel has no reason to believe that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (except for any financial, forecast, technical and statistical statements and data included in the Official Statement and in the Appendices thereto, and the information regarding DTC and its book -entry system as to which no view need be expressed); (6) A certificate of the Issuer, dated the Closing Date, to the effect that (i) the representations and warranties of the Issuer contained herein are true and correct in all material respects on and as of the Closing Date as if made on the Closing Date; (ii) no litigation or proceeding or tax challenge against it is pending or, to its knowledge, threatened in any court or administrative body nor is there a basis for litigation which would (a) contest the right of the members or officials of the Issuer to hold and exercise their respective positions, (b) contest the due organization and valid existence of the Issuer, (c) contest the validity, due authorization and execution of the Bonds or the Issuer Documents or (d) attempt to limit, enjoin or otherwise restrict or prevent the Issuer from functioning and collecting revenues and other income or the levy or collection of the taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof; (iii) the Resolution of the Issuer authorizing the execution, delivery and/or performance of the Official Statement, the Bonds and Issuer Documents has been duly adopted by the Issuer, is in full force and effect and has not been modified, amended or repealed, and (iv) to the best of its knowledge, no event affecting the Issuer has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein, in light of the circumstances under which they were made, not misleading in any material respect as of the time of Closing, and the information contained in the Official Statement is correct in all material respects and, as of the date of the Official Statement did not and as of the Closing Date does not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; (7) A certificate of the Issuer in form and substance satisfactory to Bond Counsel and counsel to the Underwriters (a) setting forth the facts estimates and circumstances in existence on the Closing Date which establish that it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended (the ' Code"), and any applicable regulations (whether final, temporary or proposed) issued pursuant to the Code and (b) certifying that to the best of the knowledge and belief of the Issuer there are no other facts, estimates or circumstances that would materially change the conclusions, representations and expectations contained in such Bonds; (8) Any other certificates and opinions required by the Resolution for the issuance thereunder of the Bonds; (9) Evidence satisfactory to the Underwriters that the Bonds have been rated "AAA" by Standard & Poor's and `Aaa" by Moody's Investors Service, Inc. and that such ratings are in effect as of the Closing Date; (10) A copy of a verification report prepared by the independent certified public accountants Grant Thornton LLP, addressed to the Issuer, Bond Counsel and the ws4A.tmp "8- Underwriters, verifying the arithmetical computations of the adequacy of the maturing principal and interest on the escrowed securities to be held in the Escrow Fund under the Escrow Agreement to pay, when due, the principal of and interest on the Refunded Bonds and the computation of the yield with respect to such Refunded Bonds; (11) Executed copies of the following: (i) the Escrow Agreement, executed by the Issuer and the Escrow Agent; (ii) the Paying Agent/Registrar Agreement, executed by the Paying Agent/Registrar and the Issuer; and (iii) the Construction and Maintenance Agreement, executed by the Issuer and the City; (12) A copy of the municipal bond insurance policy insuring payment of principal of and interest on the Bonds, issued by Ambac Assurance Corporation (the "Bond Insurer' ), together with an opinion of counsel to the Bond Insurer, in form and substance satisfactory to the Underwriters; (13) The approving opinion of the Attorney General of the State of Texas with respect to the Bonds; (14) The registration certificate of the Comptroller of the State of Texas with respect to the Bonds; (15) A certified copy of the resolution of the City approving the issuance of the Bonds and related matters, which resolution shall include an agreement by the City to provide certain periodic information and notices of material events in accordance with the Rule as described in the Official Statement under "CONTINUING DISCLOSURE OF INFORMATION ' (16) A copy of the reserve fund surety bond issued with respect to the Bonds by Ambac Assurance Corporation; and (17) Such additional legal opinions, certificates, instruments and other documents as the Underwriters or counsel to the Underwriters may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the Issuer's representations and warranties contained herein and of the statements and information contained to the Official Statement and the due performance or satisfaction by the Issuer on or prior to the Closing Date of all the respective agreements then to be performed and conditions then to be satisfied by the Issuer All of the opinions letters, certificates, instruments and other documents mentioned above or elsewhere to this Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are in form and substance satisfactory to the Underwriters. If the Issuer shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds contained in this Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of and to pay for the Bonds shall be terminated for any reason permitted by this Agreement, this Agreement shall terminate and neither the Underwriters nor the Issuer shall be under any further obligation hereunder except that the respective obligations of the Issuer and the Underwriters set forth in Section 8 hereof shall continue in full force and effect. 7. Termination The Underwriters shall have the right to cancel its obligation to purchase the Bonds if, between the date of this Agreement and the Closing, the market price or marketability of the ws4A.tmp -9- Bonds shall be materially adversely affected, in the reasonable judgment of the Underwriters, by the occurrence of any of the following: (a) legislation shall be enacted by or introduced in the Congress of the United States or recommended to the Congress for passage by the President of the United States, or the Treasury Department of the United States or the Internal Revenue Service or any member of the Congress or the legislature of the State or favorably reported for passage to either House of the Congress by any committee of such House to which such legislation has been referred for consideration, a decision by a court of the United States or of the State or the United States Tax Court shall be rendered, or an order, ruling, regulation (final temporary or proposed), press release, statement or other form of notice by or on behalf of the Treasury Department of the United States, the Internal Revenue Service or other governmental agency shall be made or proposed, the effect of any or all of which would be to impose, directly or indirectly, federal income taxation upon revenues or other income of the general character to be derived by the Issuer pursuant to the Resolution or upon interest received on obligations of the general character of the Bonds or of the interest on the Bonds as described in the Official Statement, or other action or events shall have transpired which may have the purpose or effect directly or indirectly of changing the federal income tax consequences of any of the transactions contemplated herein; (b) legislation introduced in or enacted (or ordinance passed) by the Congress or an order, decree, or injunction issued by any court of competent jurisdiction or an order, ruling, regulation (final, temporary, or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the 1933 Act, or that the Resolution is not exempt from qualification under or other requirements of the Trust Indenture Act, or that the issuance, offering or sale of obligations of the general character of the Bonds including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities law as amended and then in effect; (c) any state blue sky or securities commission or other governmental agency or body shall have withheld registration, exemption or clearance of the offering of the Bonds as described herein, or issued a stop order or similar ruling relating thereto; (d) a general suspension of trading in securities on the New York Stock Exchange or the American Stock Exchange the establishment of minimum prices on either such exchange, the establishment of material restrictions (not in force as of the date hereof) upon trading securities generally by any governmental authority or any national securities exchange, a general banking moratorium declared by federal, State of New York, or State officials authorized to do so; (e) the New York Stock Exchange or other national securities exchange or any governmental authority, shall impose, as to the Bonds or as to obligations of the general character of the Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, Underwriters; (f) any amendment to the federal or State Constitution or action by any federal or State court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the Issuer, its property, income securities (or interest thereon), or the validity or enforceability of, the levy of taxes to pay principal of and interest on the Bonds; any event occurring, or information becoming known which, in the judgment of the Underwriters makes untrue in any material respect any statement or information contained in the (g) Official Statement, or has the effect that the Official Statement contains any untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (h) there shall have occurred since the date of this Agreement any materially adverse change in the affairs or financial condition of the Issuer; (i) the United States shall have become engaged in hostilities which have resulted in a declaration of war or a national emergency or there shall have occurred any other outbreak or escalation of hostilities or a national or international calamity or crisis, financial or otherwise the effect of such outbreak, calamity or crisis on the financial markets of the United States being such as in the reasonable opinion of the Underwriters, would materially and adversely affect the ability of the Underwriters to market the Bonds; (j) any fact or event shall exist or have existed that, in the Underwriters' judgment, requires or has required an amendment of or supplement to the Official Statement; (k) there shall have occurred any downgrading, or any notice shall have been given of (A) any intended or potential downgrading or (B) any review or possible change that does not indicate a possible upgrade, in the rating accorded any of the Issuer's obligations (including the rating to be accorded the Bonds); and (1) the purchase of and payment for the Bonds by the Underwriters, or the resale of the Bonds by the Underwriters, on the terms and conditions herein provided shall be prohibited by any applicable law, governmental authority, board, agency or commission, unless such prohibition is due to the action or inaction of the Underwriters 8. Expenses (a) The Underwriters shall be under no obligation to pay, and the Issuer shall pay, any expenses incident to the performance of the Issuer s obligations hereunder, including, but not limited to (i) the cost of preparation and printing of the Bonds and the Issuer Documents; (ii) the cost of preparation, printing and distribution of the Preliminary Official Statement and the Official Statement; (iii) the fees and expenses of Bond Counsel; (iv) the fees and expenses of the Financial Advisor to the Issuer, the verification agent, the Escrow Agent, and the Paying Agent/Registrar; (v) the fees and disbursements of any other engineers, accountants and other experts, consultants or advisers retained by the Issuer; (vi) premiums for any bond insurance and any reserve fund surety bond; (vii) fees for bond ratings, and any travel or other expenses incurred by the Issuer incident thereto• and (viii) all other miscellaneous closing costs not paid by the Underwriters as provided in subparagraph (b) below. (b) The Underwriters shall pay (i) the cost of preparation and printing of this Agreement, the Agreement Among Underwriters, the Blue Sky Survey and Legal Investment Memorandum if any; (ii) all advertising expenses in connection with the public offering of the Bonds and (iii) all other expenses incurred by them in connection with the public offering of the Bonds including the fees and disbursements of Counsel to the Underwriters. 9. Notices. Any notice or other communication to be given to the Issuer under this Agreement may be given by delivering the same in writing at the Pearland Economic Development Corporation, 3519 Liberty Drive, Pearland Texas 77581, Attention: Executive Director; and any notice. or other communication to be given to the Underwriters under this Agreement may be given by delivering the same in writing to UBS Financial Services Inc.; 1111 Bagby, Suite 5100; Houston, Texas; 77002; Attention: Craig Brast. • ws4A.tmp ' 11— 10. Parties in Interest. This Agreement as heretofore specified shall constitute the entire agreement between us and is made solely for the benefit of the Issuer and the Underwriters (including successors or assigns of the Underwriters) and no other person shall acquire or have any right hereunder or by virtue hereof. This Agreement may not be assigned by the Issuer. All of the Issuer's representations warranties and agreements contained in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigations made by or on behalf of any of the Underwriters; (ii) delivery of and payment for the Bonds pursuant to this Agreement; and (iii) any termination of this Agreement. 11. Effectiveness. This Agreement shall become effective upon the acceptance hereof by the Issuer and shall be valid and enforceable at the time of such acceptance. 12 Choice of Law. This Agreement shall be governed by and construed in accordance with the law of the State of Texas. 13. Severability. If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions because it conflicts with any provisions of any Constitution, statute, rule of public policy, or any other reason, such circumstances shall not have the effect of rendering the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatever. 14. Business Day. For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange is open for trading. 15. Section Headings. Section headings have been inserted in this Agreement as a matter of convenience of reference only, and it is agreed that such section headings are not a part of this Agreement and will not be used in the interpretation of any provisions of this Agreement. 16. Counterparts. This Agreement may be executed in several counterparts each of which shall be regarded as an original (with the same effect as if the signatures thereto and hereto were upon the same document) and all of which shall constitute one and the same document. ws4A,tmp -12- If you agree with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriters. This Agreement shall become a binding agreement between you and the Underwriters when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Very truly yours, UBS FINANCIAL SERVICES INC. COASTAL SECURITIES L P EDWARD D JONES & CO., L P. By: UBS FINANCIAL SERVICES INC. By'f/t- . 4 �f "/ PtName: (y. ic,�yj ��%G/�i� ��t� � 1 Lir \‘‘-. Title: A li2, \-< 0. Li \ 0 ACCEPTED AND AGREED to this l4th day of February, 2005. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By Name. Title: Signature Page to Bond Purchase Agreement If you agree with the foregoing, please sign the enclosed counterpart of this Agreement and return it to the Underwriters. This Agreement shall become a binding agreement between you and the Underwriters when at least the counterpart of this letter shall have been signed by or on behalf of each of the parties hereto. Very truly yours, UBS FINANCIAL SERVICES INC. COASTAL SECURITIES L.P. EDWARD D. JONES & CO., L.P. By: UBS FINANCIAL SERVICES INC. By: Name: Title: ACCEPTED AND AGREED to this 14th day of February, 2005. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By Name: Randall Ferguson Title: Chairman Signature Page to Bond Purchase Agreement Schedule I $11,005,000 Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 Maturity and Pricing Information Maturity Date (September 1) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Principal Amount $415,000 345,000 350,000 360,000 375,000 385,000 400,000 410,000 425,000 445,000 460,000 480,000 505,000 530,000 555,000 575,000 600,000 625,000 650,000 675,000 705,000 735,000 Interest Rate 3.000% 2.500 2.750 3.000 3.000 3.250 3.250 3.500 4.000 4.000 4.000 5.000 5.000 5.000 4.000 4.000 4.100 4.100 4.125 4.200 4.250 4.250 Yield 2.000% 2.300 2.450 2.650 2.800 2.950 3.130 3.270 3.450 3.570 3.670 3.730 3.800 3.850 4.040 4.100 4.160 4.220 4.270 4.320 4.370 4.420 Redemption Provisions The Bonds having stated maturities on or after September 1, 2016, are subject to redemption in whole or in part at the option of the Corporation on September 1, 2015 or any date thereafter, at a price of par plus accrued and unpaid interest to the date fixed for redemption. EXHIBIT A Preliminary Official Statement ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Escrow Agreement"), dated for convenience as of February 14, 2005, but effective on the Escrow Funding Date described herein, is made and entered into by and between the Pearland Economic Development Corporation, a nonprofit corporation duly created, existing and operating under the laws of the State of Texas (the "Corporation"), and JPMorgan Chase Bank, Dallas, Texas, as escrow agent (together with any successor or assign in such capacity, the "Escrow Agent"). WHEREAS, the Corporation has heretofore issued certain bonds and other obligations (hereinafter defined as the ' Refunded Bonds") that it desires to refund in advance of their maturities; WHEREAS, Chapter 1207, Texas Government Code (the "Act"), authorizes and empowers the Corporation to sell bonds in an amount sufficient, together with other available funds or resources, to provide foi the payment of obligations which are to be discharged, deposit the proceeds of such refunding bonds with a paying agent and enter into an escrow or similar agreement with such paying agent for the safekeeping, investment, reinvestment,. administration, and disposition of such deposit of proceeds, upon such terms and conditions as the parties may agree, provided such deposit may be invested only in direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, and which may be in book entry form and which shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment of such discharged bonds; WHEREAS, the Board of Directors of the Corporation has adopted a resolution (the "Refunding Bond Resolution") authorizing the issuance, sale and delivery of the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005 (the "Refunding Bonds"), for the purpose, among other things, of providing the funds necessary to refund the Refunded Bonds; WHEREAS, to provide for the payment of the Refunded Bonds, the Corporation has provided for the transfer to the Escrow Agent pursuant to this Escrow Agreement of proceeds of the Refunding Bonds together with any other legally available funds, if any; and WHEREAS, the Board of Directors of the Corporation has further determined to effectuate the advance refunding of the Refunded Bonds pursuant to this Escrow Agreement, under which provision is made for the safekeeping, investment, reinvestment, administration and disposition of proceeds of the Refunding Bonds so as to provide firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, and in order to secure the full and timely payment of the principal of and interest on the Refunded Bonds, the Corporation and the Escrow Agent contract and agree as follows: ARTICLE I. DEFINITIONS AND INTERPRETATIONS Section 1.1. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, the following terms shall have the respective meanings specified below for all purposes of this Escrow Agreement: "Corporation' shall mean the Pearland Economic Development Corporation and, where appropriate, its Board of Directors. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder and under the Internal Revenue Code of 1954. "Escrow Agent" shall mean JPMorgan Chase Bank, Dallas, Texas, in its capacity as escrow agent hereunder, and any successor or assign in such capacity. "Escrow Agreement" shall mean this escrow agreement. "Escrow Deposit" shall mean the initial deposit into the Escrow Fund, as more particularly described in Section 2.1. "Escrow Fund" shall mean the fund created in Section 3.1 of this Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of this Escrow Agreement. "Escrow Funding Date" shall mean March 15, 2005. "Escrowed Securities" shall mean the Limited Yield Securities and the Open Market Securities. "Limited Yield Securities" shall mean the noncallable United States Treasury Obligations -State and Local Govermnent Series to be initially purchased with proceeds of the Refunding Bonds as more fully described in the Report attached hereto, together with all reinvestments of the proceeds thereof as may be directed in Section 4.2 or permitted in Section 4.3(b). "Open Market Securities" shall mean the United States Treasury securities to be purchased in the open market with cash and the proceeds of the Refunding Bonds, as more fully described in the Report attached hereto, together with all reinvestments of the proceeds thereof as may be directed in Section 4.2 or permitted in Section 4.3(b), or cash or obligations substituted therefor pursuant to Section 4.3(a). "Paying Agent for the Refunded Bonds" shall mean JPMorgan Chase Bank, as successor to as successor to Texas Commerce Bank, National Association. "Refunded Bond Resolution" shall mean the Corporation's resolution authorizing the issuance, sale and delivery of the Refunded Bonds. 2 HOU:2407345.1 "Refunded Bonds" shall mean the Corporation's outstanding Sales Tax Revenue Bonds, Series 1997. "Refunding Bond Resolution' shall mean the Corporation's resolution adopted February 14, 2005, authorizing the issuance, sale and delivery of the Refunding Bonds. "Refunding Bonds' shall mean the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, dated February 15, 2005. ' Report" shall mean the verification report prepared by Grant Thornton LLP, independent certified public accountants, relating to the advance refunding of the Refunded Bonds, a copy of which is attached hereto as Exhibit A, and any subsequent verification report required by Section 4.3. Section 1.2 Interpretations. The titles and headings of the articles and sections of this Escrow Agreement 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 the terms hereof. This Escrow Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Bonds in accordance with applicable law. ARTICLE II. DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2.1. Deposits to Escrow Fund. On the Escrow Funding Date, the Corporation shall deposit, or cause to be deposited, into the Escrow Fund the Escrow Deposit, consisting of the following: (a) As the beginning cash balance for the Escrow Fund as shown in the Report, $1 60 from proceeds of the Refunding Bonds plus $0.00 from the interest and sinking funds for the Refunded Bonds and (b) the initial Limited Yield Securities, with a purchase price of $4,349,474.00. ARTICLE III. CREATION AND OPERATION OF ESCROW FUND Section 3.1. Escrow Fund. On the Escrow Funding Date, the Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 Escrow Fund" (the "Escrow Fund' ). On the Escrow Funding Date, the Escrow Deposit described in Section 2.1 will be deposited to the credit of the Escrow Fund. The Escrow Deposit and all proceeds therefioln shall be the property of the Escrow Fund and shall be applied only in strict conformity with the terms and conditions hereof. All Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund are hereby irrevocably pledged to 3 HOU:2407345.1 the payment of the principal of, redemption premium, if any, and interest on the Refunded Bonds, which payment shall be made by timely transfers to the Paying Agent for the Refunded Bonds of such amounts at such times as are provided in Section 3.2. When the final transfers have been made to the Paying Agent for the Refunded Bonds for the payment of such principal of, redemption premium, if any, and interest on the Refunded Bonds, any balance then remaining in the Escrow Fund shall be transferred to the Corporation, and the Escrow Agent shall thereupon be discharged from any further duties hereunder. Section 3.2. Payment of Principal, Redemption Premium, if any, and Interest, Redemption of Certain Refunded Bonds (a) The Escrow Agent is hereby irrevocably instructed to transfer to the Paying Agent for the Refunded Bonds from the cash balance from time to time on deposit in the Escrow Fund the amounts required to pay the principal of, redemption premium, if any, and interest on the Refunded Bonds in the amounts and at the times shown in the Report; provided, however, that funds transferred to the Escrow Fund from the interest and sinking funds for the Refunded Bonds, if any, and all investment earnings thereon be used for the payment of the principal of, redemption premium, if any, and interest on the Refunded Bonds prior to the use of proceeds of the Refunding Bonds for such purpose. (b) Except for amounts transferred to the Paying Agent for the Refunded Bonds pursuant to Section 3.2(a) and to the Corporation pursuant to Section 4.2, the Escrow Agent agrees that it shall never make any withdrawals from the Escrow Fund or assert any claims, liens or charges against the Escrow Fund.. Section 3.3. Sufficiency of Escrow Fund. The Corporation represents (based upon the Report) that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to provide money for transfer to the Paying Agent for the Refunded Bonds at the times and in the amounts required to pay the interest on the Refunded Bonds as such interest comes due and to pay the principal of, redemption premium, if any, and interest on the Refunded Bonds as the Refunded Bonds mature or are called for redemption all is more fully set forth in the Report. If for any reason, at any time, the cash balances on deposit or scheduled to be on deposit in the Escrow Fund shall be insufficient to transfer the amounts required by the Paying Agent for the Refunded Bonds to make the payments set forth in Section 3 2, the Corporation shall timely deposit into the Escrow Fund from lawfully available funds, additional funds in the amounts required to make such payments. Notice of any such insufficiency shall be given promptly by the Escrow Agent to the Corporation as hereinafter provided but the Escrow Agent shall not in any manner be responsible for any insufficiency of funds in the Escrow Fund or the Corporation's failure to make additional deposits thereto. Section 3.4. Trust Fund. The Escrow Agent at all times shall hold the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; and it shall hold and dispose of the assets of the Escrow Fund only as set forth herein The Escrowed Securities and other assets of the Escrow Fund always shall be maintained by the Escrow Agent for the benefit of the holders of the Refunded Bonds; and a special account evidencing such fact shall be maintained at all times on the books of the 4 HOU:2407345.I Escrow Agent. The holders of the Refunded Bonds shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof and all other assets of the Escrow Fund to which they are entitled as holders of the Refunded Bonds. The amounts received by the Escrow Agent under this Escrow Agreement shall not be considered as a banking deposit by the Corporation, and the Escrow Agent shall have no right or title with respect thereto except as escrow agent under the terms hereof. The amounts received by the Escrow Agent hereunder shall not be subject to warrants, drafts or checks drawn by the Corporation or, except to the extent expressly herein provided, by the Paying Agent for the Refunded Bonds. Section 3.5. Security for Cash Balances Cash balances from time to time on deposit in the Escrow Fund, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, shall be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. Section 3.6 Grant of Security Interest. In order to secure payment when due of the principal of and interest on the Refunded Bonds, the Corporation hereby pledges and grants to the Escrow Agent, for the account of the holders or owners of the Refunded Bonds and of any appurtenant coupons, a security interest in all of its right, title, and interest, if any, in and to all funds held hereunder and all investments thereof and agrees that the Escrow Agent shall have and may exercise all of the rights of a secured party granted by the Texas Uniform Commercial Code in respect thereof to the same extent as if such Code applied to such security interest. ARTICLE IV. LIMITATION ON INVESTMENTS Section 4 1 General. Except as herein otherwise expressly provided, the Escrow Agent shall not have any power or duty to invest any money held hereunder, to make substitutions of the Escrowed Securities or to sell, transfer or otherwise dispose of the Escrowed Securities. Section 4.2. Reinvestment of Proceeds of Open Market Securities. The Escrow Agent is hereby authorized and directed to reinvest proceeds of the Open Market Securities, if any, which are attributable to amounts received as principal of or interest on the Open Market Securities and which are not immediately needed to pay the Refunded Bonds in direct obligations of the United States of America, i.e., United States Treasury Bonds, Bills and Notes in the amounts, and maturing and bearing interest, all as set out in the Report. The Corporation hereby designates and appoints the Escrow Agent as its agent and duly authorized representative for purposes of subscribing for and purchasing such obligations, all of which shall constitute Escrowed Securities. Any income or increment earned from such reinvestment remaining after final payment of the Refunded Bonds, shall be promptly transferred to the Corporation. Section 4.3. Substitution of Securities. (a) Concurrently with the sale and delivery of the Refunding Bonds, the Corporation may, upon compliance with the conditions stated in subsection (c) of this Section 4.3, at its option, substitute cash or non -interest bearing obligations of the United States Treasury (i.e., Treasury obligations which mature and are payable in a stated 5 HOU:2407345.1 amount on the maturity date thereof and for which there are no payments other than the payment made on the maturity date) for non -interest bearing Open Market Securities listed in the Report, but only if such cash and/or substituted non -interest bearing direct obligations of the United States Treasury: (i) are in an amount, and/or mature in an amount, which, together with any cash substituted for such obligations, is equal to or greater than the amount payable on the maturity date of the obligation listed in the Report for which such obligation is substituted, and (ii) mature on or before the maturity date of the obligation listed in the Report for which such obligation is substituted. The Corporation may at any time substitute any Open Market Securities which, as permitted by the preceding sentence, were not deposited to the credit of the Escrow Fund, for the cash and/or obligations that were substituted concurrently with the sale and delivery of the Refunding Bonds for such Open Market Securities. (b) At the written request of the Corporation, and upon compliance with the conditions hereinafter stated in subsection (c) of this Section 4.3, the Escrow Agent shall sell, transfer, otherwise dispose of or request the redemption of all or any portion of the Escrowed Securities and apply the proceeds therefrom to purchase Refunded Bonds or direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America which do not permit the redemption thereof at the option of the obligor. (c) Any such transaction described in subsections (a) and (b) of this Section 4.3 may be affected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a recognized firm of certified public accountants that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient when added to the interest to accrue thereon, to provide for the payment of principal of redemption premium, if any, and interest on the remaining Refunded Bonds as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the Corporation and the Escrow Agent to the effect that (a) such transaction will not cause any of the Refunded Bonds or Refunding Bonds to be an "arbitrage bond" within the meaning of the Code and (b) that such transaction complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Bonds and the Refunding Bonds. Section 4.4. Arbitrage. The Corporation hereby covenants and agrees that it shall never request the Escrow Agent to exercise any power hereunder or permit any part of the money in the Escrow Fund or proceeds from the sale of Escrowed Securities to be used directly or indirectly to acquire any securities or obligations if the exercise of such power or the acquisition of such securities or obligations would cause any Refunding Bonds to be an "arbitrage bond" within the meaning of the Code. 6 HOU:2407345.1 ARTICLE V. RECORDS AND REPORTS Section 5.1. Records. The Escrow Agent shall keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipt, disbursement allocation and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the Corporation and the holders of the Refunded Bonds. Section 5.2. Reports. For the period beginning on the Escrow Funding Date and ending on September 30, 2005 and for each twelve (12) month period thereafter while this Agreement remains in effect, the Escrow Agent shall prepare and send to the Corporation within thirty (30) days following the end of such period a written report summarizing all transactions relating to the Escrow Fund during such period, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund to the Paying Agent for the Refunded Bonds or otherwise, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. ARTICLE VI. CONCERNING THE ESCROW AGENT Section 6.1. Representations of Escrow Agent. JPMorgan Chase Bank, Dallas, Texas, hereby represents that it has all necessary power and authority to enter into this Escrow Agreement and undertake the obligations and responsibilities imposed upon it herein and that it will carry out all of its obligations hereunder. Section 6.2. Limitation on Liability. The liability of the Escrow Agent to transfer funds to the Paying Agent for the Refunded Bonds for the payments of the principal of, redemption premium if any, and interest on the Refunded Bonds shall be limited to the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, the Escrow Agent shall have no liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligor of the Escrowed Securities to make timely payment thereon, except for its obligation to notify the Corporation promptly of any such occurrence. The recitals herein and in the proceedings authorizing the Refunding Bonds shall be taken as the statements of the Corporation and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. The Escrow Agent is not a party to the Refunding Bond Resolution or the Refunded Bond Resolutions and in its capacity as Escrow Agent is not responsible for or bound by any of the provisions thereof. In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Escrow Agreement. 7 HOU:2407345.1 The Escrow Agent makes no representation as to the value, condition or sufficiency of the Escrow Fund or any part thereof, or as to the title of the Corporation thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall incur no liability or responsibility with respect to any of such matters. It is the intention of the Corporation and the Escrow Agent that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. The Escrow Agent shall not be liable for the performance of any duties, except such duties as are specifically set forth in this Escrow Agreement, and no implied covenants or obligations shall be read into this Escrow Agreement. Nothing herein contained shall relieve the Fscrow Agent fiom liability for its own negligent action negligent failure to act or willful misconduct, except that this sentence shall not be construed to limit the effect of the immediately preceding sentence. The Escrow Agent shall not incur any liability for any error of judgment made in good faith by a responsible officer thereof, unless it shall be proved that it was negligent in ascertaining the pertinent facts. The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith. Unless it is specifically provided otherwise herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the Corporation with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund and to dispose of and deliver the same in accordance with this Escrow Agreement. If, however, the Escrow Agent is called upon by the terms of this Escrow Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in the event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence In determining the occurrence of any such event or contingency the Escrow Agent may request from the Corporation or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with the Corporation, among others, at any time. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Escrow Agreement nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable except for its own neglect or default, nor for any loss unless the same shall have been through its negligence or want of good faith. In the absence of bad faith, the Escrow Agent may rely conclusively upon the truth, completeness and accuracy of the statements, certificates, opinions, resolutions and other 8 HOU:2407345.1 documents conforming to the requirements of this Escrow Agreement, and shall not be obligated to make any independent investigation with respect thereto. To the full extent permitted by law, the parties agree to indemnify, defend and hold the Escrow Agent harmless from and against any and all loss, damage, tax, liability and expense that may be incurred by the Escrow Agent arising out of or in connection with its acceptance or appointment as 'Escrow Agent hereunder, including attorneys fees and expenses of defending itself against any claim or liability in connection with its performance hereunder except that the Escrow Agent shall not be indemnified for any loss, damage, tax, liability, or expense resulting from its own negligence or willful misconduct. Section 6.3. Compensation. On the Escrow Funding Date, the Corporation will pay JPMorgan Chase Bank, Dallas, Texas, for performing its services as Escrow Agent hereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administration of this Escrow Agreement, the fees set out in Exhibit B. If the Escrow Agent is requested to perform any extraordinary services hereunder, the Corporation hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services. It is expressly provided that the Escrow Agent shall look only to the Corporation for the payment of such additional fees and reimbursement of such additional expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular, additional or extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. Section 6.4. Successor Escrow Agents. If at any time the Escrow Agent or its legal successor or successors should become unable, through operation of law or otherwise, to act as escrow agent hereunder, or if its property and affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy or for any other reason, a vacancy shall forthwith exist in the office of Escrow Agent hereunder. In such event the Corporation, by appropriate action, shall promptly appoint an Escrow Agent to fill such vacancy. If no successor Escrow Agent shall have been appointed by the Corporation within 60 days, a successor may be appointed by the holders of a majority in aggregate principal amount of the Refunded Bonds then outstanding by an instrument or instruments in writing filed with the Corporation, signed by such holders or by their duly authorized attorneys. If, in a proper case, no appointment of a successor Escrow Agent shall be made pursuant to the foregoing provisions of this section within three months after a vacancy shall have occurred, the holder of any Refunded Bond then out -standing may apply to any court of competent jurisdiction to appoint a successor Escrow Agent. Such court may thereupon, after such notice, if any, as it may deem proper, prescribe and appoint a successor Escrow Agent. Any successor Escrow Agent shall be qualified to act in such capacity under Chapter 1207, Texas Government Code, as amended, and shall be a corporation organized and doing business under the laws of the United States or the State of Texas, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal or state authority. HOU:2407345.I Any successor Escrow Agent shall execute, acknowledge and deliver to the Corporation and the Escrow Agent an instrument accepting such appointment hereunder, and the Escrow Agent shall execute and deliver an instrument transferring to such successor Escrow Agent, subject to the terms of this Agreement, all the rights, powers and trusts of the Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the Corporation shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such rights, powers and duties. The Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee paid hereunder. The Escrow Agent at the time acting hereunder may at any time resign and be discharged from the escrow hereby created by giving not less than sixty (60) days' written notice to the Corpoiation specifying the date when such resignation will take effect. No such resignation shall take effect unless a successor Escrow Agent shall have been appointed by the holders of the Refunded Bonds or by the Corporation as herein provided and such successor Escrow Agent shall have accepted such appointment, in which event such resignation shall take effect immediately upon the appointment and acceptance of a successor Escrow Agent. The Escrow Agent may be removed at any time by an instrument or concurrent instruments in writing delivered to the Escrow Agent and to the Corporation and signed by the holders of a majority in aggregate principal amount of the Refunded Bonds then outstanding. ARTICLE VII. MISCELLANEOUS Section 7.1. Notices Any notice, authorization request or demand required or permitted to be given hereunder shall be made or given in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: To the Escrow Agent: JPMorgan Chase Bank 2001 Bryan Street, 10t1i Floor Dallas, Texas 75201 Attn: Issuer Administrative Services To the Corporation: Pearland Economic Development Corporation 3519 Liberty Drive Pearland, Texas 77581 Attention: Chairman The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery Either party hereto may 10 HOU:2407345.1 change the address to which notices are to be delivered by giving to the other party not less than ten days' prior written notice thereof. Section 7.2. Termination of Responsibilities. Upon the taking by the Escrow Agent of all the actions as described herein the Escrow Agent shall have no further obligations or responsibilities hereunder to the Corporation, the holders of the Refunded Bonds or to any other person or persons in connection with this Escrow Agreement. Section 7.3. Binding Agreement; Amendment. This Escrow Agreement shall be binding upon the Corporation and the Escrow Agent and their respective successors and legal representatives and shall inure solely to the benefit of the holders of the Refunded Bonds, the Corporation, the Escrow Agent and their respective successors and legal representatives. This Escrow Agreement shall not be subject to amendment without the written consent of the holders of all Refunded Bonds then outstanding. Section 7 4. Severability. If any one or more of the provisions contained in this Escrow Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invandity, illegality or unenforceability shall not affect any other provision of this Escrow Agreement, but this Escrow Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Section 7.5. Governing Law. This Escrow Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 7.6. Time of Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Escrow Agreement. [SIGNATURE PAGE FOLLOWS] 11 HOU:2407345.1 EXECUTED as of the date first written above, but effective as set forth herein. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: .. Ch • ATTES : ,�. cret y JPMORGAN CHASE BANK Dallas, Texas 410 By: Name: Title: ATTEST: By: Name: Title: (SEAL) r aw S-1 HOU:2407345.1 EXECUTED as of the date first written above,but effective as set forth herein. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: Chairman ATTEST: Secretary V JPMORGAN CHASE BANK /V. , Dallas,Texas By: (4ai-e 4/1' Name'Title: Brad Hounsel, AVP ATTEST: By: ald,/LC , Name: • Title: r (SEAL) I I r r S-1 HOU:2407345.1 EXHIBIT A VERIFICATION REPORT Cash Flow and Yield Verification Report Pearland Economic Development Corporation, Texas March 15, 2005 Letter Exhibit A Exhibit B hxhibit B-1 hxhibit B-2 Exhibit C Exhibit C-1 Appendix I INDEX Schedule of Sources and Uses of Funds hscrow Account Cash Flow Cash Receipts From and Yield on the SLGS Debt Service Payments on the Refunded Bonds Debt Service Payments and Yield on the Bonds Net Original Issue Premium on the Bonds Applicable schedules provided by RBC Dain Rauscher Inc. Accountants and Business Advisors Grant T ..ornton Report of Independent Certified Public Accountants On Applying Agreed -Upon Procedures Pearland Economic Development Corporation 3519 Liberty Drive Pearland, Texas Andrews Kurth LLP 600 Travis Street, Suite 4200 Houston, Texas UBS Financial Services Inc. 1111 Bagby, Suite 5100 Houston, Texas RBC Dain Rauscher Inc. 1001 Fannin Street, Suite 400 Houston, Texas Texas Attorney General's Office 300 West 15th Street, Ninth Floor Austin, Texas Wells Fargo Bank, N A. 1000 Louisiana Street, Suite 640 Houston, Texas Ambac Assurance Corporation One State Street Plaza New York, New York $11,005,000 Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 Dated February 15, 2005 We have performed the procedures described in this report, which were agreed to by the Pearland Economic Development Corporation, Texas (the "Corporation') and RBC Dain Rauscher Inc. (the `Financial Advisor"), to verify the mathematical accuracy of certain computations contained in the schedules attached m Appendix I provided by the Financial Advisor. The Financial Advisor is responsible for these schedules. These procedures were performed solely to assist you in the issuance of the above -captioned bond issue (the Bonds") for the purpose, in part, of refunding the Corporation's outstanding Sales Tax Revenue Bonds, Series 1997 (the "Refunded Bonds") as summarized on the next page. This engagement was performed in accordance with attestation standards established by the Ameucan Institute of Certified Public Accountants. The sufficiency of these procedures is solely the responsibility of the addressees of this report who are the specified parties. Consequently, we make no representation regarding the sufficiency of the procedures described in this report either for the purpose for which this report has been requested or for any other purpose. 500 US Bank Plaza North 200 South Sixth Street Minneapolis, MN 55402 T 612.332.0001 F 612.332.8361 W www.grantthornton.com Grant Thornton LLP US Member of Grant Thornton International Page 2 Principal Series Issued Dated 1997 $5,000,000 May 1, 1997 Principal Maturities Redemption Redemption Refunded Refunded Date Price 9-1-05 to $4,165,000 9-1-16 9-1-07 100% VERIFICATION OF F4SCROW ACCOUNT CASH FLOW SUFFICIHNCY The Financial Advisor provided us with schedules (Appendix I) summarizing future escrow account cash receipts and disbursements. These schedules indicate that there will be sufficient cash available in the escrow account to pay the principal and interest on the Refunded Bonds assuming the Refunded Bonds maturing on and after September 1, 2008 will be redeemed on September 1, 2007 at 100 percent of par plus accrued interest. The attached Fxhibit A (Schedule of Sources and Uses of Funds) was compiled based upon information provided by the Financial Advisor. As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B through B-2 independently calculating future escrow account cash receipts and disbursements and compared the information used in our calculations to the information listed below contained in applicable pages of the following documents: • Subscription confirmation, dated March 1, 2005, and Schedule of U.S. Treasury Securities provided by the Financial Advisor used to acquire certain United States Treasury Securities - State and Local Government Series (the "SLGS") insofar as the SLGS are described as to the principal amounts, interest rates, maturity dates, issuance date and first interest payment date; and • Resolution for the Refunded Bonds provided by Andrews Kurth LLP insofar as the Refunded Bonds are described as to the maturity and interest payment dates, principal amounts, interest rates and optional redemption date and price. In addition we compared the interest rates for each maturity of the SLGS, as shown on the Schedule of U.S. Treasury Securities, with the maximum allowable interest rates shown on the Department of Treasury, Bureau of Public Debt, SLGS Table (Norm PD 4262) for use on March 1, 2005 and found that the interest rates were equal to the maximum allowable interest rates for each maturity. Our procedures, as summarized in Fi xhibits B through B-2, prove the mathematical accuracy of the schedules provided by the Financial Advisor summarizing future escrow account cash receipts and disbursements The schedules provided by the Financial Advisor and those prepared by us reflect that the anticipated receipts from the SLGS, together with an initial cash deposit of $1.60 to be deposited into the escrow account on March 15, 2005, will be sufficient to pay, when due, the principal and interest related to the Refunded Bonds assuming the Refunded Bonds maturing on and after September 1, 2008 will be redeemed on September 1, 2007 at 100 percent of par plus accrued interest. Page 3 VERIFICATION OF YIFLDS The Financial Advisor provided us with schedules (Appendix I) which indicate that the yield on the cash receipts from the SLGS is less than the yield on the Bonds. These schedules were prepared based on the assumed settlement date of March 15, 2005 using a 360-day year with interest compounded semi-annually The term "yield", as used herein, means that yield which when used in computing the present value of all payments of principal and interest to be paid or received on an obligation produces an amount equal to, in the case of the cash receipts from the SLGS, the purchase price, and in the case of the Bonds, the issue price adjusted for the bond insurance premium of $69,975.13 and the surety bond premium of $19,637.74. In addition, we found that the schedules provided by the Financial Advisor, which assume the redemption of the September 1, 2016 through September 1, 2018 maturities identified on Exhibits C and C-1 at par on September 1, 2015 plus accrued interest, correctly treat those Bonds as yield -to -call Bonds as retired on the respective dates that for each Bond produces the lowest yield for the issue that includes the Bonds Those Bonds identified as yield -to -call Bonds on the attached Exhibits C and C-1 are those Bonds that are subject to optional redemption and that are issued at an issue price that exceeds the stated redemption price at maturity of such Bonds by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Bonds and the number of complete years to the first optional redemption date for the Bonds. We found that there are no other yield -to - call Bonds other than those identified on the attached 1-4,xhibits C and C-1 As part of our engagement to recalculate the schedules attached as Appendix I we prepared schedules attached hereto as Exhibits B-1 and C independently calculating the yields on (i) the cash receipts from the SLGS calculated on F,xhibit B-1, and (ii) the Bonds using the Official Statement provided by the Financial Advisor insofar as the Bonds are described as to the maturity and interest payment dates, dated date, principal amounts, interest rates, optional redemption date and price, and issue price to the public. The results of our calculations, based on the aforementioned assumptions, are summarized below: • Yield on the cash receipts from the SLGS • Yield on the Bonds Yield Kxhibit 3.558347% B-1 4.066204% C Our procedures, as summarized in Exhibits B-1 and C, prove the mathematical accuracy of the schedules provided by the Financial Advisor summarizing the yields. The schedules provided by the Financial Advisor and those prepared by us reflect that the yield on the cash receipts from the SLGS is less than the yield on the Bonds Page 4 We were not engaged to and did not, perform an examination in accordance with attestation standards established by the American Institute of Certified Public Accountants, the objective of which would be the expression of an examination opinion on the items referred to above. Accordingly we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the information and use of those to whom this letter is addressed and is not intended to be and should not be used by anyone other than these specified parties. 7:LAIr•• din Minneapolis, Minnesota March 15, 2005 Pearland Economic Development Corporation, Texas SCHEDULE OF SOURCES AND USES OF FUNDS March 15, 2005 SOURCN,S• Principal amount of the Bonds Net original issue premium Accrued interest USES Deposit to Project Fund Purchase price of the SLGS Beginning cash deposit to the escrow account Bond insurance premium Accrued interest deposit to Debt Service Fund Costs of issuance Underwriters' discount Surety bond premium Contingency Exhibit A $11,005,000.00 155,447.45 36,112.51 $11,196,559.96 $6,500,000.00 4,349,474.00 1.60 69,975.13 36,112.51 117,500.00 77,035.00 19,637.74 26,823 98 511,196,559.96 Pearland Economic Development Corporation, Texas Dates Cash deposit on March 15 2005 09-01-05 03-01-06 09-01-06 03-01-07 09-01-07 ESCROW ACCOUNT CASH FLOW Cash receipts from SLGS (Exhibit B-1) $326,324.63 108,765.64 328,764.16 100,845.80 3,835,844.18 $4,700,544.41 Debt service payments on Refunded Bonds (Exhibit B-2) $326,325.00 108,765.00 328,765.00 100,845.00 3,835,845.00 $4,700,545.00 Exhibit A Cash balance $1.60 1.23 1.87 1.03 1.83 1.01 Receipt date 09-01-05 03-01-06 09-01-06 03-01-07 09-01-07 Pearland Economic Development Corporation, Texas CASH RECEIPTS FROM AND YIELD ON THE SLGS Principal $256,169 35,512 256,576 32,827 3,768,390 $4,349,474 Purchase price of the SLGS Interest rate 2.900% 3.120% 3.250% 3.440% 3.580% Interest $70,155.63 73,253.64 72,188.16 68,018.80 67,454.18 $351,070.41 Cash receipts from SLGS $326,324.63 108,765.64 328,764.16 100,845.80 3,835,844.18 $4,700,544.41 h,xhibit B-1 Present value on March 15, 2005 using a yield of 3.558347% $321,060.32 105,140.39 312,250.69 94,106.11 3,516,916.49 $4,349,474.00 $4,349,474.00 The sum of the present values of the cash receipts from the SLGS on March 15, 2005, using a yield of 3.558347%, is equal to the purchase price of the SLGS. Exhibit B-2 Date 09-01-05 03-01-06 09-01-06 03-01-07 09-01-07 Pearland Economic Development Corporation, Texas DEBT SERVICE PAYMENTS ON THE REFUNDED BONDS Principal $210,000 220,000 3,735,000 $4,165,000 Interest rate 7.200% 7.200% (1) Interest $116,325.00 108,765.00 108,765.00 100,845.00 100,845.00 $535,545.00 Debt service payments $326,325.00 108,765.00 328,765.00 100,845.00 3,835,845.00 $4,700,545.00 (1) Actual maturity dates, principal amounts and interest rates are as follows: Maturity date 09-01-07 09-01-08 09-01-09 09-01-10 09-01-11 09-01-12 09-01-13 09-01-14 09-01-15 09-01-16 Principal amount $235,000 300,000 320,000 340,000 360,000 385,000 410,000 435,000 460,000 490,000 $3,735,000 Interest rate 6.000% 5.200% 5.300% 5.400% 5.450% 5.500% 5.500% 5.500% 5.200% 5.200% Date 09-01-05 03-01-06 09-01-06 03-01-07 09-01-07 03-01-08 09-01-08 03-01-09 09-01-09 03-01-10 09-01-10 03-01-11 09-01-11 03-01-12 09-01-12 03-01-13 09-01-13 03-01-14 09-01-14 03-01-15 09-01-15 03-01-16 09-01-16 03-01-17 09-01-17 03-01-18 09-01-18 03-01-19 09-01-19 03-01-20 09-01-20 03-01-21 09-01-21 03-01-22 09-01-22 03-01-23 Pearland Economic Development Corporation, Texas DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS $11,005,000 issue dated February 15, 2005 Interest Principal rate $415 000 3.000% 345,000 2.500% 350,000 2.750% 360,000 3.000% 375,000 3.000% 385,000 3.250% 400,000 3.250% 410,000 3.500% 425,000 4.000% 445,000 4.000% 460,000 4.000% 480,000 5.000% 505,000 5.000% 530,000 5.000% 555,000 4.000% 575,000 4.000% 600,000 4.100% 625,000 4.100% Interest $235,935.00 210,450.00 210,450.00 206,137.50 206,137.50 201,325.00 201,325.00 195,925.00 195,925.00 190,300.00 190,300.00 184,043.75 184,043.75 177,543.75 177,543.75 170,368.75 170,368.75 161,868.75 161,868.75 152,968.75 152,968.75 143,768.75 143,768.75 131,768.75 131,768.75 119,143.75 119,143.75 105,893.75 105,893.75 94,793.75 94,793.75 83,293.75 83,293.75 70,993.75 70,993.75 58,181.25 Total debt service $650,935.00 210,450.00 555,450.00 206,137.50 556,137.50 201,325.00 561,325.00 195,925 00 570,925 00 190,300.00 575,300.00 184,043.75 584,043.75 177,543.75 587,543.75 170,368.75 595,368.75 161,868.75 606,868.75 152,968.75 612,968.75 143,768.75 623,768.75 131,768.75 636,768.75 119,143.75 649,143.75 105,893.75 660,893.75 94,793.75 669,793.75 83,293.75 683,293.75 70,993.75 695,993.75 58,181.25 (1) Adjusted debt service $650,935.00 210,450.00 555,450.00 206,137.50 556,137.50 201,325.00 561,325.00 195,925 00 570,925.00 190,300.00 575,300.00 184,043.75 584,043.75 177,543.75 587,543.75 170,368.75 595,368.75 161,868.75 606,868.75 152,968.75 2,127,968.75 105,893.75 105,893.75 105,893.75 105,893.75 105,893.75 105,893.75 105,893.75 660,893.75 94,793.75 669,793.75 83,293.75 683,293.75 70,993.75 695,993.75 58,181.25 Exhibit C Page 1 of 2 Present value on March 15, 2005 using a yield of 4.066204% $638,964.01 202,463.44 523,722.90 190,490.14 503,682.19 178,702 67 488,322.37 167,047.89 477,077.70 155,850.34 461,766.31 144,779.76 450,288.73 134,155.97 435,114.67 123,655.19 423,513.61 112,850.44 414,661.70 102,437.93 1,396,632 74 68,115.54 66,758.28 65,428.06 64,124.35 62,846.61 61,594.33 60,367.01 369,249.49 51,907.11 359,457.18 43,810.42 352,234 06 35,867.65 344,625.22 28,234.73 Date 09-01-23 03-01-24 09-01-24 03-01-25 09-01-25 03-01-26 09-01-26 Pearland Economic Development Corporation, Texas DEBT SERVICE PAYMENTS AND YIELD ON THE BONDS $11,005,000 issue dated February 15, 2005 Interest rate Interest 4.125% 58,181.25 44,775.00 675,000 4.200% 44,775.00 30,600.00 705,000 4.250% 30,600.00 15,618.75 4 250% 15,618.75 $5,735,460.00 Principal 650 000 735,000 $11,005,000 The present value of the future payments is equal to: Principal amount of the Bonds Accrued interest Net original issue premium Bond insurance premium Surety bond premium Total debt service 708,181.25 44,775.00 719,775.00 30,600.00 735,600.00 15,618.75 750,618.75 $16,740,460.00 (1) Adjusted debt service 708,181.25 44,775.00 719,775.00 30,600.00 735,600.00 15,618.75 750,618.75 $16,586,460.00 Fxhibit C Page 2 of 2 Present value on March 15, 2005 using a yield of 4.066204% 336,824.72 20,871.52 328,832.03 13,701.17 322,802 50 6,717.39 316,397.03 $11,106,947.09 $11,005,000.00 36,112.51 155,447.45 (69,975.13) (19,637.74) $11,106,947.09 The sum of the present values of the adjusted debt service payments of the Bonds on March 15, 2005, using a yield of 4.066204%, is equal to the issue price of the Bonds adjusted for the bond insurance premium and the surety bond premium. (1) Assumes that the September 1, 2016 through September 1, 2018 maturities are called on September 1, 2015 at 100 percent of par plus accrued interest. Exhibit C-1 Maturity date 09-01-05 09-01-06 09-01-07 09-01-08 09-01-09 09-01-10 09-01-11 09-01-12 09-01-13 09-01-14 09-01-15 09-01-16 09-01-17 09-01-18 09-01-19 09-01-20 09-01-21 09-01-22 09-01-23 09-01-24 09-01-25 09-01-26 Pearland Economic Development Corporation, Texas NET ORIGINAL ISSUE PREMIUM ON THE BONDS Principal $415,000 345,000 350,000 360,000 375,000 385,000 400,000 410,000 425,000 445,000 460,000 480,000 505,000 530,000 555,000 575,000 600,000 625,000 650,000 675,000 705,000 735,000 $11,005,000 Interest tate 3.000% 2.500% 2.750% 3.000% 3.000% 3.250% 3.250% 3.500% 4.000% 4.000% 4.000% 5.000% 5.000% 5.000% 4.000% 4.000% 4.100% 4.100% 4.125% 4.200% 4.250% 4.250% Yield 2.000% 2.300% 2.450% 2.650% 2.800% 2.950% 3.130% 3.270% 3.450% 3.570% 3.670% 3.730% 3.800% 3.850% 4.040% 4.100% 4.160% 4.220% 4.270% 4.320% 4.370% 4.420% Initial public offering price 100.455% 100.285% 100.711% 101.149% 100.832% 101.502% 100.696% 101.510% 104.005% 103.425% 102.844% 110.915% (1) (2) 110.277% (1) (2) 109.824% (1) (2) 99.563% 98.861% 99.288% 98.526% 98.159% 98.429% 98.386% 97.657% Net original issue premium (discount) $1,888.25 983.25 2,488.50 4,136.40 3,120.00 5,782.70 2,784.00 6,191.00 17,021.25 15,241.25 13,082.40 52,392.00 51,898.85 52,067.20 (2,425.35) (6,549.25) (4,272.00) (9,212.50) (11,966.50) (10,604.25) (11,378.70) (17,221.05) $155,447.45 (1) Maturities were priced to call on September 1, 2015 at 100 percent of par. (2) Represents the yield -to -call Bonds included for purposes of computing yield on the Bonds. Sources of Funds: 1000i O) o0(NDrm r-tt) to a) cif (o t ) ON C') ) Ira Interest Bonds (CIBs) d 0 0 C C0 N gEte C E U0 a) N_ v(L• o 2 c co m 8 n.000 n n Total SOURCES of Funds tot 'I 113 ti o N cp U. E U 0 o, O YI c w W tAaoc ism*-. 0(nm V c u. 0 O :N a a) 0 N 0) C N 0 ct 1 N CD 0 CD CD CD 0\ic 0 000000 0 ui00000t-o (00000.O MO O 00O0(O(DO h NN r^'-M C 0 a m c c C O m Total USES of Funds Miscellaneous Bond Issuance Information: 03/15/2005 Delivery Date: oov oov ((DD 00 (OD rob 0 a) t3 c a) it CD c CO t 0 CO 0 C 0 0.0 a 0 0 0 0 CNovoo(D n 01 CV o (ct 0 (D(h NM O CO CO V�'NOIq • V V' M -78.61767667% -2.26852416% @ 09:06 v7.17 0 ABC Dain Rausc 5NM OLD1997 r R 0 a. Ec c 0Ci o dE c'� _- ✓ � • N ❑ CC N V O L. 'C C a ajC to a w at a a1°iw a O C) d U 3 c o To • (a w v z at • o >e N iif) W VI w 41) CONOCONO OO ONCON N CO N COO c0 0 0 Oo 0 ui N (O CO 00 00 (ritd n CO CO O CO 0 0 0 0 0 O O O O O 0 0 0 0 0 O O)O).r-- M M 0000(o Orr NONO) CM M 0 0 0 0 0 O 0 0 0 0 00000 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 O(ND(CD CO O CO O in tri N cDD ((b 't c?rCO - (0 CO o CO o CNO CO10oot` 00000 0 0 0 0 0 N N NNN ( O O O O O O O O 0 0 O 0 O 0 0 ui co 10 c) c) O O O 0 (D O) 0 c') 0 O 0 0 O 0 $4,700,545.00 g $4,349,474.00 $4,700,544.40 $4,700,544.40 Escrow Arbitrage YLD after Reinvestment in 0% SLGs = 3.55834640% N a)c aN) c a N N Poo L.)O C as ctc N m 0 cc (0 - C O t ro O O 30 N to U o o w SLG Rates Were Taken From SLG Table Dated 03/01/2005 03/02/2005 @ 09:06 v7.17 Prepared by: RBC Dain Rauscher — Houston, Texas PEARLAND EDC: RUN2005REF OLD1997 Tr- Cl) (0 a N C +'a cC 021 c N N N w 0 a O 0 0 0 0 O 0 0 0 0 0 0 0 O 0 O 0 0 0 O Nt1V'0 O) .- N 't (V MMMM 01 M COO1-tOA (OO VO'ttOOT- O.. T.- CV r O) c‘ir <t (O M O CO W to ai 03CO COrCr totoa .o4 tO Nr Ott n N. CD O 0000 O 0000 O 0000 0 0 0 0 0 O CV If) V OO O r N 't t[) N6 ci M co W r n CO N OO) rtnti CO.6 Oto(ON(U N M N M n M to (O (O r O 0000 N N N N N O O O7:3 O O 01 0)0) O 0 0 0 0 0 0 $4,349,474.00 $4,700,544.40 a O fee N. a SLG Rates were taken from a SLG table dated 03/01/2005 PEARLAND EDC: RUN2005REF OLD1997 (V • (1.1 0) (a a AS Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 09/01/2004 - 200,000.00 200,000.00 7.200 7.200000 100.000000 123,525.00 323,525.00 447,050.00 323,525.00 03/01/2005 - - - - - - 116,325.00 116,325.00 - 116,325.00 09/01/2005 - 210,000.00 210,000.00 7.200 7.200000 100.000000 116,325.00 326,325.00 442,650.00 326,325.00 03/01/2006 - - - - - - 108,765.00 108,765.00 - 108,765.00 09/01/2006 - 220,000.00 220,000.00 7.200 7.200000 100.000000 108,765.00 328,765.00 437,530.00 328,765.00 03/01 /2007 - - - - - - 100,845.00 100,845.00 - 100,845.00 09/01/2007 - 235,000.00 235,000.00 6.000 6.000000 100.000000 100,845.00 335,845.00 436,690.00 3,835,845.00 03/01/2008 - - - - - - 93,795.00 93,795.00 - - 09/01/2008 - 300,000.00 ' 300,000.00 5.200 5.200000 100.000000 93,795.00 393,795.00 487,590.00 - 03/01/2009 - - - - - - 85,995.00 85,995.00 - - 09/01/2009 - 320,000.00 * 320,000.00 5.300 5.300000 100.000000 85,995.00 405,995.00 491,990.00 - 03/01/2010 - - - - - - 77,515.00 77,515.00 - - 09/01/2010 - 340,000.00 ' 340,000.00 5.400 5.400000 100.000000 77,515.00 417,515.00 495,030.00 - 03/01/2011 - - - - - 68,335.00 68,335.00 - - 09/01/2011 - 360,000.00 ' 360,000.00 5.450 5.450000 100.000000 68,335.00 428,335.00 496,670.00 - 03/01/2012 - - - - - - 58,525.00 58,525.00 - - 09/01/2012 - 385,000.00 ' 385,000.00 5.500 5.500000 100.000000 58,525.00 443,525.00 502,050.00 - 03/01/2013 - - - - 47,937.50 47,937.50 - - 09/01/2013 - 410,000.00 * 410,000.00 5.500 5.500000 100.000000 47,937.50 457,937.50 505,875.00 - 03/01/2014 - - - - -. - 36,662.50 36,662.50 - - 1 t0 t0 (O (0 N N CV N CV OO CO CO CDCDCDI" 00000 1-4 N lQ PEARLAND EDC: OLD1997 Prepared by: RBC Dain Rauscher - Houston, Texas 03/02/2005 @ 09:06 v7.17 III, t 12 O m X (mil i - mcvnvmic ce Refunding of 1997 Sales Tax ~ pt El. ` at— p U 0" UI- Q /O m .. in 42 h N 3 cQ% v UU F 'C o m CM 1 4) m a Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemotions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 03/01/2008 - - - - - - 134,437.50 134,437.50 - 134,437.50 09/01/2008 - 25,000.00 25,287.25. 3.000 2.650000 101.149000 134,437.50 159,437.50 293,875.00 159,437.50 03/01/2009 - - - - - - 134,062.50 134,062.50 - 134,062.50 09/01/2009 - 25,000.00 25,208.00 3.000 2.800000 100.832000 134,062.50 159,062.50 293,125.00 159,062.50 03/01/2010 - - - - - - 133,687.50 133,687.50 - 133,687.50 09/01/2010 - 20,000.00 20,300.40 3.250 2.950000 101.502000 133,687.50 153,687.50 287,375.00 153,687.50 03/01/2011 - - - - - - 133,362.50 133,362.50 - 133,362.50 09/01/2011 - 25,000.00 25,174.00 3.250 3.130000 100.696000 133,362.50 158,362.50 291,725.00 158,362.50 03/01/2012 - - - - - - 132,956.25 132,956.25 - 132,956.25 09/01/2012 - 15,000.00 15,226.50 3.500 3.270000 101.510000 132,956.25 147,956.25 280,912.50 147,956.25 03/01/2013 - - - - - - 132,693.75 132,693.75 - 132,693.75 09/01/2013 - 15,000.00 15,600.75 4.000 3.450000 104.005000 132,693.75 147,693.75 280,387.50 147,693.75 03/01/2014 - - - - - - 132,393.75 132,393.75 - 132,393.75 09/01/2014 - 15,000.00 15,513.75 4.000 3.570000 103.425000 132,393.75 147,393.75 279,787.50 147,393.75 03/01/2015 - - - - - - 132,093.75 132,093.75 - 132,093.75 09/01/2015 - 10,000.00 10,284.40 4.000 3.670000 102.844000 132,093.75 142,093.75 274,187.50 6,302,093.75 03/01/2016 - - - - - - 131,893.75 131,893.75 - - 09/01/2016 - 5,000.00 * 5,545.75 5.000 3.730000 110.915000 131,893.75 136,893.75 268,787.50 - 03/01 /2017 - - - - - - 131,768.75 131,768.75 - - 09/01/2017 - 505,000.00 * 556,898.85 5.000 3.800000 110.277000 131,768.75 636,768.75 768,537.50 - 03/01/2018 - - - - - - 119,143.75 119,143.75 - - 09/01/2018 - 530,000.00 * 582,067.20 5.000 3.850000 109.824000 119,143.75 649,143.75 768,287.50 - 03/01/2019 - - - - - - 105,893.75 105,893.75 - - 09/01/2019 - 555,000.00 * 552,574.65 4.000 4.040000 99.563000 105,893.75 660,893.75 766,787.50 - 03/01/2020 - - - - - - 94,793.75 94,793.75 - - 09/01/2020 - 575,000.00 * 568,450.75 4.000 4.100000 98.861000 94,793.75 669,793.75 764,587.50 - 03/01/2021 - - - - - - 83,293.75 83,293.75 - - 09/01/2021 - 600,000.00 * 595,728.00 4.100 4.160000 99.288000 83,293.75 683,293.75 766,587.50 - 03/01/2022 - - - - - - 70,993.75 70,993.75 - - 09/01/2022 - 625.000.00 ' 615,787.50 4.100 4.220000 98.526000 70,993.75 695,993.75 766,987.50 - 03/01/2023 - - - - - - 58,181.25 58,181.25 - - 09/01/2023 - 650,000.00 * 638,033.50 4.125 4.270000 98.159000 58,181.25 708,181.25 766,362.50 - 03/01/2024 - - - - - - 44,775.00 44,775.00 - - 09/01/2024 - 675,000.00 * 664,395.75 4.200 4.320000 98.429000 44,775.00 719,775.00 764,550.00 - 03/01/2025 - - - - - - 30,600.00 30,600.00 - - 09/01/2025 - 705,000.00 * 693,621.30 4.250 4.370000 98.386000 30,600.00 735,600.00 766,200.00 - 1 03/01/2026 - - - - - 15,618.75 15,618.75 - - 09/01/2026 - 735,000.00 * 717,778.95 4.250 4.420000 97.657000 15,618.75 750,618.75 766,237.50 - Total - 6,640,000.00 6,675,043.25 4,600,508.75 11,240,508.75 11,240,508.75 9,466,596.25 Acc Int - - --23,184.38 -23,184.38 - - rand Totals - 6.640.000.00 6,675,043.25 4,577,324.37 11,217,324.37 11,240,508.75 9,466,596.25 * - Bonds callable ... 09/01/2015 a 100.000 i• 09/01/2005 - 180,000.00 180,819.00 3.000 2.000000 100.455000 151,471.25 331,4/1 03/01 /2006 - - - - - - 136,406.25 136,40E nA/n1 /9nnR - 75 OM nn 75213.75 2.500 2.300000 100.285000 136.406.25 211,40E City of Pearland - Economic Develoj Stand Alone New Money B Dated Date = 02/15/2005 Series 2005 EDC New Money I <O ire C1 l6 a f» 0 c N 0 Q 'L;ea O a EN N 'D N Q , n N = O v0 N O (A c O I E a) N11) al �� -• • Z tat co a) � o cc O co C Ecy v Wti u m (0 0 ZCCZ 0 Le yr • h row C) CO a vaiv ucvvv - , - - 03/01/2006 - - - - - - 74,043.75 74,043.75 - 74,043.75 09/01/2006 - 270,000.00 270,769.50 2.500 2.300000 100.285000 74,043.75 344,043.75 418,087.50 344,043.75 03/01/2007 - - - - - - 70,668.75 70,668.75 - 70,668.75 09/01/2007 - 275,000.00 276,955.25 2.750 2.450000 100.711000 70,668.75 345,668.75 416,337.50 345,668.75 03/01/2008 - - - - - - 66,887.50 66,887.50 - 66,887.50 09/01/2008 - 335,000.00 338,849.15 3.000 2.650000 101.149000 66,887.50 401,887.50 468,775.00 401,887.50 03/01/2009 - - - - - - 61,862.50 61,862.50 - 61,862.50 09/01/2009 - 350,000.00 352,912.00 3.000 2.800000 100.832000 61,862.50 411,862.50 473,725.00 411,862.50 03/01/2010 - - - - - - 56,612.50 56,612.50 - 56,612.50 09/01/2010 - 365,000.00 370,482.30 3.250 2.950000 101.502000 56,612.50 421,612.50 478,225.00 421,612.50 03/01/2011 - - - - - - 50,681.25 50,681.25 - 50,681.25 09/01/2011 375,000.00 377,610.00 3.250 3.130000 100.696000 50,681.25 425,681.25 476,362.50 425,681.25 03/01/2012 - - - - - - 44,587.50 44,587.50 - 44,587.50 09/01/2012 - 395 000.00 400,964.50 3.500 3.270000 101.510000 44,587.50 439,587.50 484,175.00 439,587.50 03/01/2013 - - - - - - 37,675.00 37,675.00 - 37,675.00 09/01/2013 410,000.00 426,420.50 4.000 3.450000 104.005000 37,675.00 447,675.00 485,350.00 447,675.00 03/01/2014 - - - - - 29,475.00 29,475.00 - 29,475.00 09/01/2014 - 430,000.00 444,727.50 4.000 3.570000 103.425000 29,475.00 459,475.00 488,950.00 459,475.00 ngmh iom S - - - - - - 20,875.00 20,875.00 _ 20,875.00 0 - at I o,vvv.vv C , - 4,365,000.00 4,485,404.20 1,134,951.25 5,499,951.25 5,499,951.25 5,476,201.25 t - - --12,928.13 -12,928.13 - - c - 4.365.000.00 4.485.404.20 _ 1,122,023.12 5,487,023.12 5,499,951.25 5,476,201.25 Id /cI wca) .... ,i.vvww. C_ io .�.,,,,.y., ......r .....,. . _. ---'- - — - . - ---- - --- . . --. -.., ioc ca.", or»o-r Ailn — Q R9Qd000/ twiti Economic I Refunding of 2005 EDC Ref • EXHIBIT B ESCROW AGENT COMPENSATION Escrow Agent Fee Payable at Closing $2,250.00 Periodic Tenders, Sinking Fund, Optional or Extraordinary Calls $ 1 50/event SIGNATURE IDENTIFICATION AND AUTHORITY CERTIFICATE OF JPMORGAN CHASE BANK I, the undersigned officer of JPMorgan Chase Bank, N.A. (the "Bank"), which is the Escrow Agent appointed by Pearland Economic Development Corporation (the "Issuer"), in connection with the issuance, sale, execution and delivery of its Sales Tax Revenue and Refunding Bonds, Series 2005 (the "Bonds"), and the execution and delivery of an Escrow Agreement (the "Escrow Agreement") dated as of February 14, 2005 and between the Issuer and the Bank hereby certify as follows: 1. The Bank is a national banking association duly and validly existing under the banking laws of the United States of America and has full power and authority to enter into and perform the obligations of the Escrow Agent under the Escrow Agreement. 2. The Escrow Agreement has been duly executed and attested on behalf of the Bank by one or more of the persons named below whose offices appear set opposite their names; said persons were at the time of executing the Escrow Agreement, and are now, duly elected, qualified and acting incumbents of their respective offices; and the signatures appearing after each of said persons' names is the true and correct specimen of such person's genuine signature: Name Office Brad Hounsel Assistant Vice President Cathleen Sokolowski Vice President Signature 3. The foregoing officers of the Bank, by virtue of the authority del::a ed to them as set forth in Exhibit A, are authorized to execute and deliver on behalf of the Escrow Agreement, and such other and further documents as may be necessary or incidental to the acceptance and performance of the duties set forth within. IN WITNESS WHEREOF, the undersigned Bank has caused this certificate to be executed and its seal affixed on this 18t1' day of February , 2005. JPMORGAN CHASE BANK, N. A. Dallas, Texas as Escrow Agent By: Title: [BANK SEAL] Exhibit A — Evidence of Delegation of Authority Vice President JPMORGAN CHASE BANK, NATIONAL ASSOCIATION SECRETARY'S CERTIFICATE I, Susan E. Gross, Assistant Corporate Secretary of JPMorgan Chase Bank, National Association, hereby certify that the following is a tnie and correct copy of resolutions adopted at a meeting of the Board of Directors of Chemical Bank, now known as JPMorgan Chase Bank, National Association, (the ' Bank"), a national banking association, on the 19th day of March 1996, which meeting was properly called and held and at which a quorum was present and voted in favor of said resolutions. I further certify that the said resolutions, at the date hereof, are still in full force and effect. RESOLVED that for the purposes of the following resolutions the following words, when used therein, shall have the meaning ascribed to them as follows: "Officer" shall mean the Chairman of the Board, the Chief Executive Officer, the President, a Vice Chairman of the Board, a Vice Chairman, any member of the Policy Council, any Executive Vice President, the Chief Financial Officer, the Chief Credit Officer the Secretary, any Senior Vice President, any Vice President, any Managing Director, the Controller, the Deputy Controller, any Vice President, any Assistant Vice President, any Assistant Treasurer, any Assistant Corporate Secretary, any Senior Investment Officer, any Investment Officer, any Assistant Investment Officer, any Senior Trust Officer, any Trust Officer, any Assistant Trust Officer other than any Special Assistant Trust Officer, any Manager or Assistant Manager of any branch office, division or department of the Bank, or any other Officers having functional titles the approvals of which the Office of the Chairman, on the authority of the Board, has delegated to the Secretary. ` Special Assistant Trust Officer" shall mean any employee so appointed and specially authorized by the Chairman of the Board, the Chief Executive Officer, the President, a Vice Chairman of the Board, a Vice Chairman, any member of the Policy Council, any Executive Vice President, the Chief Financial Officer and the Chief Credit Officer to use the designation 'Authorized Officer" or "Authorized Signature'. RESOLVED that agreements, indentures, mortgages, deeds, releases, conveyances, transfers, assignments, leases, demands, proofs of debt, claims, discharges, satisfactions, settlements, petitions, affidavits, receipts, equipment trust certificates records, bonds, undertakings and proxies or other instruments or documents in connection with the exercise of any of the fiduciary or agency powers of the Bank may be signed, executed, acknowledged verified, delivered or accepted on behalf of the Bank, manually or in facsimile by the Chairman of the Board, the Chief Executive Officer, the President a Vice Chairman of the Board, a Vice Chairman, any member of the Executive Committee, any Executive Vice President, the Chief Financial Officer, the Chief Credit Officer, the Secretary, any Senior Vice President, any Managing Director, any Vice President, any Assistant Vice President, any Associate, any Senior Trust Officer any Senior Investment Officer, any Trust Officer, or any Investment Officer, and the seal. of the Bank may be affixed or a facsimile thereof imprinted on any document or instrument thereof and attested by the Secretary, any Assistant Secretary, any Senior Trust Officer, any Senior Investment Officer, any Trust Officer, any Investment Officer, any Assistant Trust Officer or any Assistant Investment Officer. C:\Documents and Settings\u022966\Local Settings \Temp\c.data.U022966.notes cdi\CERTIFICATE 119 - 1PMCBNA - FIDUCIARY OR AGENCY CAPACITY.doc RESOLVED that certifications, declarations, accounts, schedules or requisitions in connection with the exercise of any of the fiduciary or agency powers of the Bank may be si fined, countersigned, executed, delivered, acknowledged or verified by the Chairman of the Board, the Chief Executive Officer, the President, a Vice Chairman of the Board, a Vice Chairman, any member of the Policy Council, any Executive Vice President, the Chief Financial Officer, the Chief Credit Officer, the Secretary, any Senior Vice President, any Managing Director, any Vice President, any Assistant Vice President, any Assistant Treasurer, any Senior Investment Officer, any Investment Officer, any Assistant Investment Officer, any Senior Trust Officer, any Trust Officer, any Assistant Trust Officer, or any Assistant Secretary. RESOLVED that in addition to other Officers so authorized, any Vice President may affix the seal of the Bank to any instrument made, executed or delivered on behalf of the Bank and that such Vice President, or the Secretary, or any Assistant Secretary may attest the same. EXECUTED effective as of the day of F e , , 2005, Dallas, Texas. JPIVIorgan Chase Bank, National Association By: Susan E. Gross Assistant Corporate Secretary C:\Documents and Settings\u022966\Local Settings\Temp\c.data.U022966.notes_cdi\CERTIFICATE tt9 - JPMCDNA - FIDUCIARY OR AGENCY CAPACITY.doc PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of February 14, 2005 (together with any amendments or supplements hereto, the ` Agreement') is entered into by and between the PEARLAND ECONOMIC DEVELOPMENT CORPORATION (the ` Issuer'), and WELLS FARGO BANK, NATIONAL ASSOCATION, as paying agent/registrar (together with any successor in such capacity, the "Bank"). WITNESSETH: WHEREAS, the Issuer has duly authorized and provided for the issuance of its Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 (the `Bonds") to be issued as fully registered bonds. WHEREAS, all things necessary to make the Bonds the valid obligations of the Issuer, in accordance with their terms, will be done upon the issuance and delivery thereof; WHEREAS, the Issuer and the Bank wish to provide the terms under which the Bank will act as Paying Agent to pay the principal of, redemption premium, if any, and interest on the Bonds, in accordance with the terms thereof, and under which the Bank will act as Registrar for the Bonds; and WHEREAS, the Issuer and the Bank have duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the parties, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE I. APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.1. Appointment The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Bonds, to pay to the Registered Owners of the Bonds, in accordance with the terms and provisions of this Agreement and the resolution authorizing the issuance of the Bonds (the `Resolution"), the principal of, redemption premium, if any, and interest on all or any of the Bonds. The Issuer hereby appoints the Bank as Registrar with respect to the Bonds. The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Bonds. HOU.2406452.1 Section 1.2. Compensation. As compensation for the Bank's services as Paying Agent/Registrar, the Issuer hereby agrees to pay the Bank the fees set forth in the Bank's fee schedule attached as Exhibit A hereto. The Bank reserves the right to amend the fee schedule at any time, provided the Bank shall have furnished the Issuer with a written copy of such amended fee schedule at least 75 days prior to the date that the new fees are to become effective. In addition, the Issuer agrees to reimburse the Bank upon its request for all reasonable expenses, disbursements and advances incurred or made by the Bank in accordance with any of the provisions hereof (including the reasonable compensation and the expenses and disbursements of its agents and counsel). _ ARTICLE II. DEFINITIONS Section 2.1. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means Wells Fargo Bank, National Association, a commercial bank duly organized and existing under the laws of the United States of America. "Bond" or "Bonds" means any one or all of the "Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005" authorized by the Resolution. "Issuer" means the Pearland Economic Development Corporation. "Resolution" means the resolution of the Issuer authorizing the issuance of the Bonds. "Paying Agent" means Wells Fargo Bank, National Association. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government or any entity whatsoever. "Registrar" means the Bank when it is performing the function of registrar. "Registered Owner" means the Person in whose name any Bond is registered in the books of registration maintained by the Bank under this Agreement. All other capitalized terms shall have the meanings assigned to them in the Resolution. 2 HOU:2406452. I ARTICLE III. DUTIES OF THE BANK Section 3.1. Initial Delivery of the Bonds. The Bonds will be initially registered and delivered by the Bank to the purchaser designated by the Issuer as set forth in the Resolution. If such purchaser delivers a written request to the Bank not later than five business days prior to the date of initial delivery, the Bank will, on the date of initial delivery, exchange the Bonds initially delivered for Bonds of authorized denominations, registered in accordance with the instructions in such request and the Resolution. Section 3.2. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate funds have been provided to it for such purpose by or on behalf of the Issuer, timely pay on behalf of the Issuer the principal of and interest on each Bond in accordance with the provisions of the Resolution. If the issue is to be Depository Trust Company (DTC) eligible, the Paying Agent will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3 3. Duties of Registrar. The Bank shall provide for the proper registration of the Bonds and the timely exchange, replacement and registration of transfer of the Bonds in accordance with the provisions of the Resolution. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Resolution The Bank will maintain the books of registration in accordance with the Resolution and the Bank's general practices and procedures in effect from time to time. Section 3.4. Unauthenticated Obligations. The Issuer shall provide an adequate inventory of unauthenticated Bonds to facilitate transfers. The Bank covenants that it will maintain such unauthenticated Bonds in safekeeping and will use reasonable care in maintaining such Bonds in safekeeping, which shall be not less than the care it maintains for debt securities of other government entities or corporations for which it serves as registrar, or which it maintains for its own bonds. Section 3.5. Reports. Upon request of the Issuer, the Bank will provide the Issuer reports which will describe in reasonable detail all transactions pertaining to the Bonds and the books of registration for the period of time specified by the Issuer. The Issuer may also inspect and make copies of the information in the books of registration and such other documents related to the Bonds and in the Bank's possession at any time the Bank is customarily open for business, provided that 3 HOU:2406452.1 reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of a subpoena, court order or other lawful request, the Bank will notify the Issuer immediately so that the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.6. Canceled Obligations. All Bonds surrendered for payment, redemption transfer, exchange or replacement, if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Bonds previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Bonds so delivered shall be promptly canceled by the Bank. All canceled Bonds held by the Bank shall be destroyed and evidence of such destruction shall be furnished to the Issuer. Section 3.7. Reliance on Documents, Etc (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank by the Issuer. (b) The Bank shall not be liable to the Issuer for actions taken under this Agreement as long as it acts in good faith and exercises due diligence, reasonableness and care, as prescribed by law, with regard to its duties hereunder. (c) This Agreement is not intended to require the Bank to expend its own funds for performance of any of its duties hereunder. (d) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys. Section 3.8. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered Owners of the Bonds. The Bank shall be under no obligation to pay interest on any money received by it hereunder. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Any money deposited with the Bank for the payment of the principal of or interest on any Bonds and remaining unclaimed by the Registered Owner after the expiration of three years from the date such funds have become due and payable shall be reported and disposed of by the Bank 4 HOU:2406452.1 in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. To the extent such provisions of the Property Code do not apply to the funds, such funds shall be paid by the Bank to the Issuer upon receipt of a written request therefor from the Issuer. The Bank shall have no liability to the Registered Owners of the Bonds by virtue of actions taken in compliance with the foregoing provision. Section 3.9. Indemnification. To the extent permitted by law, the Issuer agrees to indemnify the Bank for, and hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part, arising out of or in connection with its acceptance or administration of its duties hereunder, including the cost and expense against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. ARTICLE IV. MISCELLANEOUS PROVISIONS Section 4.1. May Own Bonds. The Bank, in its individual or any other capacity may become the owner or pledgee of Bonds with the same rights it would have if it were not the Paying Agent and Registrar for the Bonds. Section 4.2. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 4.3. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 4.4. Notices. Any request, demand, authorization, direction, notice, consent waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. Section 4.5. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. 5 HOU:2406452. I Section 4.6. Successors and Assigns. All covenants and agreements herein by the Issuer and the Bank shall bind their successors and assigns, whether so expressed or not. This Agreement shall not be assigned by the Bank without the prior written consent of the Issuer. Section 4.7. Severability. If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 4.8. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 4.9. Resolutions Govern Conflicts. This Agreement and the Resolution constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent and Registrar and if any conflict exists between this Agreement and the Resolution, the Resolution shall govern. The Bank agrees to be bound by the terms of the Resolution with respect to the Bonds. Section 4.10. Term and Termination. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. In the event of early termination, regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, Bonds and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Bonds, including, but not limited to, the books of registration. Section 4.11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 4.12. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. 6 HOU:2406452. I IN WITNESS WHEREOF, the parties arties hereto have executed this Agreement as of the day and year first above written. PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: ADDRESS: 3 519 Liberty Drive Pearland, Texas 77581 WELLS FARGO BANK, NATIONAL ASSOCIATION By: Title: ADDRESS: 1000 Louisiana Street, Suite 640 Houston, Texas 77002 ATTEST: By: Title: (SEAL) Attn: Corporate Trust Department S-1 HOU:2406452.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTEST: Secretary ATTEST: By: 7Q Title: i"4; Vicp President is t AL) • • ' Iry el bitP .._-, , • •. r, • a t39 a r_D . .J t * ta t\ i. _I' L...4 mot_ '_ xt a if 420 ♦ � ♦ e • Qw vie. 4/S A CC %% • •ice' . . u as y n t ' ri • ' c tr'-�i ` •.0 "rn l ALry� 1' r . i LI ` PEARLAND ECONOMIC DEVELOPMENT CORPORATION By: Chairman ADDRESS: 3519 Liberty Drive Pearland, Texas 77581 WELLS FARGO BANK, NATIONAL ASSOCIATION By: Title: Vice President ADDRESS: 1000 Louisiana Street, Suite 640 Houston, Texas 77002 Attn: Corporate Trust Department HOU:2406452.1 S-1 EXHIBIT A Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 Fee Schedule Acceptance Fee waived Annual Administration Fee $500.00 HOU:2406452.1 Wells Fargo Bank, N.A. Corporate Trust Services Certified Copy of General Signature Resolution Relatng to Execution. of Written Instruments • I, Patricia Aston, an Assistant Secretary of Wells Fargo Bank, National Association, a national banking association organized under the laws of the United States of America (the "Bank"), hereby certify that: The following is a true and correct extract from resolutions duly adopted by the Board of Directors of the Bank on November 25, 2003, and that no modification, amendment, rescission or revocation of such resolutions has occurred affecting such extract as of the date of this certificate, and that the resolutions remain in full force and effect on the date hereof: • • RESOLVED, that agreements, instruments, or other documents, including amendments and modifications thereto, relating to or affecting the property or business and affairs of the Bank, whether acting for its own account or in a fiduciary or other representative capacity, may be executed in its name by the persons hereinafter authorized; FURTHER RESOLVED, that for the purposes of these resolutions, "Executive Officer" shall mean any person specifically designated as an Executive Officer of the Bank by resolution of the Board of Directors, and "Signing Officer" shall mean the Chairman of the Board, the President, any Vice Chairman, any Executive Vice President, any Senior Vice President, the Treasurer, any Vice President, any Assistant Vice President, any person whose title includes the word "Officer" (e.g., Commercial Banking Officer, Personal Banking Officer, Trust Officer) or any other person whose title has been or is hereafter designated by the Board of Directors as a title for an officer of the Bank, and such officers are hereby authorized to sign agreements, instruments and other documents on behalf of the Bank in accordance with the signing authorities conferred in Parts A, B and C of these resolutions; A. Executive Officers • FURTHER RESOLVED, that the Chairman, the President, any Vice Chairman, any Executive Vice President and any Executive Officer of the Bank, acting alone, may execute agreements guaranties, instruments or other documents which such officer may deem necessary, proper or expedient to the conduct of the business of the Bank; B. Vice Presidents and Above • FURTHER RESOLVED, that the Chairman, the President any Vice Chairman, any Executive Vice President, any Senior Vice President and any Vice President, acting alone, may execute on behalf of the Bank: Deeds, leases, assignments, bills of sale, purchase agreements and other instruments of conveyance to purchase, sell lease or sublease to or from a third party real property, or any interest therein, for the Bank's own account; provided, however, that such agreements, instruments and other documents may also be signed as hereinafter provided with respect to real property acquired by the Bank in connection with collateral fora loan. Bonds of indemnity and powers of attorney; provided, however, that proxies to vote stock in a corporation or to vote other interests in other legal entities and stock and bond powers may also be signed as hereinafter provided. C. Signing Officers FURTHER RESOLVED, that any Signing Officer, acting alone, may execute on behalf of the Bank, whether acting for its own account or in a fiduciary or other representative capacity: • • Receipts for any funds or other property paid or delivered to the Bank. • Guaranties of signatures, whether appearing as endorsements of bonds, certificates of stock, or other securities, including without limitation medallion guaranties provided in connection with a medallion stamp, or otherwise. Agreements and proposals to provide services to or receive services from third parties. • es. ' • Trust indentures, declarations of trust, trust and agency agreements, pooling and servicing 9 agency agreements, acceptances thereof, consents icing agreements, fiscal denominated, to which the Bank is a art in thereto and any similar agreements, denominateauthentication or other i of valid issuance y a fiduciary or other representative capacity; g i i at es, however with respect to bonds, notes, debentures Certificates of obligations issued under any indenture, mortgage, tr ntures and other deposited interim certificates and other certificates ust or other agreement certificates for securities c stocks, for and on behalf of the Bank as depository other countersignaturesertificates, instruments, o bonds, notes, debentures, voting trust certificates participation or agent; obligations or other securities on behalf of' participatiocertificates and paying agent, transfer agent, registrar or in anothersimilar the Bank as trustee, fiscal cremation of stocks, bonds, debentures or other capacity; and certificates of cancellation and securities, tion and sss FURTHER RESOLVED, that the signature o to certify any resolution adopted bythe f the Secretary or of any Assistant Secretary requiredile to certify of any officer of the Board of Directors of the Bank or anyco of the Bank shall be Bank and any designation of authorityunder committee thereof,h the incumbent Secretary or any Assistant Secretaryof the B these resolutions Y� course of the business of the Bank. Bank mayalso certify bons or otherwise, and the ' kfy any records or other documents creat ed in the ordinary I further certify that on , the following named person is/was a dui Officer of Wells Fargo Bank, N.A., that their correct title and genuinesi natur y appointed, qualified that ed and actingSi act on behalf of the Bank as set forth in the for g e appears beside their name, and on gning were duly authorized to ageing resolution: said date they IN WITNESS WHEREOF, I have hereunto signed g ed my name this • Assista Secretary • • * " Redacted [Indicates portions of the resolut ions have intentionally been omitted becaus certification has been re quested.] a the sections are not relevant to the transaction for which this o wo c o c 7 6 •w_ .. o 0 • c o � a 5 .y V7 bq 74 L its o o8 v.y _a � 3 • V • N C s •s o c c Gtc o v C � 3 g c Oa a •- t El. al c O N 1.430 s •c 1. g vE 14.1 v E oa m d w is y = c c 4.3 c 51.r) E00:13 y,oN 4) c C w •O w c 5 3 U d y.y 6 a „ •c 5 _ s g t- o V. PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 2, 2005 NEW ISSUE — Book Entry Only See "RATINGS" herein • In the. opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under "TAX EXEMPTION" herein, and is not includable in the alternative minimum taxable income of individuals. See "TAX EXEMPTION" for a discussion of the opinion of Bond Counsel, including the alternative minimum tax on corporations. $10,775,000* PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005 Dated: February 15, 2005 Due: September 1, as shown on the inside cover The Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 (the "Bonds') are special limited obligations of the Pearland Economic Development Corporation (the `Corporation') issued pursuant to Article 5190.6, Texas Revised Civil Statutes, as amended, Chapter 1207, Texas Government Code, as amended, and a resolution adopted by the Board of Directors of the Corporation (the "Bond Resolution"). The Bonds are being issued to (a) finance the acquisition and construction of certain streets and roads, drainage and related improvements within the City of Pearland Texas (the "City") (as further described herein); (b) defease and refund the Refunded Bonds (as defined herein); and (c) to pay the costs of issuance of the Bonds. See ` PROJECT AND PLAN OF FINANCE." Interest on the Bonds shall accrue from February 15, 2005 (the `Dated Date"), is payable on September 1, 2005 and each March 1 and September 1 thereafter (each a "Payment Date") until maturity or prior redemption, and is calculated on the basis of a 360-day year composed of twelve 30-day months. The Bonds are initially issuable only to Cede & Co., as nominee of The Depository Trust Company, New York New York (` DTC") pursuant to the book -entry only system described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by Wells Fargo Bank, N.A., Minneapolis, Minnesota, the paying agent/registrar (the "Paying Agent/Registrar") to Cede & Co., which will make distribution of the amounts so paid to DTC's participating members for subsequent remittance to the beneficial owners of the Bonds. The Bonds are subject to redemption prior to maturity as provided herein. See "DESCRIPTION OF THE BONDS —Redemption." The Bonds are payable from and secured by a lien on and pledge of the Pledged Revenues (as defined herein) which include certain receipts of a one-half of one percent ('/z%) sales and use tax collected within the boundaries of the City for the benefit of the Corporation. THE BONDS CONSTITUTE SPECIAL LIMITED OBLIGATIONS OF THE CORPORATION, PAYABLE SOLELY FROM, AND SECURED BY A LIEN ON AND PLEDGE OF, THE PLEDGED REVENUES, AND ARE NOT PAYABLE FROM NOR SECURED BY ANY OTHER REVENUES, PROPERTY OR INCOME OF THE CORPORATION. THE BONDS DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE STATE OF TEXAS OR ANY POLITICAL SUBDIVISION, CORPORATION, OR AGENCY THEREOF, OR OF THE CITY OF PEARLAND, TEXAS OR THE COUNTIES OF HARRIS OR BRAZORIA, AND THE HOLDERS THEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF ANY FUNDS RAISED OR TO BE RAISED BY AD VALOREM TAXATION See `SECURITY FOR THE BONDS" and INVESTMENT CONSIDERATIONS." The Corporation has applied for a municipal bond insurance policy to insure the payment of the principal and interest on the Bonds when due. It is expected such municipal bond insurance policy will be issued concurrently with the delivery of the Bonds See "BOND INSURANCE" and "RATINGS" herein. SEE INSIDE COVER FOR MATURITY SCHEDULE The Bonds are offered for delivery when as, and if issued and accepted by the Underwriters, and subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel as to the validity of the issuance of the Bonds under the Constitution and laws of the State of Texas. Certain legal matters will be passed upon for the Underwriters by their counsel, Vinson & Elkins L.L.P. The Bonds are expected to be available for delivery through the facilities of DTC on or about March 15, 2005 UBS FINANCIAL SERVICES INC. COASTAL SECURITIES EDWARD D. JONES & CO., L.P. Preliminary, subject to change. MATURITY SCHEDULE* $10,775,000* PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005 Maturity Date (September 1) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Principal Amount* $520,000 310,000 320,000 330,000 340,000 350,000 365,000 380,000 400,000 420,000 440,000 465,000 490,000 510,000 540,000 565,000 595,000 620,000 655,000 685,000 720,000 755,000 Interest Rate Yteldttl CUSIPt�1 The Bonds having stated maturities on or after September 1, 2016, are subject to redemption in whole or in part at the option of the Corporation on September 1, 2015 or any date thereafter, at a price of par plus accrued and unpaid interest to the date fixed for redemption. See "DESCRIPTION OF THE BONDS -Redemption." • Preliminary, subject to change (1) The initial yields will be established by and arc the sole responsibility of the Underwriters (hereinafter defined) and may subsequently be changed. (2) CUSIP numbers have been assigned to this issue by the Standard & Poor's CUSIP Service Bureau, a division of the McGraw-Hill Companies, and included solely for the convenience of the owners of thc Bonds Neither the Corporation nor thc Underwriters shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. -i- SALE AND DISTRIBUTION OF THE BONDS Use of Information in Official Statement For the purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document constitutes an Official Statement of the Corporation with respect to the Bonds that has been deemed "final" by the Corporation as of its date except for the omission of no more than the information pennined by Rule 15c2-12(a)(1). No dealer, broker, salesman or other person has been authorized by the Corporation to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authonzed by the Corporation. All other information contained herein has been obtained from the Corporation, DTC and other sources which are believed to be reliable. Such other information is not guaranteed as to accuracy or completeness by, and is not to be relied upon as, or construed as a promise or representation by, the Issuer or the Underwriters. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor will there be any sale of any Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. Any information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the Corporation or other matters described herein since the date hereof. Marketability IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL WHICH MIGHT NOT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Certain information set forth herein has been obtained from the Corporation and other sources which are believed to be reliable but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriters All of the summaries of the statutes, resolutions, contracts, financial statements, reports, agreements, and other related documents set forth in this Official Statement are qualified in their entirety by reference to such documents. These summaries do not purport to be complete statements of such provisions, and reference is made to such documents, copies of which are available from the Corporation. Securities Laws IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CORPORATION, AND THE STATE OF TEXAS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY CORPORATION FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon an exemption provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon N arious exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction. The Corporation assumes no responsibility for registration or qualification for sale or other disposition of the Bonds under the securities laws of any jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions. PEARLAND ECONOMIC DEVELOPMENT CORPORATION Board of Directors Randall Ferguson, Chairman Lucy Stevener, Secretary Helen Beckman Felicia Kyle Steve Saboe George Sandars Ed Thompson Executive Staff Fred Welch, Executive Director Will Benson, Marketing Manager Karen Dickson, Manager, Business Retention & Expansion CITY OF PEARLAND, TEXAS Elected Officials Tom Reid, Mayor Charles Viktorin, Mayor Pro-Tem, Council Member Kevin Cole, Council Member Larry Marcott, Council Member Woody Owens, Council Member Richard Tetens, Council Member Certain Appointed Officials Bill Eisen, City Manager Alan Mueller, Deputy City Manager Andrea Gardner, Director of Finance Young Lorfing, City Secretary Darrin Coker, City Attorney Consultants and Advisors Financial Advisor RBC Dain Rauscher Inc. Certified Public Accountants Pattillo, Brown & Hill, P.C. Bond Counsel Andrews Kurth LLP BOND INSURANCE The Corporation has applied for a municipal bond insurance policy to insure the payment of the principal and interest on the Bonds when due. It is expected that such municipal bond insurance policy will be issued concurrently with the delivery of the Bonds. See "RATINGS" herein. RESERVE FUND SURETY POLICY The Corporation has applied for and intends to purchase a reserve fund surety bond (the "Surety Bond') with a portion of the proceeds from the sale of the Bonds, in order to satisfy the Reserve Fund Requirement for the Bonds. TABLE OF CONTENTS BOND INSURANCE iv RESERVE FUND SURETY POLICY iv INTRODUCTION 1 PROJECT AND PLAN OF FINANCE 1 Purpose 1 The Project 1 The Refunded Bonds 2 Sources and Uses of Funds 2 Authority for Issuance of the Bonds 2 THE CORPORATION 3 General 3 Management 3 DESCRIPTION OF THE BONDS 3 General 3 Paying Agent/Registrar 4 Transfers and Exchanges of the Bonds 4 Redemption 4 Defeasance 5 Book -Entry Only System 5 SECURITY FOR THE BONDS 7 The City Resolution 7 The Bond Resolution 7 Pledge Under Bond Resolution 7 Limited Obligations 8 Collection of Sales Tax Revenues and the Revenue Fund 8 Additional Parity Bonds and Obligations 8 Remedies 9 THE SALES TAX 9 HISTORICAL PLEDGED REVENUES 12 Schedule 1 — Historical Sales Tax Collections for the Corporation 12 Schedule 2 — Major Retail Establishments in the City 13 PRO FORMA DEBT SERVICE SCHEDULE 13 MANAGEMENT AND OPERATION OF THE CORPORATION 14 Schedule 3 — Budgeting and Operations 14 Investments 14 Schedule 4 — Invested Funds of the Corporation 16 INVESTMENT CONSIDERATIONS 16 The Sales Tax 16 Bankruptcy Limitation to Registered Owners' Rights 17 THE CITY 17 Limitation 17 General 17 Location 17 Population 18 LEGAL MATTERS 18. General 18 Forward Looking Statements 18 TAX EXEMPTION 19 TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS 20 Discount Bonds 20 Premium Bonds 21 LITIGATION 21 LEGAL INVESTMENTS IN TEXAS 22 VERIFICATION OF MATHEMATICAL ACCURACY 22 RATINGS 22 CONTINUING DISCLOSURE OF INFORMATION 22 Annual Reports 22 Material Event Notices 23 Availability of Information From NRMSIRs and SID 23 Limitations and Amendments 23 Audited Financial Report of the City 24 Compliance With Prior Undertakings 24 UNDERWRITING 24 FINANCIAL ADVISOR 24 GENERAL CONSIDERATIONS 25 APPENDIX A EXCERPTS OF CERTAIN PROVISIONS OF THE BOND. RESOLUTION A-1 APPENDIX B GENERAL INFORMATION REGARDING THE C1TY OF PEARLAND B-1 APPENDIX C AUDITED FINANCIAL STATEMENT OF THE C1TY OF PEARLAND FOR THE YEAR ENDED SEPTEMBER 30, 2003 C-1 APPENDIX D SCHEDULE OF REFUNDED BONDS D-1 APPENDIX E FORM OF BOND COUNSEL OPINION D-1 APPENDIX F SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY D-1 APPENDIX G SPECIMEN OF SURETY BOND POLICY D-1 OFFICIAL STATEMENT SUMMARY The following material is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement, reference to which is made for all purposes. No person is authorized to detach this Official Statement Summary from this Official Statement or to otherwise use it without this entire Official Statement (including the appendices). The Issuer The Pearland Economic Development Corporation (the `Corporation") is a non-profit corporation created by the City of Pearland, Texas (the `City") pursuant to Section 4B of Article 5190.6, Texas Revised Civil Statutes, as amended (the "Act") to promote economic development within the City and the vicinity thereof. See "THE CORPORATION." Use of Proceeds Proceeds from the sale of the Bonds will be used to (a) finance the acquisition and construction of certain streets and roads, drainage and related improvements within the City (as described herein) (b) to defease and refund the Refunded Bonds (as defined herein); and (c) to pay the costs of issuance of the Bonds. See "PROJECT AND PLAN OF FINANCE." Authority for The Bonds are being issued pursuant to the Constitution and laws of the State of Texas, Issuance including particularly the Act Chapter 1207, Texas Government Code, as amended, and a resolution adopted by the Corporation authorizing the issuance of the Bonds (the "Bond Resolution") The City Council of the City is expected to approve the issuance of the Bonds by a resolution to be adopted on February 14, 2005 (the "City Resolution"). See 'PROJECT AND PLAN OF FINANCE." The Bonds The Bonds are special limited obligations of the Corporation issued in the aggregate principal amount of $10,775,000., and mature on September 1 in the years and in the principal amounts set forth on the inside cover page hereof. Interest on the Bonds accrues from February 15, 2005 and is payable initially on September 1, 2005, and on each March 1 and September 1 thereafter until the earlier of maturity or redemption See "DESCRIPTION OF THE BONDS." Security and The Bonds are payable solely from and secured by a lien on and pledge of the Pledged Source of Revenues (as defined herein) which consists principally of certain receipts of a one-half of Payment one. percent ('/s%) sales and use tax (the "Sales Tax") levied and collected within the City. The Sales Tax was authorized at an election held in the City on January 21, 1995. The Bonds are not secured by or payable from any other revenues, property, or income of the Corporation and are not obligations of the State of Texas, the City, or any other political subdivision, corporation or agency and shall never be payable from any system of ad valorem taxation. See "SECURITY FOR THE BONDS." Redemption The Bonds having stated maturities on or after September 1, 2016, are subject to redemption at the option of the Corporation on September 1, 2015 or any date thereafter, at par plus accrued and unpaid interest to the date fixed for redemption. See `DESCRIPTION OF THE BONDS" Additional Parity Subject to certain conditions under the Bond Resolution, the Corporation is authonzed to Bonds and Other issue additional obligations secured by the pledge of the Pledged Revenues on a parity with Obligations and/or subordinate to the pledge of such revenues securing the Bonds. See "SECURITY FOR THE BONDS" and Appendix A hereto. Tax Exemption In the opinion of Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law. See "TAX EXEMPTION' for a discussion of the opinion of Bond Counsel and a description of other tax consequences. Ratings and The Corporation has applied for a municipal bond insurance policy, to be issued concurrently Municipal Bond with the delivery of the Bonds, in order to insure the payment of the principal and interest on Insurance the Bonds when due The Bonds are expected to be rated " " and " " by Moody's Investors Service and Standard & Poor's Ratings Service, respectively based on the issuance of such municipal bond insurance policy. See "RATINGS" and "BOND INSURANCE." Preliminary, subject to change. -vi- OFFICIAL STATEMENT relating to $10,775,000* PEARLAND ECONOMIC DEVELOPMENT CORPORATION SALES TAX REVENUE AND REFUNDING BONDS, SERIES 2005 INTRODUCTION This Official Statement, including the cover page and the Appendices hereto, provides certain information regarding the issuance by the Pearland Economic Development Corporation (the "Corporation") of the bonds captioned above (the "Bonds"). The Bonds are being issued pursuant to Section 4B of Article 5190 6, Texas Revised Civil Statutes, as amended (the "Act"), Chapter 1207, Texas Government Code as amended ("Chapter 1207"), and pursuant to the provisions of a resolution of the Corporation authorizing the Bonds (the "Bond Resolution"). All capitalized terns used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Bond Resolution. The Corporation was created on May 22 1995 by the City Council of the City of Pearland, Texas (the "City") to act on behalf of the City for the promotion and development of industrial and manufacturing enterprises and to promote and encourage employment and public welfare within the City and the vicinity thereof. At an election held within the City on January 21, 1995, the voters of the City approved a one-half of one percent ('/s%) sales and use tax (the "Sales Tax ) the proceeds of which, pursuant to the Act, may (among other things) be pledged to secure obligations of the Corporation issued for the purposes thereof. The Sales Tax became effective July 1, 1995. The Sales Tax, together with all other State and local sales taxes collected in the City, produces a total sales and use tax rate within the City of 8.25%. See "THE SALES TAX." This Official Statement contains brief descriptions of the Bonds and their security, the Corporation, the City and its economy the Bond Resolution and the City Resolution (hereinafter defined). All descriptions of documents contained herein are onlysummaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the Corporation at 3519 Liberty Drive; Pearland Texas 77581 or its Financial Advisor at RBC Dain Rauscher Inc.; 1001 Fannin Street, Suite 400; Houston, Texas 77002. PROJECT AND PLAN OF FINANCE Purpose Proceeds from the sale of the Bonds will be used for the purposes of: (a) financing the acquisition and construction of certain streets and roads drainage and related improvements within the City (as described below) (b) defeasing and refunding all of the Corporation's outstanding Sales Tax Revenue Bonds, Series 1997 issued in the original aggregate principal amount of $5,000,000, as more particularly described in Appendix D hereto (the "Refunded Bonds") and (c) paying the costs of issuance of the Bonds. The Project A portion of the proceeds of the Bonds will be used for the construction of a roadway extension of Kirby Drive from the southern boundary of Clear Creek to Beltway 8 and the construction of related water, sewer, bridge, and drainage improvements required for such extension (the "Project '). The Project is intended to provide essential infrastructure for and access to the Spectrum Business Park, a master planned mixed -use business park development to be located on a 1,000 acre site at the crossroads of State Highway 288 and Beltway 8 in the City. The Project is located entirely within the City limits and extra territorial jurisdiction of the City. Preliminary, subject to change In connection with the Project the Corporation has entered into a construction and maintenance agreement with the City (the "Construction and Maintenance Agreement"). Pursuant to the Construction and Maintenance Agreement, the Corporation has agreed to use a portion of the proceeds from the sale of the Bonds to construct the Project, and the City has agreed to maintain the Project upon its completion, to take all steps necessary and authorized to levy and collect the Sales Tax, and to deposit into the Revenue Fund of the Corporation the Sales Tax Revenues received from the State Comptroller of Public Accounts. The term of the Construction and Maintenance Agreement is twenty two years. The Refunded Bonds A portionof the proceeds of the Bonds will be used to purchase a portfolio of obligations authorized under State law (the "Escrowed Securities") to be deposited and held in escrow (the "Escrow Fund") with JPMorgan Chase Bank (the "Escrow Agent '), the maturing principal of and interest on which will be sufficient to pay when due, the principal of and interest on the Refunded Bonds. A schedule of the Refunded Bonds is set forth in Appendix D hereto. The accuracy of the mathematical computations of the adequacy of the maturing principal of and interest on the Escrowed Securities held in the Escrow Fund to provide for the payment of the Refunded Bonds will be verified by Grant Thornton LLP, a firm of independent certified public accountants. See `VERIFICATION OF MATHEMATICAL ACCURACY." In the opinion of Andrews Kurth LLP, Bond Counsel, by making the escrow deposits required by the Bond Resolution and the escrow agreement to be entered into with the Escrow Agent in connection with the Refunded Bonds (the "Escrow Agreement"), the Corporation will have made firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds pursuant to the provisions of Chapter 1207. Thereafter the Refunded Bonds v i11 be deemed to be fully paid and no longer outstanding (except for the purpose of being paid from the funds provided therefor pursuant to the Escrow Agreement), and the Bens on and pledges of the Pledged Revenues securing the Refunded Bonds will be deemed to have been defeased. Sources and Uses of Funds The proceeds of the Bonds will be applied approximately as follows: Sources: Par Amount Plus Premium/ Less Original Issue Discount Accrued Interest Total Uses: Deposit to Construction Fund $ Deposit to Escrow Fund Deposit to Reserve Fund Costs of Issuance' $ Total $ t Includes Underwriters' Discount, Bond Insurance prcmium, reserve fund surety policy prcmiutn, and other costs of issuance. Authority for Issuance of the Bonds The Bonds are being issued in accordance with the Constitution and general laws of the State of Texas (the "State"), including particularly the Act and Chapter 1207, and additionally pursuant to the Bond Resolution. The City is expected to approve the issuance of the Bonds pursuant to a resolution adopted on February 14, 2005 (the "City Resolution"). -2- THE CORPORATION General The Corporation is a non-profit corporation created by the City for the purposes of organizing and leading the economic development effort for the City and the surrounding area. It was created under Section 4B of the Act. The Act, originally enacted in 1979, was amended during the 1989 session of the State Legislature to enhance development in the State by the authorization of a one-half of one percent ('/s%) sales and use tax for economic development. It also required that an economic development corporation be fornied to administer the proceeds of the tax. The Act permits an economic development corporation to conduct operations beyond the creating City's limits, thus, the Corporation's objectives are to encourage economic development in the entire Pearland area Management The Corporation is subject to review by the City Council of the City, which must approve each bond issue of the Corporation and the Corporation's annual budget. The Corporation has entered into an agreement with the City for certain services and maintenance of its financial records and accounts and the payment of the Corporation's bills. The Corporation is overseen by a seven -person citizen board whose members serve without compensation and are appointed to two-year ternis by the City Council and may be removed at any time by the City Council. A list of the current board members is provided below: Name Randall Ferguson Lucy R Stevener Helen Beckman Felicia Kyle Steve Saboe George Sandars Ed Thompson Position Chairman Secretary Member Member Member Member Member Tenn Expires (November) 2005 2005 2006 2005 2005* 2005 2006 Occupation Banking/Attorney Business Owner Retired Attorney Sales/Marketing Engineer Insurance * Mr. Saboc was reappointed in November 2004 to a new term. At his request, Mr. Saboe's new term will expire in March 2005, rather than November 2006. DESCRIPTION OF THE BONDS General The Bonds are dated February 15, 2005 (the "Dated Date") and will accrue interest at the rates indicated on the inside cover page hereof from the later of the Dated Date or the most recent Payment Date (defined below). Interest on the Bonds is payable initially on September 1, 2005, and each March 1 and September 1 thereafter (each a "Payment Date") until maturity or prior redemption, and is calculated on the basis of a 360-day year composed of twelve 30-day months. The Bonds mature on September 1 in the years and in the principal amounts set forth on the inside cover page hereof. The Bonds will be issued in book -entry form and initially registered solely in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to the book -entry only system described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or integral multiples thereof. No ph) sical delivery of the Bonds will be made to the beneficial owners thereof For as long as the Bonds are book -entry bonds, as described below under "Book -Entry Only System," payment of the principal of, premium, if any, and interest on the Bonds will be made and given in accordance with DTC's operational arrangements. Except as provided under the "Book Entry Only System," principal of the Bonds shall be payable upon their presentation and surrender as they respectively become due and payable at the principal corporate trust office of the Paying Agent/Register The interest on each Bond shall be payable by check payable on the Payment Date, mailed by the Paying Agent/Registrar on or before each Payment Date to the owner of record as of the Record Date, -3- to the address of such owner as shown on the Register, or by such other method, acceptable to the Paying Agent/Registrar, requested by, and at the risk and expense of, the owner. 1f the specified date for any payment of' principal of or interest on the Bonds is not a Business Day, then the date for such payment shall be the next succeeding Business Day, and payment on such date shall have the same force and effect as if made on the original date such payment was due. Paying Agent/Registrar Wells Fargo Bank, N.A., Minneapolis, Minnesota, is the initial Paying Agent/Registrar for the Bonds. In the Bond Resolution, the Corporation reserves the right to replace the Paying Agent/Registrar, but has covenanted to maintain and provide a Paying Agent/Registrar at all times while the Bonds are outstanding. Any successor Paying Agent/Registrar shall be a commercial bank, trust company or other entity duly qualified and legally authorized to serve as and perform the duties and sen ices of paying agent and registrar for the Bonds. In the event that the entity at any time acting as Paying Agent/Registrar should resign or otherwise cease to act as such, the Corporation has covenanted to appoint a replacement Upon any change in the Paying Agent/Registrar for the Bonds, the Corporation has agreed to promptly cause a written notice thereof to be sent to each registered owner of the Bonds by first class mail Transfers and Exchanges of the Bonds So long as any Bonds remain outstanding, the Paying Agent/Registrar must keep at its principal corporate trust office a bond register in which, subject to such reasonable regulations as it may prescribe the Paying Agent/Registrar must provide for the registration and transfer of the Bonds in accordance with the terms of the Bond Resolution. Except as described below under `Book -Entry Only System," the Bonds are transferable only on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Paying Agent/Registrar. No service charge will be made for any transfer, but the Corporation or Paying Agent/Registrar may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. All transfers must be made within three business days after request and presentation. The Corporation has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds, or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the Corporation and the Paying Agent/Registrar of security or indemnity. The Corporation may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption Optional Redemption. The Bonds scheduled to mature on and after September 1, 2016 are subject to redemption prior to maturity at the option of the Corporation on September 1, 2015 or any date thereafter, in whole or in part in principal amounts of $5,000 or any integral multiple thereof. The maturities of the Bonds to be redeemed shall be selected by the Corporation and the Bonds to be redeemed within a given maturity shall be selected by lot or other random method by the Paying Agent/Registrar The redemption price for any Bonds so redeemed shall be equal to par plus accrued interest to the redemption date Nonce of Redemption. Not less than 30 days prior to a redemption date, a notice of redemption will be sent by the Paying Agent/Registrar by United States mail, first class, postage prepaid, to each registered owner of a Bond to be redeemed in whole or in part at the address of each such owner appearing on the Register. All redemption notices shall state the redemption date, the redemption price, the place at which the Bonds are to be surrendered for payment, and if less than all the Bonds are to be redeemed, an identification of the Bonds or portions thereof to be redeemed. ANY NOTICE GIVEN SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE BONDS CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, AND, NOTWITHSTANDING THAT ANY BOND OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT, INTEREST ON SUCH BOND OR PORTION THEREOF SHALL CEASE TO ACCRUE. So long as the Bonds are in book -entry form, any notice of redemption or other notices with respect to the Bonds will be sent only to DTC (or any successor securities depository for the Bonds), and not to the beneficial owners of such Bonds. Defeasance In the Bond Resolution, the Corporation reserves the right to defease the Bonds in any manner now or hereafter permitted by law Upon such defeasance and discharge such Bonds shall no longer be regarded to be outstanding or unpaid. Book -Entry Only System DTC will act as a securities depository for the Bonds. The Bonds will be issued as fully -registered securities registered in the name of Cede & Co., DTC's or such other name as may be requestedby an authorized representative of DTC. One fully -registered Bond certificate will be issued for each maturity of the Bonds in the aggregate principal amount of each such maturity and will be deposited with DTC. DTC, the world's largest depository, is a limited -purpose trust company organized under the New York Bank Law, a "banking organization" within the meaning of the New York Banking law, a member of the Federal Reserve System, a "clearing corporation' within the meaning of the New York Uniform Commercial Code, and a 'clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants') deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book -entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Dearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc. the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating, AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ('Beneficial Owner') is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases. Beneficial Owners are, however, expected to receive written confirmations providing details of the transactions as well as periodic statements of their holdings from the Direct Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. -5- To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, INhich may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Paying Agent/Registrar and request that copies of notices be provided directly to them. Redemption notices will be sent to DTC. If less than all of the Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures DTC mails an Omnibus Proxy to the Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). • Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Paying Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by DTC Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street names," and will be the responsibility of such Participant and not of DTC, the Paying Agent or the Corporation, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Corporation or the Paying Agent/Registrar, and disbursement of' such payment to the Beneficial Owners will be the responsibility of Direct and Indirect Participants DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Corporation or the Paying Agent/Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. The Corporation may decide to discontinue use of the system of book -entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The information under this section concerning DTC and DTC's book -entry system has been obtained from sources that the Corporation believes to be reliable, but the Corporation takes no responsibility for the accuracy thereof. THE PAYING AGENT/REGISTRAR AND THE CORPORATION, SO LONG AS THE DTC BOOK -ENTRY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF PROPOSED AMENDMENT TO THE BOND RESOLUTION NOTICES OF REDEMPTION, OR OTHER NOTICES WITH RESPECT TO SUCH BONDS ONLY TO DTC. ANY FAILURE BY DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT TO NOTIFY THE BENEFICIAL OWNERS, OF ANY NOTICES AND THEIR CONTENTS OR EFFECT WILL NOT AFFECT ANY ACTION PREMISED ON ANY SUCH NOTICE. NEITHER THE CORPORATION NOR THE PAYING AGENT/REGISTRAR WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT•PARTICIPANTS, INDIRECT PARTICIPANTS, OR THE PERSONS FOR WHOM DTC PARTICIPANTS ACT AS NOMINEES, WITH RESPECT TO THE PAYMENTS ON THE BONDS OR THE PROVIDING OF NOTICE TO DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS. SECURITY FOR THE BONDS The City Resolution. On February 14, 2005 the City Council of the City will adopt the City Resolution to approve the Bond Resolution and the issuance of the Bonds by the Corporation. In the City Resolution, the City covenants and agrees that so long as the Bonds are Outstanding it will take and pursue all action necessary and authorized under State law to cause the Sales Tax to be levied and collected continuously at the rate of one-half of one percent (1/2%), and will not cause a reduction, abatement or exemption in the Sales Tax or in the rate in which it is authorized to be collected. The City further agrees to deposit into the Revenue Fund all of the Sales Tax Revenues collected from the levy and assessment of the Sales Tax, less any amounts due to the Comptroller for collection costs and other charges. The Municipal Sales and Use Tax Act provides that the Sales Tax does not apply to the sale of a taxable item unless the item is also taxable under the Texas Limited Sales, Excise and Use Tax Act. The Sales Tax is therefore subject to broadening and reduction in the base against which it is levied by action of the State Legislature without the consent of the City or the Corporation. See "INVESTMENT CONSIDERATIONS.' The Bond Resolution On February 14, 2005, the Board of Directors of the Corporation will adopt a resolution authorizing the issuance of' the Bonds, establishing the revenue financing structure and providing security for the repayment of the Bonds. For a more complete description of the terms of the Bond Resolution, see "Appendix A — EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." Pledge Under Bond Resolution The Bonds, along with any Additional Parity Bonds (as defined herein) issued pursuant to the Bond Resolution, are special limited obligations of the Corporation payable solely from, and secured on a parity by a lien on and pledge of the Pledged Revenues. Under the Bond Resolution Pledged Revenues (the `Pledged Revenues") consist primarily of Sales Tax Revenues (defined below), and also include all interest income from the investment or deposit of moneys in the Revenue Fund the Debt Service Fund and the Reserve Fund created under the Bond Resolution. Sales Tax Revenues (the "Sales Tax Revenues") include all funds collected by the City from the levy of the Sales Tax, less any amounts due or owing to the State Comptroller of Public Accounts (the `Comptroller") for collection costs and certain other charges. The Sales Tax consists of the one-half of' one percent ('/2%) sales tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. Pledged Revenues also include all interest income (if any) derived from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund. Money in the Revenue Fund the Debt Service Fund and the Reserve Fund may, at the option of the Corporation, be invested in any manner permitted by law for public funds; provided that all such deposits and im estments 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. All such investments shall be valued in temps of current market value as of the last Business Day of the Corporation's Fiscal Year. All such investments shall be promptly sold when necessary to prevent any default in connection with the Parity Bonds. All interest and income derived from such deposits and investments shall be transferred or credited as received to the Revenue Fund, and shall constitute Pledged Revenues. For additional information relating to the investments of the Corporation, see "MANAGEMENT AND OPERATION OF THE CORPORATION —Investments. " Pursuant to the Bond Resolution, after all required transfers of the Pledged Revenues have been made into the Debt Service Fund, the Reserve Fund, and any other funds created in any resolution authorizing the issuance of Parit) Bonds, any amounts remaining in the Revenue Fund may be transferred semiannually free of the lien of the Bond Resolution, to the Surplus Fund of the Corporation and used for any lawful purpose. See also "Additional Parity Bonds and Other Obligations' below. Limited Obligations THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE CORPORATION PAYABLE SOLELY FROM AND SECURED BY A LIEN ON AND PLEDGE OF, THE PLEDGED REVENUES. THE BONDS ARE NOT PAYABLE FROM OR SECURED BY ANY OTHER REVENUES, PROPERTY OR INCOME OF THE CORPORATION. THERE 1S NO MORTGAGE ON ANY OF THE REAL PROPERTY OF THE CORPORATION TO SECURE PAYMENT OF THE BONDS. THE BONDS DO NOT CONSTITUTE A DEBT OR OBLIGATION OF THE STATE OF TEXAS OR ANY POLITICAL SUBDIVISION, CORPORATION, OR AGENCY THEREOF OR OF THE CITY OF PEARLAND, TEXAS, OR THE COUNTIES OF HARRIS OR PAYEMAND MENT OF THEHBONDSSFROM ANY OFUNDS RAISED OR TO BNDS SHALL NEVER E RIGHT OF THE RAISEDTHE BYAD VALOREM P TAXATION. Collection of Sales Tax Revenues and the Revenue Fund Pursuant to the Bond Resolution, the Corporation has created a revenue fund (the "Revenue Fund") to be maintained as a separate account on the books of the Corporation. The Corporation has covenanted to deposit all Sales Tax Revenues into the Revenue Fund immediately upon receipt from the City or the Comptroller. The Saks Tax Revenues on deposit in the Revenue Fund shall, on a monthly basis, be transferred into the Debt Service Fund in approximately equal monthly installments in such amounts as will be sufficient to accumulate the total amount required to pay the principal and interest due on the Parity Bonds on the next Payment Date therefor. On or before each Payment Date, the Corporation shall transfer funds on deposit in the Debt Service Fund to the Paying Agent/Registrar in the amounts required by the Bond Resolution for payment of principal and interest on the Parity Bonds and all bank charges or other costs and expenses relating to such payment. See 'Appendix A— EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." Additional Parity Bonds and Other Obligations In the Bond Resolution, the Corporation has reserved the right to issue additional bonds ("Additional Parity Bonds') payable from and equally and ratably secured by a hen on and pledge of the Pledged Revenues, subject to the prior satisfaction of certain terms and conditions. See "Appendix A— EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." In addition, the Corporation has reserved the right to issue, for any purpose authorized under the Act, additional bonds, notes, or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior and subordinate to the lien on the Pledged Revenues securing payment of the Parity Bonds. Such subordinate lien obligations may be further secured by any other source of payment lawfully available for such purposes. See "Appendix A— EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." The Corporation has entered into a development agreement (the "Development Agreement") with the City and a private developer (the "Developer") dated as of December 20, 2004 relating to the development of a commercial and retail project on an approximately 127-acre tract of land (the "Tract' ) located in the City. Under the terms of the Development Agreement, the Corporation has agreed to remit ninety percent (90%) of the Saks Tax which it collects solely from businesses located on such Tract, in order to provide for a portion of the financing required for development of the Tract. The obligation of the Corporation to pay such amounts pursuant to the Development Agreement is subordinate and junior to the pledge of the Sales Tax Revenues to the Bonds and any Additional Parity Bonds, thus, such obligation will be paid solely to the extent that funds are lawfully available after payment of debt service on the Bonds and any Additional Parity Bonds. In the Development Agreement, the Corporation has further agreed not to include amounts owed under the Development Agreement in the calculation of Pledged Revenues necessary to satisfy the coverage test for the issuance of Additional Parity Bonds contained in the Bond Resolution. Copies of the Development Agreement may be obtained from the Corporation at 3519 Liberty Drive; Pearland, Texas 77581. Remedies The Bond Resolution does not provide for acceleration of the maturities of the Bonds in the event of a default in payment of principal or interest on the Parity Bond or a default in the performance by the Corporation of any duty or covenant under the Bond Resolution. Although a registered owner of Bonds could presumably obtain a Judgment against the Corporation to carry out, respect or enforce any covenant or obligation under the Bond Resolution if a default occurred in the payment of the principal or interest on the Bonds, such. judgment could not be satisfied by execution against any property of the Corporation other than the Pledged Revenues Such registered owner's only practical remedy, if a default occurs, is a mandamus or mandatory injunction proceeding to compel the Corporation to observe or perform any of its obligations under the Bond Resolution. The enforcement of any such remedy may be difficult and time consuming and a registered owner could be required to enforce such remedy on a periodic basis. The Bond Resolution does not provide for the appointment of a trustee to represent the interests of the owners of the Bonds upon any failure of the Corporation to perform in accordance with the terms of the Bond Resolution, or upon any other condition. Furthermore, the Corporation is eligible to seek relief from its creditors under the U.S. Bankruptcy Code. The opinion of Bond Counsel will note that all opinions relative to the enforceability of the Bond Resolution and the Bonds are qualified with respect to the customary rights of debtors relative to their creditors. See also "INVESTMENT CONSIDERATIONS" herein. A Reserve Fund is created under the Bond Resolution and must be maintained for so long as any Parity Bonds remain Outstanding. The Reserve Fund Requirement (the "Reserve Fund Requirement") is equal to an amount (which may consist of money and/or authonzed investments) equal to 100% of' the average annual debt service on the Bonds and any Additional Parity Bonds then Outstanding. In lieu of funding the Reserve Fund with cash or investments the Corporation has applied for and intends to purchase a reserve fund surety bond (the "Surety Bond") with a portion of the proceeds from the sale of the Bonds, in order to satisfy the Reserve Fund Requirement for the Bonds. See ' RESERVE FUND SURETY POLICY' and "Appendix A— EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION." In addition, the Corporation has applied for a municipal bond insurance policy to insure the payment of the principal and interest on the Bonds when due. It is expected that such municipal bond insurance policy will be issued concurrently with the delivery of the Bonds. See "BOND INSURANCE" and "RATINGS" herein. THE SALES TAX Source and authorization. The Act authorizes the levy of a sales and use tax at a rate of up to one-half of one percent ('A%) to be used by an economic development corporation for the promotion of economic development. The City was authorized by the voters at an election held therein on January 21, 1995 to levy the Sales Tax at the rate of one-half of one percent ('/%) for the benefit of the Corporation. The imposition, computation, administration, collection and remittance of the Sales Tax is governed by Chapter 151, Texas Tax Code, as amended (the "Texas Limited Sales, Excise, and Use Tax Act") and by Chapter 321, Texas Tax Code, as amended (the "Municipal Sales and Use Tax Act') except to the extent that such chapters are in conflict with the Act, and reference is made thereto for a more complete descrption of the Sales Tax. State law also permits the City to enter into strategic partnership agreements with municipal utility districts located within the City's extraterritorial jurisdiction, by mutual consent of the City and the municipal utility district. The City has entered into strategic partnership agreements with a number of municipal utility districts. Among other things, such agreements authorize the City to impose its sales and use taxes (including the Sales Tax) within the boundaries of such districts prior to the full annexation of the districts by the City. In general, as applied to the Sales Tax, a taxable item includes any tangible personal property and certain taxable services. "Taxable services" include certain amusement services, cable television services, personal services, motor vehicle parking and storage services, the repair, remodeling, maintenance and restoration of most tangible personal property, certain telecommunications services, credit reporting services, debt collection services, insurance services, information services, real property services, data processing services, real property repair and remodeling, security services, telephone answering services, and Internet access service. Certain items are exempted by State law from sales and use taxes, including items purchased for resale, certain coin -operated machine sales, food products (except food products which are sold for immediate consumption, e.g. by restaurants, lunch counters, etc.), certain health care supplies (including medicines, corrective lens and various therapeutic appliances and devices), certain agricultural items (if the item is to be used exclusively on a farm or ranch or in the production of agricultural products), gas and electricity purchased for residential and certain other uses (unless a city has taken steps to repeal the exemption), certain property used in manufacturing, telecommunications services, newspapers and magazines, and basic fees for Internet access service. During an annual "tax holiday," school clothing and supplies and other items are exempt. In addition, items which are taxed under other State laws are generally exempted from sales taxes. These items include certain natural resources, cement, motor vehicles and insurance premiums. Alcohol and tobacco products are subject to both State alcohol and tobacco taxes as well as sales taxes. In addition, purchases made by various exempt organizations are not subject to the sales and use taxes. Such organizations include the federal and state governments, political subdivisions, Indian tribes, religious institutions and certain charitable organizations and non-profit corporations. Also, State law provides an exemption from sales taxes on items purchased under a contract in effect when the legislation authorizing such tax (or the increase in the rate thereof) is enacted, up to a maximum of three years. In general, a sale of a taxable item is deemed to occur within the municipality, political subdivision, county or special district in which the sale is consummated. The tax levied on the use, storage or consumption of tangible personal property is considered to be consummated at the location where the item is first stored, used or consumed. Thus, the use is considered to be consummated in a municipality that imposes the use tax and the tax is levied there if the item is snipped from outside the state or from a municipality which does not impose a use tax to a point within the municipality that imposes the use tax. Other Sales Taxes. In addition to the Sales Tax levied by the City on behalf of the Corporation, as described above, the State levies and collects a 6.25% sales and use tax against essentially the same taxable items and transactions as the Sales Tax is levied. Under current State law, the maximum aggregate sales and use tax which may be levied within a given area by most authorized political subdivisions and municipalities within such area, including the State and the City, is 8.25%. The current aggregate sales and use tax levied in the City is 8.25%, of which 6.25% is levied by the State, 1% is levied by the City for its general fund, 'A of 1% is levied by Brazoria County, and 'A of 1% is levied by the City on behalf of the Corporation. Collection and Administration. The Comptroller administers and enforces all sales tax laws and collects all sales and use taxes levied by the State, and levying counties, municipalities, political subdivisions, and other special districts having sales tax powers Certain limited items are taxed for the benefit of the State under non -sales tax statutes such as certain natural resources and other items described above and are not subject to the sales tax base available to municipalities, counties, political subdivisions and other special districts, including the tax base against which the Sales Tax is levied. Municipalities may by local option determine to tax certain telecommunication services on the same basis as the State taxes such services or to opt out of the tax holiday. The City has not opted to repeal the local -10- telecommunication services exemption. The City has not opted out of the tax holiday. With respect to the taxation of the residential use of gas and electricity the State is not authorized to collect a sales tax, while municipalities, on a local option basis, may tax such use. The City has opted to tax the residential use of gas and electricity. In recent years, several changes in the State sales tax laws have contributed to the growth of local sales tax revenues These changes have added additional goods and services to the list of taxable items Other items have been subjected to sales tax on a interim basis or have been taxed pursuant to legislation which includes planned phase -outs of the tax. With certain exceptions, sales and use taxes in the State are collected at the point of sale and are remitted to the Comptroller by the "taxpayer," who is, generally speaking the business that collects the tax resulting from a taxable transaction. Taxpayers owing $500 or more in sales and use tax dollars in a calendar month submit their tax collections to the Comptroller on a monthly basis; taxpayers owing less than $500 in sales and use tax dollars in a calendar month or less than $1,500 in a calendar quarter submit their tax collections quarterly. Taxpayers owing less than $1,000 annually may submit their tax collections annually. -Generally taxpayers are required to submit tax reports to the Comptroller on the same date as payment is due. The Comptroller is required by law to distribute funds to the receiving political subdivisions periodically and as promptly as feasible but not less frequently than twice during each fiscal year of the State. Historically, and at the present time, the Comptroller distributes the funds monthly to the City, with the largest payments being made quarterly in February, May, August and November The Comptroller has initiated a direct deposit program using electronic funds transfers to expedite the distribution of monthly allocation checks. If a political subdivision desires to participate in the electronic funds transfers, it may make application to the Comptroller. The City participates in this program. Otherwise, the Comptroller mails the allocation check, which is typically received by the middle of the month following the month in which the taxpayer reports and remits payment on the tax. The following table sets forth the month in which political subdivisions typically receive their sales and use tax receipts by type of reporting taxpayer. Month Allocation Includes the Following Received Reporting Taxpayers January February March April May June July August September October November December Monthly Monthly - Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Quarterly - Yearly Quarterly - Quarterly - Quarterly • The Comptroller is responsible for enforcing the collection of sales and use taxes in the State. Under State law, the Comptroller utilizes sales tax permits, sales tax bonds and audits to encourage timely payment of sales and use taxes. Each entity selling, renting, leasing or otherwise providing taxable goods or services is required to have a sales tax permit. Permits are required for each individual location of a taxpayer and are valid for only one year, requiring an annual renewal. As a general rule, every person who applies for a sales tax permit for the first time or has become delinquent in paying the sales or use tax is required to post security in an amount sufficient to protect against the failure to pay taxes. The Comptroller's audit procedures include auditing the largest 2% of the sales and use tax taxpayers (who report about 65% of all sales and use taxes in the State annually) every three or four years Other taxpayers are selected at random or upon some other basis for audits. The Comptroller also engages geSin taxpayer education programs and mails a report to each taxpayer before the last dayof the month, quarteryear that it covers. Schedule 2 - Major Retail Establishments in the City Listed below are a sample of the major retail establishments located within the boundaries of the City. The list was compiled by estimating the largest retailers' square footages by visual inspection and is not based on the amount of actual sales revenues or sales taxes generated, since such information is deemed confidential and protected by State law. Retailers are listed in alphabetical order. Best Buy Big Lots! Circuit City CVS Pharmacy Eckerds Home Depot Kohl's Koza's Fiscal Year Ending September 30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 TOTAL Kroger (2 stores) Linens & Things Lowe's Marshall's Michael's Office Max Palais Royal Petco Pet Smart Pier One Randall's (2 stores) Ross Dress For Less Strickland Chevrolet Super Target Walgreens (2 stores) Wal-Mart (3 stores) PRO FORMA DEBT SERVICE SCHEDULE Principal* $520,000 310,000 320,000 330,000 340,000 350,000 365,000 380,000 400,000 420,000 440,000 465,000 490,000 510,000 540,000 565,000 595,000 620,000 655,000 685,000 720,000 755.000 $10,775,000 Preliminary, subject to change. (1)Interest has been estimated for purposes of illustration. interest* tit $272,426 484,775 475,475 465,875 454,325 442,425 428,425 412,000 393,000 373,000 352,000 330,000 306,750 282,250 256,750 229,750 201,500 171,750 140,750 108,000 73,750 37,750 $1012,226 Annual Debt Service* $792,426 794,775 795,475 795,875 794,325 792,425 793,425 792,000 793,000 793,000 792,000 795,000 796,750 792,250 796,750 794,750 796,500 791,750 795,750 793,000 793,750 792.750 $17,467,726 MANAGEMENT AND OPERATION OF THE CORPORATION Schedule 3 — Budgeting and Operations The Corporation's combined statement of revenues, expenditures and changes in fund balances for Fiscal Years 2000 through 2004 are summarized below. REVENUES: Taxes Interest Other Total Revenue 2004* $3,369,173 81,522 10,000 $3,450,695 EXPENDITURES: Economic Development $ 727,080 Capital Outlay 89,057 Debt Service 477,050 Total Expenditures $1,293,187 REVENUE OVER (UNDER) EXPENDITURES $2,157.508 OPERATING TRANSFERS: In Out -0- $ 926,462 TOTAL REVENUES OVER (UNDER) EXPENDITURES $ 1,231,046 Prior Period Adjustments -0- END OF YEAR FUND BALANCE $4,502,452 *Fiscal Year 2004 amounts are unaudited. Fiscal Year Ending September 30, 2003 2002 2001 $2,924,067 33,945 5,000 $2,963,012 $ 260,325 300,552 446,568 $1,007,445 $1,955,568 $2,515,389 -0- 206,383 $2,721,772 $ 571,379 1,269,651 368,779 $2,209,809 $ 511,963 $2,397,275 -0- 407,317 $2,804,592 2000 $1,841,918 -0- 600,465 $2,442,383 $1,079,177 $ 403,722 370,616 $1,853,515 531,969 701,280 372,023 $1,605,272 $ 951,077 $ 837,111 $ 212,768 $ 411,639 -0- -0- (4,195,886) (110,000) $ (322,721) $ 110,000 ($2,027,550) $ 813,602 _0- (40,684) $3,271,406 $5,298,956 $ 628,309 $ 727,111 (372,948) -0- $4,526,038 $3,524,778 Investments The Corporation invests its funds only in investments authorized by State law in accordance with investment policies approved by the Board of Directors of the Corporation and the City Council of the City. Both State law and the Corporation's investment policies are subject to change. Legal Investments Under State law, the Corporation is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (2) direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other -14- obligations, the principal of and interest on which are unconditionally guaranteed or insured by, or backed by the full faith and credit of the State of Texas or the United States or their respective agencies and instrumentalities, (5) obligations of states, agencies, counties, cities, and other political subdivisions of any state rated as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, (6) certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for Corporation deposits, (7) certificates of deposit and share certificates issued by a state or federal credit union domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses (1) through (5) or in any other manner and amount provided by law for Corporation deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1) and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) bankers' acceptances with the remaining term of 270 days or less, if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency, (10) commercial paper with maturities that are 270 days or less that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S. or state bank, (11) no- load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, (12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses; and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of not less than AAA or its equivalent, (13) bonds issued, assumed, or guaranteed by the State of Israel, and (14) guaranteed investment contracts secured by obligations of the United States of America or its agencies and instrumentalities, other than the prohibited obligations described in the next succeeding paragraph. The Corporation may invest in such bonds directly or through government investment pools that invest solely in such Bonds provided that the pools are ratedno lower than AAA or AAA-m or an equivalent by at least one nationally recognized rating service. .The Corporation is specifically prohibited from investing in (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage -backed security collateral and pays no principal; (2) obligations whose payment represents the principal stream of cash flow from the underlying mortgage -backed security and bears no interest; (3) collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by. an index that adjusts opposite to the changes in a market index. Investment Policies Under State law, the Corporation is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity and the quality and capability of investment management; and that includes a list of authorized investments for Corporation funds, maximum allowable stated maturity of any individual investment and the maximum average dollar -weighted maturity allowed for pooled fund groups. All Corporation funds must be invested consistent with a formally adopted "Investment Strategy Statement" that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment (5) diversification of the portfolio, and (6) yield. Under State law, the Corporation's investments must be made "with judgment and care, under prevailing circumstances, that a person of prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be derived? At least quarterly the investment officers of the Corporation shall submit an investment report detailing: (1) the investment position of the Corporation, (2) that all investment officers jointly prepared and signed the report (3) the beginning market value, any additions and changes to market value and the ending value of each pooled fund group, (4) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (5) the maturity date of each separately invested asset, (6) the account or -15- fund or pooled fund group for which each individual investment was acquired, and (7) the compliance of the investment portfolio as it relates to: (a) adopted investment strategy statements and (b) state law. Schedule 4—Invested Funds of the Corporation As of November 30, 2004, the Corporation's funds were invested in the following categories: Description Certificates of Deposit Money Market Funds Total Percent of Total 13% 87% Book Value $ 500,000 $3,339,548 $3,839,548 INVESTMENT CONSIDERATIONS Market Value $ 500,000 $3,339,548 $3,839,548 The Sales Tax. The primary source of security for the Bonds will be receipts of the Sales Tax Revenues received by the City for the benefit of the Corporation. The generation of revenues from the Sales Tax is closely related to the amount of economic activity in the City. Sales and use tax receipts, unlike other taxes levied by municipalities, immediately reflect changes in the economic conditions. Historically, the Comptroller has remitted sales and use tax allocation checks to municipalities on a monthly basis, but State kw currently only requires that such allocation be made at least twice annually and such procedures could change in the future. Additionally, the tax. base of taxable items and services subject to State and local sales and use taxes are subject to legislative action, and have been changed in recent years by the State Legislature. State law provides that the Sales Tax cannot be levied against any taxable item or service unless such item or service is also subject to the State sales and use tax. in recent years the State Legislature has enacted laws permitting the State, together with its political subdivisions, to levy sales and use taxes of up to 8.25%. The current total sales and use tax rate within the City's boundaries is 8.25% (including State, county, and City sales taxes as well as the Sales Tax), which is among the highest sales tax rates in the nation (although the State has no personal or corporate income tax). The rate of the sales and use taxes authorized in the State could be further increased by the State Legislature, and the Corporation has no way of predicting any such increase or the effect that would have on the Sales Tax Revenues which secure the Bonds. State leaders have appointed committees to study methods of achieving greater tax equity within the State's tax system. Any changes which may be enacted by the State legislature could affect the tax base against which the Saks Tax is levied and the City (and hence the Corporation as the beneficiary of the City's action), except in certain limited instances described below, has no control over the components of the tax base. Neither the City nor the Corporation currently has statutory authority to increase or decrease the maximum authorized rate of the Sales Tax. Tax receipts received by the Corporation are expected to be subject to seasonal variations and to variations caused by the State laws and administrative practices governing the remittance of sales and use tax receipts which authorize different taxpayers to remit the tax receipts at different times throughout the year. The Sales Tax is collected by the Comptroller and remitted (less certain costs of collection and. other charges) to the City along with other City sales and use tax receipts. The City allocates a portion of the receipts to the Corporation which represents the one-half of one percent (/2%) tax rate of the Sales Tax. Generally, sales and use taxes in the State are collected at the point of a taxable transaction and remitted by the taxpayer to the Comptroller. The Comptroller has the primary responsibility for enforcing sales and use tax laws and collecting delinquent taxes. The collection efforts of the Comptroller are subject to applicable federal bankruptcy code provisions with respect to the protection of debtors. -16- Changes in the tax base against which a sales and use tax is assessed, as well as changes in the rate of such taxes, make projections of future tax revenue collections very difficult. No independent projections have been made with respect to the revenues available to pay debt service on the Bonds. Historical information regarding the sales tax base and Sales Tax collections of the Corporation is included herein, and while the Corporation has no reason to expect that receipts of the Sales Tax Revenues will ever be insufficient to pay its outstanding debt secured by such revenues, it makes no representation that, over the term of the Bonds, sales and services within the City will provide sufficient Sales Tax Revenues to pay principal and interest when due on the Outstanding Parity Bonds. Bankruptcy Limitation to Registered Owners' Rights The enforceability of the rights and remedies of registered owners of the Bonds is limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions such as the Corporation. if the Corporation proceeded voluntarily under Chapter 9 of the Federal Bankruptcy Code, it could file a plan for an adjustment of its debts. If such a plan were confirmed by the bankruptcy court, it could, among other matters, reduce or eliminate the principal amount of the Corporation's indebtedness, defer or rearrange the Corporation's debt service schedule, reduce or eliminate interest, modify or abrogate collateral or security arrangements, substitute (in whole or in part) other securities, or otherwise compromise and modify the rights and remedies of the registered owners of the Bonds and their claims against the Corporation. THE CITY Limitation The information provided herein and in Appendix B with respect to the City is being provided for the sole purpose of providing economic and demographic information for the City, as such information may be a factor in evaluating the potential for future collections of Saks Tax Revenues. The Bonds do not constitute a debt or obligation of the City, and the Holders thereof shall never have the right to demand payment of any funds raised or to be raised by any system of ad valorem taxation. General The City is a home -rule city go. erred by a council/manager form of government. The City Council of the City consists of five members elected at -large for three-year staggered terms The Mayor and City Council provide community leadership, develop policies to guide the City in delivering services and achieving community goals, and encourage citizens awareness and involvement For additional demographic and economic information relating to the City and surrounding area, see Appendix B hereto, Location The City is located in the upper Gulf Coast region of Texas and is situated primarily in the northeast corner of Brazoria County, approximately fifteen miles southeast of the City of Houston s central business district. The City currently encompasses approximately 44 square miles within the City limits and includes approximately 29 additional square miles within its extra territorial jurisdiction ("ETJ"). State Highway 288 traverses the City's west side, providing access to the port of Freeport to the south and to the Houston Medical Center and downtown Houston to the north. The Sam Houston Tollway (Beltway 8) runs near and parallel to the City's northern boundaries in an east -west direction. Interstate Highway 45 lies just east of the City, providing access to the Johnson Space Center and the Port of Galveston to the south and downtown Houston to the north. Additionally, State Highway 35 bisects the City in a north -south direction, providing Houston's Hobby airport approximately six miles to the north. Population ely 47,500 As of the end Fiscal ETJ),2an ,increasehe uoftion of approximately 169 City was%poverithetpopulat popnot including the ulation approximately population located in the City s ETJ), surrounding area, City's at the ende f of Year1994. 0 The was estimatedroxi nately 78 500. the City population of Bra oria including the the end City's ETJ at the end of Fiscal YearPpely of Fiscal Year 2003 was approximately 265,350,* an increase of appr xiB ately ford/add ter the alppop lationanf approximately 212,210* at the end of Fiscal Year 1994. See Appendix demographic information relating to the City. *Source: Woods & Pool demographic study; March 2004. LEGAL MATTERS General Legalale of he nds are e matters incident to the of theuStatezand the approval ofon, issuance and scerta ntlegaomatters by subject And ews Kurth LLP, Houston, , the Attorney Houston, Texas, Bond Counsel whose opiniondelivered the mattersdosing wllthe be passed uthe ponforondsin the substantially the form attached hereto as Appendix E. Certain legal Underwriters by their counsel, Vinson & Elkins L.L.P., Houston, Texas. ormation apearing in s In their capacity as Bond Counsel, Andrews Kurth AND PLAN OF FINANCE'f (except fo the information Official Statement under the captioned sections "PROJECT under the subcaptions "Purpose, "The Project" and `Sources and Uses of Funds"),' D SEC FOR THE TION OF THE BONDS" (except for the infonnation under the subcaption Book -Entry Only System") BONDS," "TAX EXEMPTION,' "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUMt BONDS,' "LEGAL INVESTMENTS IN TEXAS " `CONTINUING DISCLOSURE OF GAL MATTERSN General(excep' for the information under the subcaption `Compliance with Prior Undertakings"), A — EXCERPTS OF (insofar as such infonnation relates to the opinions of Bond Counsel) and "Appendix CERTAIN PROVISIONS OF THE documents oc menDreferred to hlerrein'and is in ato ccordance wetermine ithtsummarapplicable federal and State law with rees the to the sesal and of doc law with regard to the sale BnordhasBsuch firm conducted an investigatitly on of theed the affairsfactual information of the Corporation r containedhin this fOfficial Statement for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon such firms' limited participation completeness of anytion of of the othepnnfo�rn aUon for, �ontained herein,r an expression of opinion of any kind with regard to, the accuracy orp th delivery the s express The various legal opinions s ° be endennlivered the opinions asmtoytheilega] the explicitly addressed therein. the In professional judgment of the attorney g rendering a legal opinion, the attorney does not become an insurer or guarantor of that expression of professiona l judgment, of the transaction opined upoutcome of any legal dispute that maythe arisetout of the t to the ansatctionNor does the rendering of an opinion guarantee the Forward Looking Statements and in any ther ation d to the reader by The onstatements not ein thcial are forward looking statements within7the meaning of Section 27A of the Securities that ofro not purely historical, the Securis 1933aras amenoed, and Section 21E of the rporation's expectations, hopes, intentions, or strategies regarding the future Readers statements regarding the Corp forward -looking statements. All in Readers should not place undue reliance onan mavailable to the Corporation on e date hereof nand thesCorporati n this Official Statement are based on information assumes no obligation to update any froforwand-looking statements. It is such forward -looking statementsant to note that the Corporation's actual results could differ materially The forward -looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including students, customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Corporation. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward -looking statements included in this Official Statement will prove to be accurate. TAX EXEMPTION In the opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, interest on the Bonds is (1) excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals or corporations, except as described below. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Bonds Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the Corporation with certain covenants of the Bond Resolution and has relied on representations by the Corporation with respect to matters solely within the knowledge of the Corporation, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of the proceeds of the Bonds and any facilities financed therewith, the source of repayment of the Bonds, the investment of the proceeds of the Bonds and certain other amounts prior to expenditure, and requirements, that excess arbitrage earned on the investment of the proceeds of the Bonds and certain other amounts be paid periodically to the United States and that the Corporation file an information report with the Internal Revenue Service. If the Corporation should fail to comply with the covenants in the Bond Resolution, or if its representations relating to the Bonds that are contained in the Bond Resolution should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. Bond Counsel's opinion is not a guarantee of a result, but represents a legal judgment based upon review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Corporation described above. No ruling has been sought from the Internal Revenue Service (the `Service") with respect to the matters addressed in the opinion of Bond Counsel, and no assurance can be given that the Service would agree with the opinion of Bond Counsel, if the tax-exempt status of the interest on the Bonds were the subject of an audit. If an audit is commenced, under current procedures the Service is likely to treat the Corporation as the "taxpayer," and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the Corporation may have different or conflicting interests from the owners. Except as stated above and set forth below under "TAX TREATMENT OF PREMIUM BONDS," Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of receipt or accrual of interest on or acquisitions or disposition of the Bonds. Interest on all tax-exempt obligations, such as the Bonds owned by a corporation (other than an S corporation, a qualified mutual fund, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securtization investment trust (FAS1T)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. -19- Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax- exempt interest, such as interest on the Bonds, received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and individuals otherwise as to the consequences of investing inne credit. the Bonds,Such prospective purchasers should consult their own tax advisors 1f a tax-exempt obligation, such as the Bonds, was acquired at a "market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue, the Code provides ordinary income tax treatment of gain recognized upon the disposition of such "market discount bond." A "market discount bond" is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e , a market discount). Such treatment applies to "market discount bonds" to the extent the gain from the disposition thereof exceeds the accrued market discount of such bonds unless a statutory de minimis ride applies The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of the Bonds. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS Discount Bonds According to representations of the Underwriters, certain of the Bonds may be offered at initial offering prices which are less than the stated redemption prices at maturity of such Bonds. if the initial offering prices of the Bonds are lower than the stated redemption price payable at maturity, the Bonds of that maturity (the "Discount Bonds") will be considered to have "original issue discount' for federal income tax purposes. An initial owner who purchases a Discount Bond in the initial public offering of the Bonds at such an initial offering ering p ice will acquire uire such Discount Bond with original issue discount equal to the difference between (a) ceml P P payable at the maturity of such Discount Bond and (b) the initial public offering price to the public of such Discount Bond. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on such Bond and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Bond continues to be owned by such initial owner Except as otherwise provided herein, the discussion regarding interest on the Bonds under the caption "TAX EXEMPTION" generally applies to original issue discount deemed to be earned on a Discount Bond while held by an owner who has purchased such Bond at the initial offering price in the initial public offering of the Bonds and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Bond prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Bond in the hands of' such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Bond continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Bond will be treated for federal income tax purposes as interest on a Bond, such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase Discount Bonds must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Bond may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax -20- • 7 [7, • r consequences of owning a Bond. See "TAX EXEMPTION" for a discussion regarding the alternative minimum .,_I i taxable income consequences for corporations and for a.reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and does I not otherwise affect the rights or Bonds of the owner of a Discount Bond or of the Corporation. The portion of the principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption of such Bond to the registered owner of the Discount Bond at that time. r Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Bond is deemed to be earned each day. The portion of the original issue discount deemed to be 7 earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. 7i - --The federal income tax consequences-of the purchase, ownership,redemption, sale or other disposition of Discount Bonds by an owner that did not purchase such Bonds in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Bonds should consult their tax advisors with respect to the determination for federal, state and local 7 income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Bonds and with respect to the federal, state, local and foreign tax consequences.of the purchase ownership,redemption,sale or other disposition of such Discount Bonds. Premium Bonds 7 According to representations of the Underwriters, certain of the Bonds may be offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Bonds. If any of the Bonds of suci maturities are sold to members of the public (which for this purpose excludes bond houses, brokers and similar person or organizations acting in the capacity of wholesalers or underwriters)_at such initial offering prices,each off the Bonds of such maturities ("Premium Bonds")will be considered for federal income tax purposes to have"bon premium"equal to the amount of such excess. The basis for federal income tax purposes of a Premium Bond in the 7hands of an initial purchaser who purchases such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Bond by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss).recognized for federal income tax i purposes upon the sale or other taxable disposition of a Premium Bond by the initial purchaser. Generally, rio corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond which is amortizable each year(pr shorter period in the event of a sale or disposition of a Premium Bond)is determined under special tax accounting 7 rules which use a constant yield throughout the term of the Premium Bond based on the initial purchaser's original basis in such Bond. ril The federal income tax consequences of the purchase, ownership,redemption, sale or other disposition py an owner of Bonds that are not purchased in the initial offering or which are purchases at an amount representing a price other than the initial offering prices for the Bonds of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Bonds should consult their iiax 7 advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption,sale or other disposition of Premium Bonds. LITIGATION tail The Corporation will furnish the Underwriters a certificate, dated as of the date of delivery of the Bo ds, executed by the appropriate Corporation officials, acting in their official capacities as such, to the effect that no 7 litigation of any nature is then pending or,to their knowledge,threatened against the Corporation, either in state or federal courts,contesting or attacking the Bonds;restraining or enjoining the issuance,execution,or delivery of the Bonds;affecting the provisions made for the payment of or security for the Bonds;or in any manner questioning the authority or proceedings for the issuance,execution or delivery of the Bonds;or affecting the validity of the Bonds, or the corporate existence or boundaries of the Corporation. c". 7 -21- • 0 LEGAL INVESTMENTS IN TEXAS I • Under State law,the Bonds are legal and authorized investments for banks, savings banks,trust companies, savings and loan associations, insurance companies, fiduciaries and trustees, and for the sinking funds of municipalities or other political subdivisions or public agencies of the State. The Corporation has not made any. investigation of other laws,regulations,or investment criteria that might affect the suitability of the Bonds for any of the above purposes or limit the authority of any of the above persons or entities to purchase or invest in the Bonds. VERIFICATION OF MATHEMATICAL ACCURACY The accuracy of the mathematical computations of the adequacy of the maturing principal of and interest earned on the Escrowed Securities held in the Escrow Fund to provide for the payment of the Refunded Bonds will [14, be verified by Grant Thornton L.L.P.,a firm of independent certified public accountants. Grant Thornton L.L.P. will verify that the scheduled payments of principal and interest on the Escrowed Securities are in such amounts and become due at such times so as to provide sufficient funds to pay all principal of and interest on the Refunded Bonds when due,without reinvestment. These computations will be based upon information and assumptions supplied by the Underwriters on behalf of the Corporation. Grant Thornton L.L.P. has restricted its procedures to recalculating the computations provided by the Underwriters and has not evaluated or examined the assumptions or information used in the computations. RATINGS The Bonds are expected to be rated " " and " " by Moody's Investors Service and Standard Poor's Ratings Service,respectively,based on the understanding that the Corporation will obtain a municipal bond insurance policy for the Bonds upon the issuance of the Bonds. See "BOND INSURANCE"herein. Ratings will reflect only the views of such organization at the time such ratings are given, and the Corporation makes n6 representation as to the appropriateness of the ratings.There is no assurance that such ratings will continue for an+ given period of time or that they will not be revised downward or withdrawn entirely by such rating companies,if circumstances so warrant.Any such downward revision or withdrawal of either rating may have an adverse effect on the market price of the Bonds. Neither the Corporation nor the Financial Advisor undertake any responsibility to oppose any revision or withdrawal of such ratings. CONTINUING DISCLOSURE OF INFORMATION In the City Resolution, the City, on behalf of the City and the Corporation, has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The City is required to observe the agreement for so long as the City or the Corporation remains an obligated person with respect to the Bonds. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events to certain information vendors. This information will`be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes the financial information and operating data with respect. cam to the City and the Corporation of the general type included in this Official Statement under the captions"Historical Pledged Revenues,""Debt Service Schedule,"and"Management and Operation of the Corporation." The City Yvill update and provide this information within six months after the end of each fiscal year ending in or after 2005. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR")and to the Texas Municipal Advisory Council,the state information depository("S1D")designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission(the"SEC"). O -22- • r • 6 ' • The City may provide updated infonnation in full text or may incorporate by reference certain other ll publicly available documents, as permitted by SEC Rule 15c2-12, as amended and in effect from time to time (the "Rule"). The updated information will include audited financial statements,if the City commissions an audit and it is completed by the required time. If audited financial statements are not commissioned or are not available by the required time,the City will provide unaudited financial statements and audited financial statements when and if they become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix C or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year,beginning March 31, 2006, unless the City changes its fiscal year. If the City changes its fiscal year,it will notify each NRMSIR and the SID of the change. Material Event Notices The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Bonds, if such event is material to a decision to purchase or sell Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds;(7)modifications to rights of holders of the Bonds;(8)calls;(9)defeasances; (10)release,substitution,or sale of property securing repayment of the Bonds;and(11)rating changes. Neither the Bonds nor the City Resolution makes any provision for liquidity enhancement. In addition,the City will provide timely notice of any failure by the City to provide information,data or financial statements in accordance with its agreement described above under"Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board("MSRB"). Availability of Information From NRMS1Rs and SID The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of and beneficial owners of the Bonds only if the holders comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who have done so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and has been approved as such by the SEC staff. The address of the Municipal Advisory Council is 600 West 8th Street,P.O. Box 2177,Austin,Texas 78768-2177,and its telephone number is(512)476-6947. Limitations and Amendments • The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition,or prospects or agreed to update any information that is provided,except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach,whether negligent or without fault on its part, of its continuing disclosure agreement or from any statement made pursuant to its agreemnt. Holders or beneficial owners of Bonds may seek as their sole remedy a writ of mandamus to compel the City to comply with its agreement. No default by the City with respect to its continuing disclosure agreement shall constitute a breach of or default under the City Resolution for purposes of any other provision of the City Resolution. Nothing in this paragraph is intended or shall act to disclaim,waive,or otherwise limit the duties of the City under federal and state securities laws. The City's undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions. r -23- The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity nature, status or type of operations of the City if but only if (i) the agreement, as so amended, would have permitted a purchaser to purchase or sell the Bonds in the offering made hereby in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate amount of the outstanding Bonds consent to such amendment or (b) a person unaffiliated with the City (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Bonds. The City may also amend or repeal the agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, and the City may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent the Underwriters from purchasing the Bonds in the offering described herein in compliance with the Rule. If the City amends the agreement, it has agreed to include with any financial information or operating data next provided in accordance with its agreement described above under `Annual Reports' an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Audited Financial Report of the City The City presently requires that an annual audit be performed by an independent public accounting firm in accordance with generally accepted auditing standards for governmental units. The most recent audit, and additional financial information are available for public inspection, or copies may be obtained by written request, to the extent permitted by law, addressed to the City, with such fee, if any, for copies as may from time to time be authorized by the City. Compliance With Prior Undertakings The City has complied in all material respects with its prior continuing disclosure agreements made in accordance with SEC Rule 15c2-12. UNDERWRITING The Underwriters shown on the cover page hereto (the "Underwriters") have agreed, subject to certain conditions to purchase the Bonds from the Corporation. The purchase price for the Bonds is $ (which represents the par amount of the Bonds, plus a premium/less an original issue discount of $ less an underwriters' discount of $ ). The Underwriters will be obligated to purchase all of the Bonds if any Bonds are purchased. The Bonds may be offered and sold to certain dealers and others at prices lower than the initial public offering prices, and such public prices may be changed, from time to time, by the Underwriters. FINANCIAL ADVISOR RBC Dain Rauscher Inc. has acted as Financial Advisor to the Corporation in connection with the issuance of the Bonds. The Financial Advisor s fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds Although the Financial Advisor has read and participated in the preparation of' this Official Statement, it has not independently verified any of the information set forth herein The information contained in this Official Statement has been obtained primarily from the Corporation's records and from other sources which are believed to be reliable. No guarantee is made as to the accuracy or completeness of any such information. No person, therefore, is entitled to rely upon the participation of the Financial Advisor as an implicit or explicit expression of opinion as to the completeness and accuracy of the information contained in this Official Statement. GENERAL CONSIDERATIONS The financial data and other information contained herein have been obtained from the Corporation's and the City's records, financial statements and other sources which are believed to be reliable. No representation is made as to the accuracy or completeness of the information derived from sources other than the Corporation and the City. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the bonds, statutes, documents, and resolutions contained in this Official Statement are made subjectto to all le the statements provisions of such of such provisions Land ,refe reference documents, s made t resolutions. suhd cumentsse nfo summaries not purport to be complete information. Reference is made to original documents in all respects. The information contained in this Official Statement in the section entitled `Appendix C — AUDITED FINANCIAL STATEMENTS OF THE CITY' has been provided by Pattillo, Brown & Hill P.C., Waco, Texas and has been included herein in reliance upon their authority as an expert in the fields of auditing and accounting. Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed as or as part of a contract with the original purchasers or subsequent owners of the Bonds. THIS OFFICIAL STATEMENT has been approved, and the execution and delivery of this Official Statement authorized, by the Board of the Corporation. PEARLAND ECONOMIC DEVELOPMENT CORPORATION /s/ Randall Ferguson Chairman APPENDIX A EXCERPTS OF CERTAIN PROVISIONS OF THE BOND RESOLUTION Excerpts of certain provisions of the Bond Resolution are reproduced in this APPENDIX A. This APPENDIX A is qualified in its entirety to the full provisions of the Bond Resolution, copies of which are available upon request to the Corporation. Section 2.1: Definitions. In this Resolution, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Act" shall mean Article 5190.6, Texas Revised Civil Statutes, as amended. "Additional Parity Bonds' shall mean the additional bonds permitted to be issued by the Corporation pursuant to Section 6.1 of this Resolution. "Attorney General" shall mean the Attorney General of the State of Texas. "Board of Directors" shall mean the governing body of the Corporation. "Bond Insurance Policy" shall mean the municipal bond new issuance insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Bonds. "Bond Insurer" shall mean , or any successor thereto. "Bond" or "Bonds" shall mean the Corporation's Sales Tax Revenue and Refunding Bonds, Series 2005, but only to the extent such Bonds are Outstanding within the meaning of this Resolution. "Bond Purchase Agreement' shall mean that certain bond purchase agreement, dated February 14, 2005, by and between the Corporation and the Purchaser. "Business Day" shall mean any day other than (i) a Saturday Sunday, or other day on which banking institutions in the city where the principal corporate trust office of the Paying Agent/Registrar is located are authorized by law or executive order to dose, or (ii) a day on which the New York Stock Exchange is closed. "City" shall mean the City of Pearland, Texas, a municipal corporation and home -rule city, and where appropriate, the City Council of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas "Construction Fund" shall mean the Construction Fund created pursuant to Section 9.4 of this Resolution. "Corporation" shall mean the Pearland Economic Development Corporation, and any successor thereto. "Debt Service Fund" shall mean the Debt Service Fund created pursuant to Section 5.2 of this Resolution. "Debt Service Requirement" shall mean the amount necessary to pay the principal of, premium, if any, and interest due and owing on the Bonds, and any .Additional Parity Bonds, during each Fiscal Year of the Corporation The Debt Service Schedule for the Bonds is attached to this Resolution as Exhibit A. "Escrow Agent" shall mean JPMorgan Chase Bank (as successor in interest to Texas Commerce Bank National Association), or any successor thereto. A-1 "Escrow Agreement' shall mean that certain Escrow Agreement, dated as of February 1, 2005, by and between the Escrow Agent and the Corporation, in substantially the form attached hereto as Exhibit B. "Escrow Fund" shall mean the fund created in Section 3.1 of the Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of the Escrow Agreement. `Fiscal Year" shall mean the fiscal year of the Corporation, which is currently the twelve-month period beginning on October 1 of each year and ending on September 30 of the following year. "Outstanding," when used with reference to the Bonds shall mean, as of a particular date, the principal amount of all such Bonds theretofore delivered by the Corporation as provided in or contemplated by this Resolution, except: (a) any such Bond canceled by or on behalf of the Corporation at or before such date; (b) any such Bond paid or with respect to which provision for payment has been made pursuant to the provisions of this Resolution or otherwise defeased as permitted by applicable law; or (c) any such Bond in lieu of or in substitution - for which another Bond shall have been delivered pursuant to this Resolution. - - "Owner' or "Registered Owner,' when used with respect to any Bond, shall mean the person or entity in whose name such Bond is registered in the Register. Any reference to a particular percentage or proportion of the rcentage or proportion in Owners shall mean Bonds t�henn Outstanding under this Resolution e Owners at a particular time of the pexclusive eof Bonds held by the Corporation. principal amount of "Parity Bonds" shall mean the Bonds, each series of Additional Parity Bonds from time to time hereafter issued by the Corporation and any refunding bonds issued to refund the Bonds or any Additional Parity Bonds, but only to the extent such Parity Bonds remain Outstanding. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Minneapolis, Minnesota, and its successors in that capacity. "Payment Date" when used in connection with any Bond, shall mean September 1, 2005, and each March 1 and September 1 thereafter until maturity or prior redemption. "Pledged Revenues" shall mean (a) 100% of the Sales Tax Revenues and (b) 100% of all of the interest income from the investment or deposit of moneys in the Revenue Fund, the Debt Service Fund and the Reserve Fund. "Project" shall mean the extension of Kirby Drive within the City from the southern boundary of Clear Creek to Beltway 8, including the water, sewer bridge and drainage improvements required for such extension. "Purchaser" shall mean the initial purchaser of the Bonds as defined in Section 9.1 of this Resolution. "Record Date" shall mean, for any Payment Date, the fifteenth (15th) calendar day of the month next preceding each Payment Date. "Refunded Bonds" shall mean those bonds described in Schedule 1 attached hereto, which are being refunded and defeased with the proceeds of the Bonds and other legally available funds of the Corporation, if any. "Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the names and addresses of and the principal amounts of the Bonds registered to, each Owner. "Report" shall mean the report of Grant Thornton LLP, certified public accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the refunding of the Refunded Bonds. "Reserve Fund" shall mean the Reserve Fund created pursuant to Section 5.2 of this Resolution. "Reserve Fund Requirement" shall mean an amount (which may consist of money or authorized investments, or any combination thereof) equal to 100% of the average annual debt service on the Bonds and any Additional Parity Bonds then Outstanding. "Reserve Fund Surety Bond" shall mean the reserve fund surety bond issued by the Reserve Fund Surety Bond Insurer. "Resolution" shall mean this Resolution Development Corporation Sales Tax Revenue and supplements hereto. "Revenue Fund" shall mean the Revenue Fund created pursuant to Section 5.2 of this Resolution. "Sales Tax" shall mean the 1/2 of 1% sales and use tax authorized to be levied by the City for the benefit of the Corporation for the promotion and development of new and expanded business enterprises pursuant to an election held on January 21, 1995. "Sales Tax Revenues" shall mean 100% of the funds collected by the City from the levy of the Sales Tax, without deduction, offset or credit for any administrative charges or expenses incurred by the City or the Corporation in connection with the levy and collection of the Sales Tax, other than any amounts due and owing to the Comptroller for collection costs and other charges. "Surplus Fund" shall mean the Surplus Fund created pursuant to Section 5.2 of this Resolution. , or any successor thereto. "Reserve Fund Surety Bond Insurer" shall mean Authorizing the Issuance of $10,775,000 Pearland Economic Refunding Bonds Series 2005, and all amendments hereof and Section 5.1: Pledge and Source of Payment. The Corporation hereby covenants and agrees that all Pledged Revenues shall be deposited and paid nto the special funds established in Section 5.2 of this Resolution, and shall be applied in the manner set out herein, to provide for the payment of principal, interest and any redemption premium of the Parity Bonds and all expenses of paying the same. The Panty Bonds shall constitute special obligations of the Corporation that shall be payable solely from and shall be equally and ratably secured by a first lien on, the Pledged Revenues, as collected and received by the Corporation, which Pledged Revenues shall, in the manner herein provided, be set aside and pledged to the payment of the Parity Bonds in the Debt Service Fund and Reserve Fund, and any excess Sales Tax Revenues shall be set aside in the Surplus Fund as hereinafter provided, and the Parity Bonds shall be in all respects on a panty 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 ad valorem taxation. The owners of the Panty Bonds shall never have the right to demand payment from Sales Tax Revenues in excess of those collected from the Sales Tax. Section 5 2: Special Funds. The following special funds are hereby created, and such funds shall be maintained and accounted for as hereinafter provided, so long as any Parity Bonds remain Outstanding: (a) the Revenue Fund; (b) the Debt Service Fund; (c) the Reserve Fund and (d) the Surplus Fund The Revenue Fund and the Surplus Fund shall be maintained and accounted for as separate accounts on the books of the Corporation. The Debt Service Fund and any moneys held in the Reserve Fund shall be maintained at an official depository bank of the Corporation separate and apart from all other funds and accounts of the City or the Corporation 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 herein so long as any Parity Bonds remain Outstanding. Section 5.3: Flow of Funds. All Pledged Revenues shall be deposited as collected into the Revenue Fund. Money from time to time on deposit to the credit of the Revenue Fund shall be applied as follows in the following order or priority (j) First, to make all deposits into the Debt Service Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (ii) Second, to make any rebate payments required pursuant to Section 9.5 of this Resolution; (iii) Third, to reimburse the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (iv) Fourth, to pay interest to the Reserve Fund Surety Bond Insurer and any other issuer of a surety bond issued in satisfaction of the Reserve Fund Requirement, for any amounts advanced under the Reserve Fund Surety Bond or such other surety bonds; (v) Fifth, to make all deposits into the Reserve Fund required by this Resolution, and any resolution authorizing the issuance of Additional Parity Bonds; (vi) Sixth, to make the transfers required by any resolutions authorizing the issuance or incurrence of subordinate lien obligations (subject to the prior requirements of any resolutions authorizing the issuance of Additional Parity Bonds); and (vii) Seventh, to make all deposits into the Surplus Fund as required by this Resolution, said funds to be used for any lawful purpose. Whenever the total 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 5.4: Debt Service Fund On or before the last Business Day of each month, beginning March, 2005, so long as any Parity Bonds remain Outstanding, there shall be deposited into the Debt Service Fund from the Revenue Fund such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the Debt Service Requirement on the next Payment Date. if in any month the Corporation shall fail to make the full transfer to the Debt Service Fund required by this Resolution, amounts equivalent to such deficiency shall be transferred to the Debt Service Fund from the first available and unallocated money in the Revenue Fund in the following month or months, and such transfers shall be in addition to the other amounts required to be transferred to the Debt Service Fund. 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, plus all bank charges and other costs and expenses related to such payment. On or before each Payment Date on the Parity Bonds, the Corporation shall transfer from the Debt Service Fund to the paying agents for the Parity Bonds an amount equal to the principal, interest and any redemption premium payable on the Parity Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The A-4 paying agents for the Parity Bonds shall destroy all paid Parity Bonds and shall provide the Corporation with an appropriate certificate of destruction. Section 5.5: Reserve Fund. The Corporation shall initially deposit in the Reserve Fund, within five years from the date of delivery of the Bonds, in equal monthly installments, an. amount which after such five-year period shall equal the Reserve Fund Requirement. After such five-year period, so long thereafter as the Reserve Fund contains such amount, no deposits shall be required to be made into the Reserve Fund, and any excess amounts may be transferred to the Revenue Fund, the Debt Service Fund or the Surplus Fund. But, if and whenever the balance in the Reserve Fund is reduced below such amount monthly deposits into the Reserve Fund from the first available and unallocated money in the Revenue Fund shall be resumed and continued 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. In lieu of cash or investments, the Reserve Fund Requirement maybe satisfied in whole or in part with one or more surety bonds issued by an insurance company rated in. the highest rating category by Standard & Poor's Ratings Group and Moody's Investors Service, and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company, including the Reserve Fund Surety Bond pursuant to the Financial Guaranty Agreement, a form of which is attached hereto as Exhibit G, the terms and provisions of which are hereby approved. The Chairman is hereby authorized and directed to execute and deliver such Financial Guaranty Agreement on behalf of the Corporation, in multiple counterparts and the Secretary is hereby authorized to attest thereto, together with such changes, additions, deletions and amendments thereto as such officers shall deem necessary or appropriate. Such Reserve Fund Surety Bond may be drawn upon only after all cash or investments held in the Reserve Fund have been used or applied. If the Reserve Fund Requirement is satisfied with the Reserve Fund Surety Bond and one or more surety bonds authorized under this Section, draws on the Reserve Fund Surety Bond and such other surety bonds shall be made on a pro rata basis. Notwithstanding anything in this Resolution to the contrary, the Bonds may not be redeemed pursuant to Section 3.4 unless all amounts owed to the Reserve Fund Surety Bond Insurer pursuant to the Financial Guaranty Agreement have been paid in full. Section 5.6: Surplus Fund After making any transfers which may be required into the Debt Service Fund the .Reserve Fund, or any other fund or funds created in any resolution authorizing the issuance of Parity Bonds, any money remaining in the Revenue Fund shall be considered surplus, and may be deposited on any Payment Date into the Surplus Fund and used by the Corporation for any lawful purpose Section 6.1: Additional Parity Bonds. In addition to inferior lien bonds, the Corporation expressly reserves the right hereafter to issue, 'n one or more series, Additional Parity Bonds for purposes permitted by law, which Additional Parity Bonds, when issued, shall be payable from and secured by liens on and pledges of the Pledged Revenues in the same manner and to the same extent as the Bonds and any other Additional Panty Bonds; and the Additional Parity Bonds, when issued, shall be payable from the Debt Service Fund and shall be in all respects of equal dignity and on a parity with the Bonds and any other Additional Parity Bonds. It is specifically provided, however that no Additional Parity Bonds shall be issued unless: Principal of the Additional Parity Bonds is payable. on September 1 and interest is payable on March 1 and September 1; (ii) The Debt Service Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; (iii) For any twelve (12) consecutive months of the preceding 18-month period immediately preceding the month in which the resolution authorizing such Additional Parity Bonds is adopted (the "Base Period"), the Pledged Revenues were equal to at least 1.25% of the average annual principal and (i) A-5 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 Chairman of the Corporation, an authorized officer of the City, or by an independent certified public accountant or firm of independent certified public accountants; and (iv) Provision is made in the resolution authorizing the Additional Parity Bonds then proposed to be issued that (1) additional deposits will be made into the Debt Service Fund sufficient to provide for the principal and interest requirements on the Additional Parity Bonds and (2) deposits will be made into the Reserve Fund of such amount, or one or more surety bonds will be provided, so that it will contain a balance not less than the Reserve Fund Requirement on all Parity Bonds that will be Outstanding after the issuance of such series of Additional Parity Bonds Section on 6.2: Subordinate Lien Bonds The Corporation reserves the right to issue, for any purpose authorized under the Act, bonds notes or other obligations secured in whole or in part by liens on the Pledged Revenues that are junior lien blia and suordinato the hen on Pledged Revenues securing payment of the Parity tionsmay beBonds. further secured by any other source of payment lawfully available for such Suuchhsubordinate g purposes. * * * APPENDIX B GENERAL INFORMATION REGARDING THE CITY OF PEARLAND The following information has been derived from various sources, including the U.S. Census data, Texas Workforce Commission, "Sales Management Survey of Buying Power", Claritas, and City of Pearland, Texas officials. While such sources are believed to be reliable, no representation is made as to the accuracy thereof. The information provided in this Appendix B is being provided for the sole purpose of providing economic and demographic information for the City, as such information may be a factor in evaluating the potential for future collections of Sales Tax Revenues However, the Bonds do not constitute a debt or obligation of the City, and the Holders thereof shall never have the right to demand payment of any funds raised or to be raised by any system of ad valorem taxation. Residential and Commercial Development Because of the City's proximity to downtown Houston, it has become an area of continuing growth in residential, commercial and some light industrial development. As of August 2004, there are numerous residential subdivisions either developed or under construction within the City with homes ranging in value from $75,000 to $400,000, the average being approximately $185,400. Building Permits - Year 12-31 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 (b) Residential No. Value 670 382 402 481 362 340 478 415 506 536 818 1,245 1,424 1,684 1,505 35,378,197 36,416,253 37,249,884 39,236,381 25,173,050 34,734,829 38,301,224 43,712,441 60,691,036 64,525,679 202,795,755 212,152,849 257,282,301 312,354,189 279,068,788 Commercial No. Value 90 12 16 15 12 13 19 30 23 22 17 20 20 49 29 (a) Includes apartments and public facilities. (b) As of August 31, 2004. Source: City of Pearland 2,947,222 2,503,500 6,849,000 6,475,570 2,997,021 3,762,900 5,189,850 10,785,050 12,696,415 13,847,245 43,414,385 10,868,583 29,585,122 41,504,192 21,152,851 Other (a) No. 119 402 453 863 582 528 392 402 422 532 604 705 719 742 576 Value 931,546 5,507,501 11,764,178 5,961,881 7,425,514 7,799,090 85,320,262 50,038,171 40,739,351 48,265,402 59,823,285 21,129,833 15,782,222 17,717,326 17,938,871 Total No. Value 879 39,256,965 796 44,427,254 871 55,863,062 1,359 51,673,832 956 35,595,585 881 46,296,819 889 128,811,066 847 104,535,662 951 114,126,808 1,090 126,638,386 1,439 306,033,425 1,970 244,151,265 2,163 302,649,645 2,475 371,575,707 2,110 318,160,510 B-1 Employment The City has a well-rounded workforce with a significant percentage of workers employed in professional or executive positions or as administrate\ e support for professionals. The industries employing the greatest number of Pearland's residents are manufacturing of durable goods, retail trade and education. Industrial activities within the City include the manufacturing of pipe, concrete building materials, mining equipment, lighting fixtures, large storage tanks and the fabrication and forging of steel. The following is a list of the industrial employers located within the City with employment numbers above 50, as of December 2003. Aggreko Bell Bottom Foundation CPI Group Davis -Lynch Home Depot Industrial Polymers Kemlon Koza's Inc. Lowe's Packaging Service Co. Pauluhn Electric Manufacturing Pearland City of Pearland 1SD Pearland Regional Airport -Major Employers- (50+ Employees) Pro Fax Randall's Rollac Shutters ShawCor Pipe Protection Speed Shore Strickland Chevrolet Super Target Tele-Flow Texas Honing Texas Underground Inc. Traffic Control Devices Turbo Care Wal-Mart Weatherford Source: Pearland Economic Development Corporation; 2003; Texas Workforce Commission -Pearland Employment By Industry Sector - Industrial Retail/Leisure Other Office Health Care Source: US Census Bureau; TIP Strategies; 2000 36% 33% 15% 10% 6% -Pearland Percentage Population by Occupation - Management, Professional, related Saks and Office Production, Transportation, Material Moving Construction, Extraction, and Maintenance Service Farming, Forestry, and Fishing Source: US Census Bureau, 2000 40.9% 29.7% 10.5% 9.6% 9.3% .1% • Labor Force Employed Unemployed Unemployment Rate -Civilian Labor Force - City ofPearland 2004(a) 2003 2002 13,030 12,319 711 5.5 (a) As of August, 2004. Source: Texas Workforce Commission. Source• U.S. Census Source: Claritas, December 2003. 12,748 12,050 698 5.5 12,555 12,004 551 4.4 Population and Demographics -City Population- 1960 1970 1980 1990 2000 2001 12,074 11,640 434 3.6 Number 1,497 6,444 13,248 18,927 37,640 % Change +330.46 +105.59 +42.87 +98.87 -Population of City and ETJ- 1990 Census 2000 Census 2003 Estimate Growth 1990-2000 Growth 2000-2003 Median Age Average Age 33,771 59,703 67,997 76.79% 13.89% 35.11 34.46 -Number of Households in City and ETJ (Estimate) - Source: Claritas, December 2003. 1990 Census 2000 Census 2003 Estimate Growth 1990-2000 Avg. Household Size 11,782 20,993 23,943 78.18% 2.83% 2000 12,010 11,556 454 3.8 B-3 -Percent Estimate of Households by Income - Less than $15,000 - $25,000 - $35,000 - $50,000 - $75,000 - $100,000 $150,000 $250,000 $500,000 $15,000 $24,999 $34,999 $49,999 $74,999 $99,999 - $149,999 • $249,999 • $499,999 and over Average Household Income Median Household Income Per Capita Income Source: Claritas, December 2003. 5.40% 6.48% 6.82% 12.83% 20.42% 17.32% 21.03% 8.05% 1.37% 0.28% $84,554 $72,603 $29,803 -Marketing Survey of Buying Power -* Houston -Galveston Brazoria CMSA Population (000s) Total Population 18-24 25-34 35-49 50+ Households Retail By Store Group Sales (000's) Total Retail Sales Food & Beverage Stores Food & Beverage Stores Estab. General Merchandise Fumit. & Home Furnish. and Electron. & Appin. Motor Vehicle & Parts Dealers Total EIB ($000) Median Household EBI $20 000 - $34,999 $35 000 - $49,999 $50 000 and Over Buying Power Index 4,958.2 9.7 15.0 23.9 22.8 1,732.9 $ 67,154,950 7,696,369 6,993,796 8,787,862 4,574,457 $ 20,242,797 $96,146,984 41,754 21.6 18.2 40.4 1.7822 Brazoria County 257.6 9.1 13.3 25.3 24.3 85.9 $2,607,160 389,213 199,025 500,228 70,238 $ 801,419 $4,626,240 44,734 20.0 18.9 43.3 .0820 * Statistical data from "Sales & Marketing Management 2003 Survey of Buying Power", copyright in 2003 Sales Management Survey of Buying Power. Further reproduction is forbidden. APPENDIX C AUDITED FINANCIAL STATEMENT OF THE CITY OF PEARLAND FOR THE YEAR ENDED SEPTEMBER 30, 2003 Attached are the audited financial statements for the City of Pearland, Texas for the Fiscal Year ended September 30, 2003. The financial statements include certain financial information relating to the Corporation, as a legally separate component unit of the City. This information is reported in the financial statements separately from the information related to the primary government of the City and its other component units. The inclusion of the City's financial statements shall in no manner characterize the Bonds as a debt or obligation of thea City. As described in the Official Statement the Bonds are special limited obligations of the Corporation, payable solely from, and secured by a lien on and pledge of, the Pledged Revenues The Bonds do not constitute a debt or obligation of the City, and the Holders thereof shall never have the right to demand payment of any funds raised or to be raised by any system of ad valorem taxation. CITY OF PEARLAND, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2003 D( I ti • :'d•bt.t art:•. _z�--off Prepared by: Finance Department • INTRODUCTORY SECTION To the Honorable Mayor, Members of City Council and Citizens of the City of Pearland, Texas: We are pleased to submit to you the Comprehensive Annual Financial Report of the City of Pearland, Texas (the "City") for the fiscal year ended September 30, 2003. This report is published in order to provide the City Council, City employees our Citizens and other interested parties with detailed information concerning the financial condition and significant activities of the City. Responsibility for the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. We believe that the enclosed data, as presented is accurate in all material respects, and is reported in a manner designed to present fairly the financial position and results of operations of the City as measured by the financial activity of its various funds and account groups; and that all disclosures necessary to enable the reader to gain an understanding of the City's financial affairs have been included. THE REPORT The Comprehensive Annual Financial Report is presented in three sections; Introductory, Financial, and Statistical. The Introductory Section which is unaudited, includes this transmittal letter, the City's organizational chart, a list of principal City officials, and a copy of the 2002 Certificate of Achievement for Excellence in Financial Reporting. The Financial Section includes a Management's Discussion and Analysis (MD&A), basic financial statements and the combining statements and schedules. The Financial Section also includes ow independent auditors' report on the governmental activities, the business -type activities, the aggregate discretely presented component unites, each major fund, and the aggregate remaining fund information. The Statistical Section, which is unaudited, includes selected financial and demographic information, generally presented on a multi -year basis to allow for certain trend analyses relative to the City. This report includes all the funds of the primary government (Le., the City of Pearland as legally defined), as well as all of its Component Units. Component Units are legally separate entities for which the primary government is financially accountable. The City provides a full range of municipal services contemplated by statute or charter. These services include police and fire protection, health and social services, public improvements, planning and zoning, and general administrative services. The City also provides water sewer, and sanitation services. Additionally, the City has an Economic Development Corporation, which was established to attract and retain jobs within the City and to more fully develop the local ad valorem tax base. i There are two types of Component Units which are reported herein — one being the Pearland Economic Development Corporation (as previously described) and the other being Tax Increment Investment Zones ("TIRZ s") A TIRZ is an area within the City's jurisdiction that is created in order to foster investment and development that will ultimately benefit the City. These Component Units are presented herein discretely. Further, the Component Units are reported in a separate column in the government - wide financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position and results of operations from those of the primary government. The City's financial statements take on a new look this year due to our adoption and implementation of a new comprehensive financial reporting model. The new reporting model is a requirement under U. S. Generally Accepted Accounting Principles (GAAP), primarily under the provisions of Governmental Accounting Standards Board (GASH) Statement No. 34, Basic Financial Statements --and Management's Discussion and Analysis for State and Local Governments. The MD&A is intended to be a narrative introduction, overviewanciad al nalysis of the fineleae d operating affairs of the City, written to supplement the basic transmittal is designed to compliment MD&A and should be read in conjunction with it. The City of Pearland's MD&A can be found immediately following the independent auditors' report. • CITY PROFILE Form of Government The City of Pearland is governed by the Council/Managerin1 form of government in accordance with the Home Rule Charter adopted by the voters February, The City Council is the legislative and policy -making body of the City. It consists of' five members elected at -large for a three-year, staggered terms Elections are held annually the first Saturday in May. The Mayor and Council provide community leadership, develop policies to guide the City in delivering services and achieving community goals, and encourage citizen awareness and involvement. Location The City of Pearland is located in the upper Gulf Coast region of Texas and is situated primarily in the northeast comer of Brazoria County, approximately fifteen miles southeast of the City of Houston's central business distract. The City currently encompasses approximately 44 square miles within the City limits and includes approximately 29 additional square miles within its Extra Territorial Jurisdiction (ETJ). The City of Pearland's transportation needs are served via access to several interstate and state highways. State Highway 288 traverses the City's west side providing access to the port of Freeport to the south and to the Houston Medical Center on into downtown Houston to the north. The Sam Houston Tollway (Beltway 8) is a freeway "loop" that encircles the City of Houston. This freeway artery runs near and parallel to the City's northern boundaries in an east -west direction. Interstate Highway 45 lies just east of the City of Pearland, providing access to the Johnson Space Center and Port of Galveston to the south, and travels northward, through the heart of downtown Houston. Additionally, State Highway 35 bisects the City of Pearland in a north -south direction providing easy access to Houston's Hobby airport approximately 6 miles to the north Population Currently, the City's estimated population was approximately 47,500 people (not including the ETJ population). Recent trends forecast the City's population growth to more than double within the city limits to more than 96,000 by the year 2012. Estimates for Brazoria County for this same time period reflect a population increase of approximately 40%, from approximately 255,000 today, up to approximately 356,000 in 2012. However, nearly is estimated to of the ll county account foro27%tiof thon eocoth is unty expected to occur within Pearland's city limits, which population by 2012 (as compared to approximately 18% today). MAJOR INITIATIVES Dramatic growth and opportunity - tempered with visionary guidance - continue to be the prevailing forces steering Pearland City Council, staff, and community direction. The community continues to embrace the challenge of preserving Pearland's small-town feel, even as it blossoms into one of Houston's largest suburbs. This concept is captured by the slogan 'Where town and country meet," and is embodied in numerous major initiatives and on -going programs. The Old Town Site The Old Town Site is the historic center of Pearland, and the City Council has established a vision to reinvent the area as a hub of mixed -use residential, business, and civic activity. Over the past three years, the majority of the area's half -century old sewer system has been rehabilitated. For five years, $150,000 per year has been spent to add sidewalks, and increase the walk ability" of the neighborhood. In 2003, the City re acquired ownership of Zychlinski Old Town Park, and completed a total renovation of the one -block square park, adding walking trails, playground equipment, a basketball court, and landscaping. Redevelopment efforts will continue next year with implementation of a mixed use 'Village District" zoning concept for the area. The Council has expressed a commitment to utilize tax increment reinvestment zones and other creative financing tools to continue the revitalization effort. Sense of Community Maintaining a small town environment means. ensuring that opportunities exist for all citizens- 'old- timers' and newcomers - to come together and form new bonds The Parks and Recreation Department plays a leading role in this function by sponsoring community -wide events that attract residents of all ages. City and cit zen support for such events as the summer concert series, bi-monthly teen and senior citizen dances the annual Winterfest event, the Christmas tree lighting ceremony, and Christmas parade continue to grow steadily each year. In 2003, the City took over operation and programming for the senior citizen center; daily programs and periodic field trips are now offered, and attendance has grown significantly. Community Appearance The original small town of Pearland traditionally prided itself on a clean appearance, and the large City of Pearland expects nothing less. A close relationship with the local Keep America Beautiful affiliate has spawned several initiatives. Adding to the curbside recycling collection program that has been in place since 1995, green waste recycling has also been added. Partnering with the Houston -Galveston Area Council, the City is nearing completion on a state-of-the-art recycling center that will serve Pearland and Brazoria County. The center will be completed in Household Hazardous Waste Collection day event and will be one of the anchors of the Southwest Environmental Center Park, The 2004 Ho generated record numbers of visitors, and the program may be expanded after the new center is open. Volunteers staff an innovative program known. as the "Eyes of Pearland," patterned after the familiar song ` The Eyes of Texas are Upon You ' High weeds, structures and fences in ill repair, and "bandit" signs are the primary targets of this motivated group, which began operation in 2003. Supplementing City code enforcement staff, these volunteers clean up these problems in a timely manner, while allowing City staff to focus on other pressing issues. Another volunteer program utilizes graduates from the citizen's police academy to enforcees continue,to be allocated to the progNow in its tlurd year, ram. program has been tremendously successful and additional resources Public Safety Personal safety and low crime rate are often cited as reasons families have chosen to relocate to Pearland. Public safety continues to be a major emphasis for the City Council, continuing a program to add a minimum of six new police officers per year to maintain a ratio of 1.9 officers per 1,000 population. In 2004, a new police department Geographic Information System interface will be added that will improve response times, ensure dispatch to the proper locations, and add significant crime tracking and analysis capabilities. Explorer Post 1 membersffiliated with compete wellBoy Scouts f at competitions, erica), oand red by the Pearland Police Department continues to gain create another vital linkage between the City and its citizens. Responding to increased demand and changing expectations, the City also added its first full-time, paid EMS Director in 2003. Also in 2003, a Reverse 911 system was implemented that will enable targeted notification for emergencies; the City is investigating the start- up of an AM radio station that can be used year-round for local news and information, as well as for emergencynseveraluctions; and and has been Emergency Operations Management Plan was updated for the first time years, approved by the state. Community Enrichment Initiatives Under the leadership of the Mayor, several new community -oriented initiatives took off in 2003, setting the stage for future opportunities. A joint venture with the YMCA to build a skateboard park on City - owned land will benefit the YMCA by reducing costs and benefit the community by providing a safe location for kids to practice this popular sport. The Pearland Arts League was also formed in 2003 and will be hosting its first event on Grand Avenue in the Old Town Site in 2004. This community event serves multiple purposes: providing a venue forartisans of all varieties bringing diverse segments of the community together, and placing a focal point on the Old Town Site Finally, the higher education initiative has resulted in a partnership between the Alvin Community College-Pearland C impus and the University of Houston to offer upper -level (junior -senior) classes in Pearland. This pilot initiative will likely lead to a full-time presence for a future University of Houston - Pearland campus. Iv Growth Management An update of the 1999 Comprehensive Plan will be completed by mid-2004. This document refreshes the vision of the community to maintain a strong balance of residential, retail, and primary employers. The Pearland Economic Development Corporation is funding a nearly $9 million extension of Kirby Drive that will serve as the focal point for the Spectrum Business Park, a development that may ultimately include 1,000 acres of biomedical research and manufacturing, offices regional retail, and related uses Two , major hospital corporations have purchased property in Pearland for new facilities, and the University of Texas has acquired 50 acres for a potential annex to the world- renowned Texas Medical Center. Following closely behind the Comprehensive Plan Update in late 2004 will be revisions to several City codes. The zoning and subdivision codes will be combined into one updated unified development code that will assist both applicants and City staff in effective and efficient plan review All of the City's building, fire, and life -safety codes are also being updated to the most recent national standards Transportation Improvements and Strategic Planning Enhancing transportation to meet growth demands also continues to be a major priority. The $16 million Pearland Parkway opened in 2003, connecting two major transportation arteries — FM 518 to BW 8 — and has already averaged daily traffic of over 10,000 vehicles per day. Several major components of the $92.5 million transportation bond program (passed in Fall 2001) will be under construction in 2004, including Yost Road, Barry Rose Road, and the Cullen Boulevard extension. All of these projects will provide new transportation linkages, and provide traffic relief for FM 518. By 2005, the first phase of the $46 million Dixie Farm Road project will be under construction resulting in a vastly improved primary connection to IH 45. In addition to transportation construction projects, the City is actively involved in long-range transportation planning activities. City staff members are on the steering committees of the TX DOT - sponsored major corridor feasibility studies for improvements to SH 288 and SH 35. The studies, which should be concluded by late 2004 will provide a blueprint for short, medium, and long-term improvements to these two vital traffic corridors. The City is also participating with the Houston - Galveston Area Council and the cities of Friendswood and League City in a mobility study for FM 518, set for completion in 2004. This study will result in specific projects that can improve mobility and reduce travel delay on FM 518 without the need to add additional lane capacity. Finally, the City .is actively participating in the Brazoria County Mobility Bond Steering Committee, with a goal of ensuring that Pearland is fairly represented with road improvement projects on the proposed November 2004 county road bond ballot. Storm Water Management Responding to the devastation inflicted by Tropical Storm Allison in 2001, the City has stepped up efforts to enhance flood control measures. A revised Drainage Design Criteria Manual enacted in February 2004 will result in approximately 12% larger detention ponds for private development. The City has also completed a Hazard Mitigation Plan that incorporates compliance with state and federal agency requirements to ensure continued eligibility for grant programs In late 2003, the City submitted an application to FEMA for inclusion in the Community Rating System. Initial responses indicate that the City will receive a rating of "7" — a very positive rating for a first time applicant, which will result in lower flood insurance premiums for City residents In a joint venture with Brazoria Drainage District #4, the City completed a new regional storm water detention site on Hickory Slough in 2003, and also purchased an additional 65 acres on that same stream for a future combined soccer complex/storm water detention facility. Water and Sewer Strategic Planning Assurance of' adequate water and sewer capacity is blenfutu a ry goal toward rate. providing The City's first major ity-of-life amenities for current residents, and ensuring a desirable in source of surface water (purchased from the City of waterton�was iactivated y intends to oOcrease that 3, and will provide to 6 to one million gallons per day (MGD) of drinking MGD by 2007, and will also be buying into a regional surface bewater avatlab a by 2008 �nTh04initiative to at a cost of over $16 million for an additional capacity of 10 MGD to convert all water supplies to surface water not only provides guate water reducing the City' through 2022, but also will assist in the regionalbattle against subsidence by reliance on pumping groundwater. The City's four wastewater treatment plants are all operating well within governmental compliance requirements, and ax ore af r�lanmexhpans on of is expected and enterting he wastewater volume growth is now in place. The ) p planning stage in 2005. rovement In addition to these planning activities, over $40 million majon r orine trunktension and plant fa facilities to networkpprop properties projects are currently in progress. These projects annexed in the late 1990's, as well as local distribution and A nition lines to replace orrect sewertaninflow and dard well and septic tank service in several recently -annexed areas.major initiative to c_ infiltration in the older sections of the City is neanng in unnecessary rainwatend of a six -year er flow to the wastewain which more ter $4 million has been spent in rehabilitation. By g treatment plants, plant operational costs have decreased, thus deferring the need for plant expansion. City Facilities Accompanying the aspects of long-range utility and transportation planning is an initiative to compilea cohesive water, sewer, drainage, transportation, and facility caCouncil are inital volved olved with movement oithly planning am, which is currently in progress. The Planning Cornn fission City sessions with the goal of completing the long-range plan by Fail 2004 A comprehensive street inventory to be used for compliance, and with GASB 34 and budget eted ing is y Springp2004,nwh ch wately i 1 complete. A facility -needs analysis is in progress, and should be compl provide a blueprint for additional public safety, public works, and administrative facility needs to match the City's growth trends. ECONOMIC OUTLOOK Brazoria County's current population is Just under 228,000.a razoria County Ps estimated artnership, job growth will this will increase to over 330,000 in the next ten to fifteen years According tote technology transportation and distribution, 3) be focused in four primary areas: 1) aerospace/high gY 2) petrochemical and downstream petrochemical companies and 4) tourism. In late 1998, the City of Pearland created a Tax Increment Reinves me288o e (TIRZ #The c2).TtY s limit now involved the annexation of over 3 000 acres west of the State Highway 288 (SH) extends to portions of Fort Bend County. The proposeddevarelopment, elo mfra t, Shadow It is Creekmated that 7, ha new e potential to develop the acreage over a fifteen to twenty y single-family homes 1,800 assisted living units, and 3,900 munext xt it2yeaurnts could be developed. More than two billion dollars worth of value would be added ° Shadow Creek Ranch will not only improve roads in the area, but will also bring in sewer and drainage, water, and major landscaping to the area. The added population poises SH 288 for major retail and commercial development that could eventually include major office buildings a hospital, and hotels. With respect to economic development projects in Pearland, 2003 proved to be a very active year. Many commercial enterprises have expanded ore relocated their businesses to the City dunng the course of the year. The following list summarizes some of the major projects in 2003' • Tele-Flow, a manufacturer of flexible insulated air duct and injection molds registers for the HVAC market, expanded its facilities by 37,500 square feet with expectations of' adding 85 new jobs to the Pearland area over the next five years • Hampton Inn opened the doors of its new 61-room hotel. • TYMETAL Corp., manufacturer of high security gates, located to Pearland and expanded its facility to 10 625 square feet to serve industry long the Gulf Coast. Plans are to add 15 new jobs to the Pearland area over the next five years. • The Spectrum at Clear Creek — a master -planned mixed -used business park development to be located on a 1,000-acre site at the crossroads of SH 288 and Beltway 8 in Pearland. The Spectrum will be the convergence of science, technology, training and lifestyle. • West Pearland Professional Center — a 20 000 square foot professional office building and an adjacent strip center that includes approximately 11,500 square feet. Construction is currently underway for an additional 11,500 square foot professional office building. • Pearland Business Park — a new 120,000 square foot office and warehouse business park to be developed by South Texas Projects. • In addition are numerous retail projects that have either opened for business or are in the process of building. ACCOUNTING AND BUDGETARY CONTROLS Management of the City •is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse, and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives ire met. The concept of reasonable assurance recognizes that (1) the cost of controls should not exceed the benefits expected to be derived and (2) the evaluation of costs and benefits requires estimates and judgments by management. Accounting Controls. We believe that the City's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned function Budgeting Controls. In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City's governing body Activities of the General, Debt Service, and Enterprise Funds are included in the annual appropriated budget. The level of budgetary control (the level at which expenditures cannot legally exceed the appropriated amount) is the total approved budget for each department. vll OTHER INFORMATION Independent Audit The City Charter requires an annual audit of the books of account, financial records, and transactions of all administrative departments of the City by an independent certified public accountant. The accounting firm of Pattillo, Brown and Hill L.L.P. was selected by the City Council. This requirement has been complied with, and the auditors opinion has been included with this report. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2002. This was the 26th consecutive year that the City has received this prestigious award. In order to be awarded a Certificate of Achievement, a govemmental unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to Certificate of Achievement Program requirements and weare submitting it to GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA's Award for Distinguished Budget Presentation, the sixteenth consecutive year for its annual appropriated budget dated September 13, 2002. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document was judged to be proficient in several categories including policy documentation, financial planning, and organization. Acknowledgments We would like to express our appreciation to all members of the Finance and Administration Departments who assisted and contributed to its preparation. We would also like to thank the Mayor, members of the City Council, and City Manager for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, sr Andrea M. Jason Director of Finance April 20, 2004 CITY OF PEARLAND, TEXAS SEPTEMBER 30, 2003 Certificate of Achievement for Excellence in Financial Reporting Presented to City of Pearland, Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2002 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Govcmmcnt Finance Officers Association of the United States and Canada to government waits and public employee retirement systems whose comprehensive annual financial reports{CAFRs) achieve the highest standards in government accounting and financial reporting. President Executive Director ix • • • • CITY OF PEARLAND, TEXAS ORGANIZATIONAL CHART SEPTEMBER 30, 2003 CITIZENS [MUNICIPALJUDGEs 1 ..sr-^ ECONOMIC DEVELOPMENT CITY COUNCIL • • ' CITY MANAGER 1i • • CITY ATTORNEY • PIKE M ARSHAL/ EMERGENCY MANAOERIENT PARKS &RECREATION • • • • a. IDEPUTYCITY MANAOER 1` 1 ENGINES -MVO 1 PROJECTS 1 • 111 P�L1C WORKS 1 FLEET • MAINTENANCE • .STREETS AND DRAWAOE . • • WATER PRODUCTION AND WASTEWATER 'TREATMENT WATER AND WASTEWATER D1STRlbUUGH Nt, COLLECTION WATER AND WASTEWATER CONSTRUCTION • • • • POLICE• 1 . CRIMINAL G(YES IOATION DIVISION COMMUNITY SE .VICE• PATROL • • • • • EXECUTIVE DIRECTOR OP COMMUNITY SERVICES • • • • • • CITY SECRETARY MUMAN • RESOURCES MUNICIPAL'. 1 • COURT INSPECTION SERVICES DUILDINO INSPECTION • OOPS ENFORCEMENT PLANNING AND 7-CITING tTINO ANIMAL ICONTROL TIM S/PUDUC I AFFAIRS • Tom Reid Richard Tetens (Position 1) Woody Owens (Position 2) H. Charles Viktorin (Position 3) Larry Marcott (Position 4) Klaus Seeger (Position 5) Bill Eisen Alan Mueller Young Lorfing Darrin Coker • CITY OF PEARLAND, TEXAS LIST OF PRINCIPAL OFFICIALS AS OF SEPTEMBER 30, 2003 ELECTED OFFICIALS APPOINTED OFFICIALS • (continued) Mayor Council Member, Mayor Pro-Tem Council Member Council Member Council Member Council Member City Manager Deputy City Manager City Secretary City Attorney • • Fredrick Howard Welch Andrea Jason Chris Doyle Steve Chapman Tobin Maples Thomas Grieve Jerry Burns Joseph Wertz Kola D. Olayiwola Doug Kneupper Glenn Chaney Edward Sillas Floyd Myers Jeff Sundeth Paul Jamison CITY OF PEARLAND, TEXAS LIST OF PRINCIPAL OFFICIALS (Continued) AS OF SEPTEMBER 30, 2003 EXECUTIVE MANAGERS Executive Director of P.E.D.C. Director of Finance Police Chief Fire Marshal/Emergency Management Director Manager of Administrative Services Director of Parks and Recreation Director of Public Works Director of Projects Director of Inspection Services City Engineering Municipal Court Judge Municipal Court Judge Municipal Court Judge Director of EMS Fire Chief FINANCIAL SECTION Prik.\711. PATTILLO, BROWN & HILL,LL CERTIFIED PUBLIC ACCOUNTANTS III BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Member of the City of Council City of Pearland, Texas We have audited the accompanying financial statements of' the governmental activities, the business -type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of and for the year ended September 30, 2003, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Pearland, Texas' management Our responsibility is to express an opinion on these financial statements based on our audit. We conducted ow audit in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates 'made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for ow opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of September 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, the City has implemented a new financial reporting model, as required by the provisions of GASB Statement No. 34, Basic Financial Statements —and Management's Discussion and Analysis —for State and Local Governments, as of September 30, 2003. In accordance with Government Auditing Standards, we have also issued our report dated January 2, 2004 on our consideration of the City of Pearland Texas' internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. 1 401 WEST HIGHWAY 6 ■ P. O. BOX 20725 ■ WACO, DC 76702-0725 ■ (254) 772.4901 ■ FAX (254) 772-4920 www.pbhcpa.com AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544.7778 ■ HILLSBORO, TX (254) 582-2583 TEMPLE, TX (254) 791-3460 ALBUQUERQUE, NM (505) 266.59041 RIO RANCHO, NM (505) 898-3516 The management's discussion and analysis on pages 3 through 11 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of Amenca. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Pearland, Texas' basic financial statements. The introductory section combining and individual fund financial statements and schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statemenstakenintr duct ry section and statistical tables have not been subjected to the auditing procedures applied in theof the basic financial statements and, accordingly, we express no opinion on them. 191.4yitois January 2, 2004 wat MANAGEMENT' S DISCUSSION AND ANALYSIS Management's Discussion and Analysis As management of the City of pearland, we offer readers of the ct�rise f nancs al lal yearaended Septembertements this t30, overview and analysis of the financial activities of the City for 2003. We encourage readers to consider the information presentedhere an n cone found on pages ijunction with dd tional information that we have furnished in our letter of transmittal, vof this report. The City implemented Governmental AccountingSta fords Scand te totem nt 34 Bas c Financial Statements and Management's Discussion and Analysis (GASB 34) for the first time this year. FINANCIAL HIGHLIGHTS • The assets of the City of Pearland exceeded its liabilities as of September 30, 2003, by $45,112,943 (net assets). Of this amount, $28,959,093 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. • The City's total net assets increased by $12,236,852. At the close of the current fiscal year, the City of Pearland's. governmental funds reported combined ending fund balances of $50 470,984. Of this amount, $48,288,869 represents unreserved fund balances available for use within the City's fund designation and fiscal policies. • As of September 30, 2003, the unreserved, undesignated fund balance for the General Fund was $5,309,938 OVERVIEW OF THE FINANCIAL STATEMENTS basic This discussion and analysis is intended to serve as an introduction three components: s(1) govermment�- statements. The City's bask financial statements are comprised wide financial statements, (2) fund financial statements and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government -wide Financial Statements — The govenunent-wide financial statements, which begin on page e 12 of this report, are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private -sector business. The Statement of Net Assets presents information on all time, of thCity's assetsor andeasesaibilitntes,awith sets may the difference between the two reported as net assets. Over m ,increases serve as a useful indicator of whether the financial position of the City is improving or deteriorating. • The Statement of Activities presents information showing how the City's net assets changed during the fiscal year. All changes in net assets are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in the future fiscal periods (e g., uncollected taxes and earned but unused compensated absences) Both of the government -wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their costs through user fees and charges (business -type activities). The governmental activities of the City include General Government, Public Safety, Public Works and Community Services, The business -type activities of the City include Water and Sewer. The government -wide financial statements include not only the City of Pearland itself (known as the primary government), but also a legally separate Economic Development Corporation and Tax Increment Investment Zone (TIRZ) Developments for which the City of Pearland is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government, itself. Fund Financial Statements — A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. All funds of the City can be divided into two categories — governmental funds and proprietary funds. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements However, unlike the government -wide financial statements, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact of the government's near -term financing decisions. Both the governmental funds balance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Beginning on page 15 of this report, information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues Expenditures, and Changes in Fund Balances for the General, Debt Service and Capital Projects Funds, which are considered tobe major funds. Data from the other governmental funds are combined into a single, aggr ga y presentation. Individual fund data for each of these non -major governmental funds is provided in the form of combining statements elsewhere in this report. • 4 s Proprietary Funds — The City maintains one type f pr proprietary activities fund. the government -wide Fundi are financial report the same functions presented as business -type statements, The City uses an Enterprise Fund to account for the Water and Sewer Fund. Proprietary funds provide the same type of information sthe statements, which begin on page 19 f this nancial statements, only in more detail The basic proprietary fund report, provide separate information for the Water and Sewer Enterprise Fund since it is considered to be a major fund of the City. Notes to the Financial Statements — The notes provide additional information t that is essential notesf full o understanding of the data Prbeided in found one pages government-wide 2 e45 ofahis reportd financial the financial statements can Other Information — In addition to the basic financial statements and accompanying notes, this report also presents combining fund statements and schedules that further u thes sr ppornor t the funds areion presented in the financial statements. The combining fund statements and immediately following the notes to the financial statements beginning on page 46 of this report GOVERNMENT -WIDE FINANCIAL ANALYSIS 's financial As noted earlier, net assets may serve over time weeded liabilities by $45 112 943useful indicator of tas of Septemberi30, In the case of the City of Pearland, net assets ex 2003. The largest portion of the City's net assets $12,002,386 reflects its investments in capital assets (e.g., land, building, equipment, improvements, construction in ess and infr to ucture), provide service any ty uses these capital outstanding debt used to acquire those assets. The Citya Pi o citizens, consequently these assets are not available rlhit should be notedre spendmg. lttha gibe resources the City's investment in its capital assets is reported net ofeated debt, needed to repay this debt must be provided from other sources since the capital assets themselves cannot be used to liquidate these liabilities. With the first year implementation of GASB 34, the City is not presenting comparable columns in the various comparisons and analyses for the pnor year. • • CITY OF PEARLAND'S NET ASSETS Current and other assets Capital assets Total assets Other liabilities Long term liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets Governmental Activities 2003 $ 58,831,697 51,822,512 110,654,209 7,921,467 100,148,774 108,070,241 ( 4,777,139) 4,151,464 3,209,643 $ 2,583,968 Business -type Activities 2003 $ 31,053,620 67,239,915 98,293,535 4,449,789 51,314,771 55,764,560 16,779,525 25,749,450 $ 42,528,975 Total $ 89,885,317 119,062,427 208,947,744 12,371,256 151,463,545 163,834,801 12,002,386 4,151,464 28,959,093 $ 45,112,943 A portion of' the City's net assets ($4,151,464) represents resources that are subject to external restriction on how they may be used. The remaining balance ($28,959,093) of unrestricted net assets may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. Analysis of the City's Operations — The following table provides a summary of the City's operations for the year ended September 30, 2003. The City first implemented GASB 34 in 2003; therefore, comparative data is not presented Governmental activities increased the City of Pearland's net assets by $3,720,899, accounting for approximately 30% of the total growth in net assets Business -type activities increased the City's net assets by $8,515,953, accounting for approximately 70% of' the total growth in net assets. • 6 CITY OF PEARLAND'S CHANGES IN NET ASSETS Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Ad valorem taxes Sales taxes Franchise taxes Other taxes Impact fees Investment earnings Miscellaneous Total revenues Expenses: General government Public safety Public works Community services Interest on long-term debt Water and sewer Total expenses Increases in net assets before transfers Transfers Change in net assets Net assets, October 1, 2002 Prior period adjustment Net assets, September 30, 2003 Governmental Activities 2003 $ 8,571,764 711,671 2,217,293 15,120,150 5,859,053 2,533,475 149,335 170,594 741,313 36,074,648 6,274,853 9,645,369 9,728,975 2,873,903 4,558,650 33,081,750 2,992,898 728,000 3,720,898 1,136,930) $ 2,583,968 Business -type Activities 2003 $ 8,809,189 IMP 5,000,000 4,881,756 196,094 • 18,887,039 9,643,086 9,643,086 9,243,953 ( 728,000) 8,515,953 32,047,168 1,965,854 42,528,975 Total $ 17,380,953 711,671 7,217,293 15,120,150 5,859,053 2,533,475 149,335 4,881,756 366,688 741,313 54,961,687 6,274,853 9,645,369 9,728,975 2,873,903 4,558,650 9,643,086 42,724,836 12,236,851 IN 12,236,851 30,910,238 1,965,854 $ 45,112943 43 FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS Governmental Funds -- The focus of the City of Pearland's governmental funds is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City of Pearland's governmental funds reported combined ending fund balances of $50,470,985. Approximately 96% of this total amount $48,288,869 constitutes an unreserved fund balance. The remainder of the fund balance $2,182 115 is reserved to indicate that is not available for new spending because it has already been committed to pay for encumbrances or debt service or to provide for other items. Refer to page 15 of this report for a more detailed presentation of governmental fund balances. In the General Fund, the City originallybudgeted for no change in fund balance. The actual increase to fund balance for the General Fund was $146 380 for fiscal year 2003. Proprietary Funds — The City's proprietary fund statements, beginning on page 19 of this report, provide the same type of information found in the government -wide financial statements, but in more detail. Unrestricted net assets of the only proprietary fund are $25,749,450. This fund experienced increases in total net assets during 2003 of $8,515 953. . Tlus increase was primarily due to an increase in customer base. See discussion for business -type activities for further explanation. Governmental Activities — The major increase in revenues comes from the tax category. The property tax base increased by approximately $304 million, due to construction of new residences businesses, and revaluation of property. The current year tax collection rate was approximately 98.6% of the levy. Additionally, there was an increase in both license and permit revenues and engineering and inspection revenues due to an increase in both residential and commercial building permits. Fines and forfeitures were up due to increased citations issued, and investment earnings are down due to the continued low interest rates. Business -type Activities — The City has one enterprise operation, the Water and Sewer Fund. Total operating revenues of the Water and Sewer fund were $8,809,189 for the fiscal year. Water sales increased primarily due to an increasing customer base due to growth in residential and commercial development, and due to a lack of rainfall dunng portions of the year. Similarly, service charges for wastewater increased primarily due to new residential and commercial construction. The increase in the Water and Sewer Fund s expenditures was primarily due to various capital infrastructure improvements and increase in service to customers. General Fund Budgetary Highlights — The City made revisions to the original appropriations approved by the City Council. The General Fund s overall budgeted revenue increased by $110,000. The major increase was due to a grant received by the City that was not anticipated at the beginning of the year During the year, however, revenues exceeded budgetary estimates and expenditures with less than budgetary estimates, thus eliminating the need to draw upon existing fund balance. 8 Refer to the General Fund Statement of Revenue Expenditures and Changes in Fund Balances — Budget and Actual on page 18 of this report for a detailed presentation ion of the actual General Fund operations compared to both the original and final budget for year • CAPITAL ASSETS The City of Pearland's investment in capital assets for its governmental and business -type activities as of September 30, 2003, amounts to $119 062,427 (net of accumulated depreciation). This investment in capital assets includes land, building equipment, improvements other than buildings infrastructure and construction work in progress. Major capital asset events occurring dunng the current fiscal year related primarily to three basic categories: water and sewer infrastructure projects, streets and mobility projects, and drainage improvement projects. CITY OF PEARLAND'S CAPITAL ASSETS AT YEAR-END Land Buildings and improvements Equipment Infrastructure Construction in progress Less: accumulated depreciation Total assets Governmental Activities 2003 2,509,691 $ 12,575,655. 10,880,210 18,195,829 19,367,162, ( 11,706,035) Business -type Activities 2003 367,962 S 21,518,110 7,512,707 32,641,748 19,321,872 14,122,484) $ 51,822,512 $ 67,239,915 Total 2,877,653 34,093,765 18,392,917 50,837,577 38,689,034 LS82102) $ 119,062,427 Additional information on the City's capital assets can be found in Note 4, pages 35 — 36 of this report. DEBT ADMINISTRATION At the end of the current fiscal year, the City of Pearland had total bonded debt of $148,850,000. Of this amount, $114 365,000 represents bonded debt backed by the full faith and credit of the government and $34,485,000 represents bonds secured solely by water and sewer revenues CITY OF PEARLAND'S OUTSTANDING DEBT AT YEAR-END General obligation Revenue bonds payable Certificates of obligation. Total Governmental Activities 2003 $ 26,880,000 70,650 000 $ 97,530,000 Business -type Activities 2003 • 34,485,000 16,835,000 $ 51,320,000 Total $ 26,880,000 34,485,000 87,485,000 $ 148,850,000 During the fiscal year, the City issued $34,650,000 in General Obligation and Certificates of Obligation Bonds and $9,500,000 in Revenue Bonds. The City's General Obligation, Certificates of Obligation, and Revenue Bond ratings are listed below. Standard Moods and Poor's Tax Bonds Revenue Bonds Most of the City's Bonds are insured, thus holding a Triples credit rating from be found on pages Standardda & Poor's Additional information on the City of Pearlang 41 of this report AAA AAA AAA AAA ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES Th e General Fund budget (including transfers in) for fiscal year 2004 is baseontion d on a pro► ected Licenses growth of 14% compared to the fiscal year 2003 budget due anticipated 22 /o of General Fund revenues are and Permits account for the majority of' the increase. Approximately ° sales taxes. Substantial anticipated increases in property taxes, Service due to undgrowth, and are budgeted for in F t 2004. However, those funds have been allocated to the Deb impact on the General Fund. r stream gauge system, The 2004 budget includes for the General Fund d �of drainage er funds pro ets.oThere are also budgeted $180,000 for new sidewalks and $200,000 for the funding increases for various departments related to the purchases of additional vehicles and equipment. There is no rate increase in the 2004 budget for the Water and Seated ter Found. apncl i ed in theuctWater and Sewer Fund are general repairs, replacements, and maintenance as $300,000 for the funding to replace the Alice Street ground storage tank. The Pearland Economic Development Fund FY 2004 budget includes funding of $100,000 for the Industnal Drive water project. REQUEST FOR INFORMATION The financial report is designed to provide our citizens, customers, investors and creditors with a general overview of the City's finances. If you have questions about this report or need any additional information, contact Andrea Jason, Director of Finance, at 3519 Liberty Drive, Pearland, Texas 77581, or call (281) 652-1600. BASIC FINANCIAL STATEMENTS ASSETS Cash and investments Receivables, net of allowances for uncollectibles Accounts Property taxes Sales taxes Other taxes Intergovernmental Accrued interest Inventories Deferred charges Restricted cash and investments Capital asset Land Buildings and improvements Machinery and equipment Infrastructure Construction work in progress Less: accumulated deprecianoa Total capita assets Total assets LIABILITIES . Accounts payable Accrued liabilities Unearned revenue Accrued interest Liabilities payable from restricted assets Noncurrent liabilities: Due within one year Due in mon than one year Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for. Debt service Capital projects Other purposes Unrestricted S CITY OF FEARLAND, TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30, 2003 OovernmenW Activities Primary Govemmeat Bueiners•type Acti =ties 56,016,277 S 27,606,239 S • 485,325 699,841 1,067,505 503,471 4,833 2,651 51,794 2,509,691 12,575,655 10,880,210 18,195,829 19,367,162 1_ 1,706,095) 51,822 12 110� 654,209 TOW net assets 6,885,106 625,146 411,215 3,000,000 97,148,774 108,070,241 4,777,139) 2,367,173 1,784,291 3i209,643 1,432,152 • • • 15,275 712,190 1,287,764 367,962 21,518,110 7,512,707 32,641,748 19,321.872 14 122 484 67,239 915 2,839,712 120,141 202,172 1,287,764 759,610 50,555,161 55,764,560 16,779,525 • 25,749,450 2 583 68 $ 42 5 Total 83,622,516 1,917,477 699,841 1,067,505 503,471 4,833 17,926 51,794 712,190 1,287,764 2,877,653 34,093.765 18,392,917 50,837,577 38,689,034 (__ 2$,828 519 119._._---,062,427 208,947,744 9,724,818 745,287 613,387 1,287,764 3,759,610 147_. ,703y93S 16..! 3,894,801 12,002, 86 Component Units PearUnd . Economic • Development TIRZ Corporation Developments S 2,162,072 S 2,367,173 1,784,291 48,959,093 S 45,112y943 The notes to the financial statements are an integral part of this statement. • 12 • • 142 534,856 509 • 55,403 40,692 10,279 • • 200,000 4179 40 4 430 11 • 134,895 IP • • • • • • • • 134,895 34,291 12,212 46,503 • • 88,392 1,732232 Ste,, 88•3 CITY OF PEARLAND, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2003 Functions/Programs Primary Governments Governmental activities: General government Public safety Public works Community services Interest on long•tcnm debt Total governmental activities Business -type activities: Water and sewer Total business -type activities Total primary government Component Units: Naritad Economic Development Corporation TIR2 Developments Total component units Expenses S 6,274,853 9,645,369 9,728,975 2,873,903 4,558,650 33,081,750 9,643,086 9,643,086 S 42,724,836 Charges for Services $ 161,108 1,997,580 5,547,177 865,899 8,571,764 8,809,189 8,809,189 $ 17,380,953_ 5,499,902 S 715,963 6,215,865 S • Program Revenues Operating Grants and Contributions S 5,454 370,286 11,663 324,268 711,671 oh S 711,671,. General revenues: Taxes: Property taxes, levied for general purposes Property taxes, levied for debt service Sales taxes Francbise taxes Other taxes Impact fees Investment earnings Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets, beginning Prior period adjustment Net assets, beginning, as restated Net assets, ending The notes to the financial statements are an integral part of this statement. 13 Capita Grants and Contributions S 13,769 1,617,638 585,886 2,217,293 5,000,000 5,000,000 S 7,217,293 S 212,768 608,416 $821,184 • Primary Government Net (Expenses) Revenues and • Changes in Net Assets Governmental Activities 6,094,522) S 5,659,865) 3,584,249) 1,683,736) 4,558,650) 21,581,022) • • $( 21,581,022) • • Business -type Activities • es $ 8,970,369 S 6,149,781 5,859,053 2,533,475 149,335 170,594 741,313 728,000. ( 25,301,920 3,720,89E ( 1,136,930) ( 1,136,930) S 4,583,965 4,166,103 4,166,103 • • • • • • • 4,881,756 196,094 728,000) 4,349,850 8,515,953 32,047,168 1,965,854 34,013,022 $ 42,528,975 • Total $( 6,094,522) ( 5,659,865) ( 3,584,249) ( 1,683,736) ( 4,558,650) ( 21,581,022) 4,166,103 4,166,103 S( 17,414,919) S • • • $ 8,970,369 6,149,781 5,859,053 2,533,475 149,335 4,881,756 366,688 741,313 • 29,651,770 )2,236,851 30,910,238 1,965,854 32,876,092 S 45,112,943 14 S Component Units Pentland Economic Development Corporation • • • • or • $( 5,287,134) g 5,287,134) $ 2,929,015 28,897 5,046 ( 2,962,958. 2,324,176) 591,244 • 591,244 S( 1,732,932) TIRZ Developments S • • • • • 107 547 S 44,241 • 9 44,250 ( 63,297) 151,689 151,689 ASSETS Cash and investment Receivables, net of allowances for uncollectibles Account Property taxes Sales taxes Other taxes IntetgovernmenW Accrued intend Due from other fluids Inventories Total asset • LIABILITIES AND FUND BALANCES Liabilities: Accounts payable Accrued liabilities Deferred avenue Due to other fluids Total liabilities Fund balances: Reserved for: Inventories Debt service Unreserved reported in: General fund Special revenue funds Capital projects fund Total fund balances CITY OF PEARLAND, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2003 General Debt Service Capital Projects Other Funds $ 5,617,772 1 2,130,721 $ 46,349,326 $ 1,918,458 $ 263,665 462,989 236,852 1,067,505 503,471 • 66,541 51,794 $ 8,033,737 $ 2,367,573 1 46,539,771, 1 1,957,157 $ 38,898,238 187,840 2,605 • 33,820 4,833 46 Total Governmental Funds 56,016,277 1 1,399,375 605,945 466,685 1 400 1 5,179,006 1 106,325 S • 19,201 • 236,852 86,900 60,024 • 66,541 2,672,005 237,252 5,285,107 232,890 51,794 • 3,309,938 2,130,321 • • 1,724,267 41,254,664 5,361,732 2,130,321 41,254,664 1,724,267 Total liabilities and fund balances $. 8,033,737 $ 2,367,573 3 46,539,771 Amounts reported for governmental activities in the statement of net assets are different because: Capita assets used in governmental activities are not financial resources and, therefore, are not reported in the fluids. Other long-term assets en not available to pay for current -period expenditures and, therefore, are deferred in the flindh. Long-term liabilities an not due and payable in the current period and therefore art not reported in the funds. • Net assets of governmental activities The notes to the financial statements are an integral part of this statement. 15 $ 1,957,157 • • 485,325 699,841 1,067,505 503,471 4,833 2,651 66,541 51,794 6,885,106 625,146 850,461 66,541 8,427,254 51,794 2,130,321 5,309,938 1,724,267 41,254,664 50,470,984 51,822,512 850,461 100,559,989) .._ 2..-- 583,968 • REVENUES Taxes: Property Sales Mixed beverage Hotel/motel Franchise Permits licenses and fees Fines Charges for services Intergovenunental Other income lnvesi nent earnings Total revenues CITY OF PEARLAND, TEXAS STATEMENT OF REVENUES, ANCES RES AND CHANGES IN FUND BAL GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2003 EXPENDITURES Currents General government Public safety Public works Community services Capital outlay Debt service: Prmcrpal Interest and fiscal charges Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Capital -related debt issued Total other financing sources and (uses) NET CHANGE IN FUND BALANCES FUND BALANCES, BEGINNING AS PREVIOUSLY STATED PRIOR PERIOD ADJUSTMENT FUND BALANCES, BEGINNING AS RESTATED • FUND BALANCES, ENDING General Debt Service 8,970,369 $ 6,149,781 5,859,053 35,683 2,533,475 2,682,456 1,377,552 3,982,070 615,436 253,676 35,142 26,344,912 5,678,275 9,637,676 8,769,722 2,729,859 AM • 26,815,532 O P O S Total Capital Other Governmental Protects _ Funds Funds • AO OS SID 1,578,238 53,774 15,396 118 003 6,165,177 1,750,O15 S k Mk 2,040,000 4,299,385 6,339,385 S O S O 23,457,925 169,838 23,627,763 $ 470,620) ( 174,208) ( 21,877,748) 1,070,000 ( 453,000) 617,000 146,380 ( 75,000 315,000 ( 329,000) 34,652,693 75,000 34,638,693 99,208) 12,760,945 5,024,946 2,229,529 190,406 28,493,719 SO 113,652 44,247 • 204,485 826,034 2,053 1,190,471 173,926. 12,185 97,459 109,707 to lb 393,277 797,194 $ 15,120,150 5,859,053 35,683 113,652 2,533,475 2,682,456 1,421,799 3,982,070 2,398,159 1,133,484 170,594 35 4450,575 73,766 23,766) 50,000 847,194 877,073 5,852,201 9,649,861 8,769,722 2,827,318 23,567,632 2,040,000 4,469,223 57,175,951 21 725 382 1,533,766 ( 805,766) 34,652 693 35 380 ,693 13,655,311 36,625,267 190,406 5,215,352 2,229,529 28,493,719 877,073. 36,815,673 $ 5 361732 $ 2,130,321 $ 41 64 $ 1,724,267 $ 50! 47i 0 The notes to the financial statements are an integral part of this statement. 16 CITY OF PEARLAND, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES EXPENDITURES ANJ) CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR TIIE YEAR ENDED SEPTEMBER 30, 2003 Amounts reported for governmental activities in the Statement of Activities (pages 13 • 14) are different because: Net change in fund balances - total governmental funds (page 16) $ 13,655,311 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense This is the amount by which capital outlays exceeded depreciation in the current period. The net effect of various miscellaneous transactions involving capital assets (i.e. , sales, trade- ins, and donations) is to decrease net assets. The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect ofthese differences in the treatment of long- term debt and related items. Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. ( 23,400,486 1,213) ( 32,610,000) ( 723,686) Change in net assets of governmental activities (pages 13 - 14) $ 3,720,898 The notes to the financial statements are an integral part of this statement. 17 CITY OF PEARLAND, TEXAS GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL FOR 'THE YEAR ENDED SEPTEMBER 30, 2003 REVENUES Property taxes and penalties Other taxes Franchise fees Licenses and permits Pines and forfeitures Charges for services Intergovernmental Other income Investment earnings Total revenues EXPENDITURES Current General government Public safety Public works Community services Total expenditures EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) EXCESS (DEFICIENCY) OF REVENUES OVERAND OTHER NANCING SOURCES (UNDER)) E ENNDITURES AND OTHER USES FUND BALANCES, BEGINNING PRIOR PERIOD ADJUSTMENT FUND BALANCES, ENDING $ Budgeted Amounts On alsl 9,011,896 6,164,800 2,315,000 2,276,691 1,101,900 4,264,109 551,852 155,200 55- ,200 25,841,448 6,597,618 8,978,334 8,281,531 2 860 96 26,71.8'448 877 000 1,180,000 303 000 877,000 $ 9,009,896 6,166,800 2,315,000 2,276,691 1,101,900 4,264,109 110,000 551,852 155,200 25,951,448 5,024,946 5,778,200 9,570,032 8,445,192 2,932,024 774 000 1,070,000 303 000 767,000 Actual Amounts $ 8,970,369 5,894,736 2,533,475 2,682,456 1,377,552 3,982,070 615,436 253,676 35,142 26 344,912 7,000) 5,024,946 SW 5,678,275 9,637,676 8,769,722 2_ 729,859 26,8155 532 Variance with Final Budget - Positive �Ne alive $( ( 39,527) 272,064) 218,475 405,765 275,652 282,039) 505,436 ( 298,176) 120,058 39 3 ,464 ( ( 99,925 67,644) 324,530) LSD 470 620 303,380 1,070,000 453 000 617,000 146,380 5,024,946 190,406 5,024,946 Sal 6 S. 5..--- 361=732 The notes to the financial statements are an integral part of this statement. 18 150,000 150 000 153,380 190,406 343,786 ASSETS CITY OF PEARLAND, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUND SEPTEMBER 30, 2003 Current assets: Cash and investments Accounts receivable net of allowances Accrued interest Restricted cash and investments Total current assets Noncurrent assets Deferred charges Capital assets Land Buildings and improvements Machinery and equipment Infrastructure Construction work in progress Less: accumulated depreciation Total capital assets Total noncurrent assets Total assets LIABILITIES Current liabilities: Accounts payable Accrued liabilities Accrued catered Revenue bonds Total current liabilities Current liabilities payable from restricted assets: Customer deposits Certificates of obligation Revenue bonds Total current liabilities payable from restricted assets Noncurrent liabilities Compensated absences Certificates of obligation Revenue bonds Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Business -type Activities Enterprise Fund Water and Sewer S 27,606,239 1,432,152 15,275 1,287,764 30,341,430 712,190 367,962 21,518,110 7,512,707 32,641,748 19,321,872 ( 14,122,484) 67,239,915 67,952,105 98,293,535 2,839,712 120,141 202,172 759,610 3,921,635 867,374 100,000 320,390 1,287,764 415,161 16,735,000 33,405,000 50,555,161 55,764,560 16,779,525 25,749,450 S 42,528,975 Total net assets The notes to the financial statements are an integral part of this statement. 19 CITY OF PEARLAND, TEXAS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30, 2003 OPERATING REVENUES Oiarges for services Other Total operating revenues OPERATING EXPENSES Production and wastewater Distribution and collection Accounting and collections Other requirements Construction and engineering Depreciation Total operating expenses OPERATING INCOME NONOPERATING REVENUES (EXPENSES) Earnings on investments Impact fees Gain on sale of fixed assets Interest and fiscal charges Total nonoperating revenues (expenses) INCOME BEFORE CONTRIBUTIONS AND TRANSFERS CAPITAL CONTRIBUTIONS TRANSFERS IN TRANSFERS OUT CHANGES IN NET ASSETS TOTAL NET ASSETS, BEGINNING AS PREVIOUSLY STATED PR1OR PERIOD ADJUSTMENT TOTAL NET ASSETS, BEGINNING AS AS RESTATED TOTAL NET ASSETS, ENDING • • The notes to the financial statements axe an integral part of this statement. 20 Business-tvne Activities Enterprise Fund Water and Sewer S 8,763,107 46,082 8, 809,189 2,938,682 1,120,729 497,211 562,540 1,162,591 1,460,699 7,742,452 1,066,737 196,094 4,881,756 17,626 L 1,918 260 3,177,216 4,243,953 5,000,000 128,000 856 000 8,515,953 32,047,168 1,965,854_ 34,013,022 S 42,528,975 CITY OF PEARLAND, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30, 2003 • Business -type Activities Enterprise Fund Water and Sewer CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers S 8,472,096( 8,,09) Cash paid to suppliers for goods and services ( 2,111,8 Cash paid to employees for services 2,4864,026) 2 Net cash provided by operating activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES , 5 49866) Cash paid to other Amu5,66 i Transfers from other funds 128,000) Transfers to other funds ( 1,16,000) Not cash used for noncapiW for financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES 9,500,000 Proceeds from issuance ofbonds ( 500,000) Principal repayments on bonds 5,670,00 Cub received from capital contributions ,000,000 Cub received on impact fees ( 45 Interest and fiscal charges on debt ( 15,70)1,,881,96) Acquisition and construction of capita assets 17,522 Disposal of capital assets i 1A,522) Net cash used for capita and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale and maturities of investments 4128,416,4806,40 Earnings on investment 28,259,317 Net cash provided by investing activities 28,554,003 NET INCREASE IN CASH AND CASH EQUIVALENTS 340,000 CASH AND CASH EQUIVALENTS, BEGINNING S 28,894,003 CASH AND CASH EQUIVALENTS, ENDING S 2,894,0 Cub9 and investments 1_,_. 287,764 Restricted cash and investment S 28,894,003 Cub and cub equivalents, end of year Reconciliation of operating income to net cult provided by operating activities: 1,066,737 Opentmg income Adjustments to reconcile operating income to net cash provided by operating activities: I,460,649 Depreciation Changes in assets and Liabilities: Decrease (increase) in assets: ( 453,948) Accounts receivable Increase (decrease) in liabilities: 108,71)S Accounts payableCustomer08,704 Accrued liabilities 12,824 Customer deposit 104,620 IN Compensated absences payable S 2,486,592 Net cash provided by operating activities The notes to the financial statements are an integral part of this statement. 21 APPENDIX D SCHEDULE OF REFUNDED BONDS Pearland Economic Development Corporation Sales Tax Revenue Bonds, Series 1997 Maturity Date (09/01) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Interest Rate 7.20% 7.20% 6.00% 5.20% 5.30% 5.40% 5.45% 5.50% 5.50% 5.50% 5.20% 5.20% Par Amount $210,000 $220,000 $235,000 $300,000 $320,000 $340,000 $360,000 $385,000 $410,000 $435,000 $460,000 $490,000 Call Date N/A N/A N/A 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 09/01/2007 Price N/A N/A N/A 100% 100% 100% 100% • 100% 100% . 100% 100% 100% APPENDIX E F( RM OF BOND COUNSEL OPINION AN D REWS ATTORNEYS K U R T H LLP • March ___, 2005 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com WE HAVE ACTED as Bond Counsel for the Pearland Economic Development Corporation (the "Corporation") in connection with an issue of bonds (the "Bonds") described as follows: PEARLAND ECONOMIC BONDSNT SERIES OOS,TdaON SALES TAX ted February REVENUE AND REFUNDING 15, 2005 in the aggregate principal amount of $10,775 000, maturing on September 1 in each year from 2005 through and including 0f 2026. The Bonds r are integral issmuable in fully registered form only, in denominations $S , o es thereof, bear interest, are subject to redemption prior to maturity and may be transferred and exchanged as set out in the Bonds and in the resolution (the Resolution") adopted by the Board of Directors of the Corporation authorizmg their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Bonds from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Bonds, as described in the Resolution. The transcript contains certified �cop rt off certain proceedings of the Corporation and the City of Pearland, Texas (the "City); in certifications and representations and other material facts within the knowledge and control of the Corporation and the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Bonds. We have also examined executed Bond No. R-1 of' this issue. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings records data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the Corporation or the City or the disclosure thereof in connection with the sale of the Bonds. Our role in connection with the Corporation's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified. proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently in effect; the Bonds constitute valid and legally binding special obligations of the Corporation enforceable in accordance Austin Dallas Houston London Los Angeles New York The Woodlands Washington, DC with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Bonds may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and (2) The Bonds are secured by and payable solely, both as to principal and interest, from the receipts of a sales and use tax levied by the City for the benefit of the Corporation, which taxes have been pledged irrevocably to pay the principal of and interest on the Bonds; and (3) The Bonds are special obligations solely of the Corporation and are not obligations of the State of Texas, the City nor any political corporation, subdivision or agency of the State. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the Corporation comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be or continue to be, excluded from gross income for federal income tax purposes. The Corporation has covenanted in the Resolution to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Code and the existing regulations, rulings and court decisions thereunder upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof for federal income tax purposes. INTEREST ON all tax-exempt obligations, including the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Bonds are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. UNDER EXISTING LAW and based uponthe assumptions stated in the Official Statement prepared for use in connection with the sale of the Bonds, it is also our opinion as follows: (1) the difference between (a) the stated redemption price at .maturity of each Bond maturing in the years through inclusive (the `Discount Bonds' ), and (b) the initial offering price at which a substantial amount of such Discount Bonds of' the same maturity were sold to the public, as described in the Official Statement, constitutes original issue discount with respect to each such Discount Bond in the hands of an owner who purchased such Discount Bond at the initial offering pnce in the initial public offering of the Bonds; and (2) such initial owner is entitled to exclude from gross income for federal income tax purposes with respect to such Discount Bond that portion of the original issue discount deemed to be earned for federal income tax purposes during the period that such Discount Bond continues to. be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Discount Bond prior to its stated maturity, however any amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount deemed to be earned during the period for which such Discount Bond was held by such initial owner) is includable in gross income for federal income tax purposes. PURCHASERS OF DISCOUNT BONDS in�he intial public offering are directed to the AL ISSUE DISCOUNT AND PREMIUM discussion entitled 'TAX TREATMENT OF ORIG BONDS" set forth in the Official Statement for purposes of determining the portion of the original issue discount which is deemed to be earned for federal income tax purposes during the period such Bonds are held by an initial owner. The federal income tax consequences of the purchase, ownership and redemption, sale or other taxable disposition of Discount Bonds which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those described above and in the Official Statement EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result m collateral federal income tax consequences to, among others, financial institutions, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Bonds. APPENDIX F SPECIMEN OF MUNICIPAL BOND INSURANCE POLICY [TO COME] APPENDIX G SPECIMEN OF SURETY BOND POLICY [TO COME] ANDREWS ATTORNEYS �I\C k JJ k 11 11 LLP May 16, 2005 VIA REGULAR MAIL Mr. Bill Eisen City of Pearland, Texas 3 519 Liberty Drive Pearland, Texas 77581 Andrews & Kurth L.L.P. 600 Travis, Suite 4200 Houston, Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com Re: Pearland Economic Development Corporation Sales Tax Revenue and Refunding Bonds, Series 2005 Dear Mr. Eisen: Enclosed is a copy of the transcript of proceedings relating to the captioned financing. It was a pleasure working with you on this transaction and I look forward to our working together again in the future. Please call me at 713-220-3957 if you have any questions. Sincerely, bi/oh,,t Enclosure I-IOU:2453819.1 Austin Dallas Houston London Los Angeles New York The Woodlands Washington, DC