The URL can be used to link to this page

R2006-092 06-12-06RESOLUTION NO. R2006-92 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, APPROVING A BOND ORDER OF BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1 AUTHORIZING THE ISSUANCE OF $ 1,980,000 UNLIMITED TAX AND REVENUE AND REFUNDING BONDS, SERIES 2006. WHEREAS, the Brazoria County Municipal Utility District No. 1 (the "District") is located within the extraterritorial jurisdiction of the City of Pearland, Texas (the "City"); and WHEREAS, by Resolution No. R80-5, dated January 28, 1980, the City consented to the creation of the District, and placed certain conditions on the issuance of bonds by the District, including the approval by the City Council of the District's resolution authorizing the issuance of such bonds; and WHEREAS, the City Council has considered such a bond resolution in connection with the issuance of the District's proposed $ 1,980,000 Unlimited Tax and Revenue and Refunding Bonds, Series 2006, and has found it to be acceptable; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. All of the matters and facts set forth in the preamble hereof are true and correct. Section 2. The bond order of the board of directors of Brazoria County Municipal Utility District No. 1, attached hereto and made a part hereof as Exhibit "A", authorizing the issuance of its $ 1,980,000 Unlimited Tax and Revenue and Refunding Bonds, Series 2006, is hereby approved. 1 RESOLUTION NO. R2006-92 Section 3. The Mayor of the City of Pearland is hereby authorized to execute such letters or other documents required to be provided to the Attorney General of Texas in connection with the issuance of such bonds by the District. Section 4. This Resolution shall take effect immediately from and after its passage in accordance with the provisions of the Charter of the City of Pearland and it is accordingly so resolved. PASSED, APPROVED and ADOPTED this the 12th day of June, A. D., 2006. ATTEST: 1.1N1 �• ' G TY S j' RETAR APPROVED AS TO FORM: AO,AA.,..,:--kyi • 00, ---App____ DARRIN M. COKER CITY ATTORNEY 2 TOM REID MAYOR 1 EXHIBIT BOND ORDER THE STATE OF TEXAS COUNTY OF BRAZORIA BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1 ORDER AUTHORIZING THE ISSUANCE OF $1,980,000 WATERWORKS AND SEWER SYSTEM COMBINATION UNLIMITED TAX AND REVENUE BONDS, SERIES 2006 PRESCRIBING THE TERMS AND PROVISIONS THEREOF; MAKING PROVISION FOR THE PAYMENT OF THE INTEREST THEREON AND THE PRINCIPAL THEREOF; AUTHORIZING THE SALE THEREOF; AND CONTAINING OTHER PROVISIONS RELATING TO THE SUBJECT BE IT ORDERED BY THE BOARD OF DIRECTORS OF BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1: WHEREAS, Brazoria County Municipal Utility District No. 1situated in Brazoria County, Texas (hereinafter referred to as "District" or "Issuer"), is a conservation and reclamation district created pursuant to the provisions of Chapter 54, Texas Water Code, as amended (the "Water Code" or the "Act"); and the provisions of Article XVI, Section 59, of the Texas Constitution. WHEREAS, it is hereby found, determined, and declared that: (a) the matters and facts set forth in the preamble of this Order are true and correct; (b) the creation of the District was confirmed at an election held on November 3, 1981; (c) at an elections held on November 3, 1981 and September 8, 1984 the District was authorized to issue the bonds of the District in the total maximum amount of $22,700,000 for the purpose or purposes of, inter alia, purchasing and constructing plants, facilities, and improvements for waterworks and sewer systems, including drainage facilities, as well as all expenses in any manner incidental thereto in accordance with the Engineer's Report, and paying such expenses as are incidental to the organization, administration, and financing of the District, which under applicable law may properly be paid from the proceeds of such bonds and to provide for the payment of principal of and interest on such bonds by the levy and collection of a sufficient tax upon all taxable property within the District and further by a pledge of all income or increment which may grow out of the ownership and operation of the District's improvements or facilities, less such portion of said revenue income as may be required to provide for the administration, efficient operation, and adequate maintenance of said service facilities as authorized by the Constitution and laws of the State of Texas including particularly (but not by way of limitation) Chapters 49 and 54 of the Texas Water Code, together with all amendments and additions thereto: 1 (d) the election described in Paragraphs (b) and (c) hereof was called and held under and in strict conformity with the Constitution and laws of the State of Texas, and of the United States of America, and the Board of Directors has heretofore officially declared the results of said elections and declared that the District was legally created and authorized to issue the bonds described in Paragraph (c); The District has heretofore issued (1) $4,200,000 Waterworks and Sewer System Combination Unlimited Tax and Revenue Bonds, Series 1985; and (2) $2,240,000 Waterworks and Sewer System Combination Unlimited Tax and Revenue Bonds, Series 1993; and (3) $1,500,000 Waterworks and Sewer System Combination Unlimited Tax and Revenue Bonds, Series 1996; and (4) $2,700,000 Waterworks and Sewer System Combination Unlimited Tax and Revenue Bonds, Series 1998. In 1993 the District issued $4,235,000 Waterworks and Sewer System Combination Unlimited Tax and Revenue Refunding Bonds, Series 1993 to advance refund and defease certain maturities of the Series 1985 Bonds. In 2001 the District issued $4,940,000 Waterworks and Sewer System Comb ngttpmUnlimited Tax and Revenue and Refunding Bonds, Series 200I These Bonds are the sixth installment of a total of $22,700,000 bonds authorized at elections held for that purpose within the District, of which$7,710,000 in bonds will remain authorized but unissued after the sale of the Bonds; (f) Proceeds of the sale of the Bonds will be used by the District to (i) finance the District's portion of the costs of acquisition or construction of (a) water distribution, wastewater collection and storm drainage facilities to serve Tranquility Lakes, Section 1, Tranquility Lakes Section 2, and Oak Road, the Tranquility Bay apartments, and Stepping Stones III; and (b) the Tranquility Lakes Section 1 Lift Station; (ii) finance the District's cost of Water Plant No. 1 and Water Plant No. 2 Recoating and Well Rework and Water Plant No. 2 booster Pump additions; (iii) pay engineering fees related to the afore mentioned facilities and projects; (iv) pay interest on funds advanced on the District's behalf by developers of land located within the District; and (v) pay for administrative, organizational and issuance costs, legal fees, fiscal agent's fees, a fee to the Texas Commission on Environmental Quality ("TCEQ"), and certain financing costs related to the issuance of the Bonds. the Board of Directors reserves the right to issue the remaining $14,480,000 bonds which were voted on May 6, 1995 in one or more series at a future date or dates when, in the Board's judgment, such amounts are required for the authorized purposes. (h) The TCEQ, acting through its Executive Director, has approved. the issuance of the Bonds described herein by Order issued on WHEREAS, it is in the best interest of the District to issue the bonds described in this Order to perform and construct the project approved by the TCEQ in its order approving the bonds and to reserve the right to issue remaining unissued balance of the bonds authorized at the aforementioned election in one or more series at a future date or dates, when in the opinion of the District, the proceeds from the sale of the bonds are needed for any of the purposes for which they were authorized. (e) (g) 2 IT IS THEREFORE ORDERED BY THE BOARD OF DIRECTORS OF BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1: SECTION ONE SECTION 1.1: Definitions. When used in this Order and in any orders amendatory, or supplemental hereto, the terms listed below shall have the meanings specified below, unless it is otherwise expressly provided or unless the context otherwise requires: (1) Board of Directors. The terms "Board of Directors" or `Board" shall mean the governing body of the District. (2) Bondholders. The term "Bondholders" shall mean the holder of a Bond or Bonds. (3) Additional Bonds. The terrn "Additional Bonds" shall mean the additional bonds which the District expressly reserves the right to issue in this Order. (4) Bonds. The term "Bond" or "Bonds" shall mean any obligation of the District authorized and issued pursuant to this Order, whether initially delivered or issued in exchange for, upon transfer of, or in lieu of any Bond previously issued. (5) Bond Fund. The terms "Bond Fund" or "Debt Service Fund" shall mean the District's debt service fund which is created and established in this Order and defined in Section 7.2. (6) Bond Register. The term "Bond Register" is a register required to be kept by the paying agent pursuant to Section 2.6. (7) City. The term "City" shall mean the City of Pearland, Texas, and/or the City of Manvel as applicable within the context of this Order, or any other municipal corporation succeeding to the powers, rights, privileges, and functions of either City, and when appropriate, the City Council of either City. (8) Construction Fund. The term "Construction Fund" shall mean the District's construction fund which is created and established in this Order and defined in Section 7.4. (9) Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended by any amendments thereto enacted prior to the Issue Date. (10) Depository. The term "Depository" shall mean the bank or banks which the District may select from time to time as its depository or depositories. (11) Governing Body. The term "Governing Body" shall mean the board of directors of the Issuer. (12) Governmental Securities. The term "Governmental Securities" shall mean (1) direct obligations of, or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by, the United States of America and (2) to the extent allowed by law at the time of investment, obligations issued by or on behalf of any 3 state or political subdivision or municipality thereof which, at the time of deposit as defined herein, have been assigned ratings in the highest rating category of both Moody's Investors Service, Inc. and Standard & Poor's Corporation, or any successor to the bond rating operations of either such corporation, but in the case of both Clauses (1) and (2) only if such obligations may not be called for redemption prior to maturity. (13) Gross Proceeds. The term "Gross Proceeds" shall mean all amounts received by the Issuer from the sale of the Bonds, all amounts received as a result of the investment of such amounts, and all amounts held for the credit of the Bond Fund or reasonably expected to be used to pay debt service on the Bonds. (14) Holder. The term, when used with respect to any Bond, shall mean the Person in whose name such Bond is registered in the Bond Register. (15) Interest Payment Date. The term "Interest Payment Date" shall mean the Stated Maturity of an installment of interest on the Bonds. (16) Investment. The term "Investment" shall mean (a) a share of stock in a corporation or a right to subscribe for or to receive such a share, (b) any indebtedness or evidence thereof, including without limitation United States Treasury bonds, notes, and bills (whether or not of the State and Local Government Series) and bank deposits (whether or not certificated or interest bearing or made pursuant to a depository contract), (c) any annuity contract, or any other deferred payment contract acquired to fund an obligation of the Issuer, or (d) any other investment -type property, but excluding from the foregoing, Tax -Exempt Obligations. (17) Issue Date. The term "Issue Date" shall mean the date on which the Bonds are first authenticated and delivered to the initial purchasers thereof against payment therefor. (18) Issuer. The term "Issuer" shall mean Brazoria County Municipal Utility District No. 1, a conservation and reclamation district organized, created, and established pursuant to Article XVI, Section 59 of the Constitution of the State of Texas within Brazoria County, Texas. (19) Issuer Request. The term "Issuer Request" shall mean a request signed in the name of the Issuer by the President, Vice, or Treasurer and by the Secretary or a Deputy or Acting Secretary of the Governing Body and delivered to the Paying Agent. (20) Issue Price. The term "Issue Price" of a Bond of any Stated Maturity shall mean the offering price to the public (excluding bond houses, brokers, and similar Persons acting in the capacity of underwriters or wholesalers) at or below which a substantial amount of Bonds of such Stated Maturity are first sold to such public, including accrued interest to the Issue Date, if any. 4 (21) Maturity. The term "Maturity" when used with respect to any Bond shall mean the date on which the principal of such Bond becomes due and payable as therein provided, whether at the Stated Maturity or by call for redemption or otherwise. (22) Net Revenues. The term "Net Revenues" shall mean all income or increment which may grow out of the ownership and operation of the District's plants, facilities, and improvements (as same are purchased, constructed, or otherwise acquired) (such plants, facilities, and improvements herein defined as the "System"), being the gross revenue income less such portion for the administration, efficient operation, and adequate maintenance of the District's plants, improvements, and facilities. (23) Outstanding. The term "Outstanding" when used with respect to Bonds shall mean as of the date of determination, all Bonds theretofore authenticated and delivered under this Order, except, without duplication: (a) Bonds theretofore cancelled by the Paying Agent or delivered to the Paying Agent for cancellation; (b) Bonds for whose payment or redemption money in the necessary amount has been theretofore deposited with the Paying Agent in trust for the Holder of such Bonds, provided that, if such Bonds are to be redeemed, notice of such redemption has been duly given pursuant to this Order, irrevocably provided for to the satisfaction of the Paying Agent, or waived; (c) Bonds in exchange for or in lieu of which other Bonds have been authenticated and delivered pursuant to this Order; (d) Bonds alleged to have been destroyed, lost, or stolen which have been paid as provided in Section 2.8; (e) Bonds for the payment of the principal (or Redemption Price) of and interest on which money or Governmental Securities or both are held by the Person and with the effect specified in Section 12.1. (24) Paying Agent. The term "Paying Agent" shall mean the corporation named as the -Paying Agent" herein until a successor Paying Agent shall have become such pursuant to the applicable provisions of this Order, and thereafter "Paying Agent" shall mean such successor Paying Agent. (25) Person. The term "Person" shall mean any individual corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. (26) Place of Payment. The term "Place of Payment" shall mean the principal office of the Paying Agent in the City of Dallas, Texas. (27) Predecessor Bonds. The term "Predecessor Bonds" shall mean every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond, and, for purposes of this definition, any Bond authenticated and delivered pursuant to this Order in lieu of a mutilated, lost, destroyed, or stolen Bond shall be deemed to evidence the same debt as the mutilated, lost, destroyed, or stolen Bond. 5 (29) Redemption Date. The term "Redemption Date" when used with respect to any Bond to be redeemed shall mean the date fixed for such redemption pursuant to the terms of this Order. (30) Redemption Price. The term "Redemption Price" when used with respect to any Bond to be redeemed shall mean the price at which it is to be redeemed pursuant to the terms hereof, excluding installments of interest whose Stated Maturity is on or before the Redemption Date. (31) Record Date. The term "Record Date" for the interest payable on any Interest Payment Date shall mean the 15th day (whether or not a business day) of the calendar month next preceding such Interest Payment Date. (32) Stated Maturity. The Term "Stated Maturity" when used with respect to any Bond or any installment of interest thereon shall mean the date specified in such Bond as the fixed date on which the principal of such Bond or such installment of interest is due and payable. (33) Tax -Exempt Obligations. The term "Tax -Exempt Obligations" shall mean obligations the interest on which is excludable from the gross income of any owner thereof under the Code or any regulations promulgated pursuant thereto. (34) Underwriter. The term "Underwriter" shall mean , the initial purchaser of the Bonds. (34) Yield. The term "Yield" of the Bonds shall mean: (a) the discount factor which, when used to compute the present value on the Issue Date of all payments of principal and interest paid or to be paid on the Bonds, compounding semiannually, produces an amount equal to the sum of the Issue Prices of the Bonds, (b) Investments acquired with Gross Proceeds prior to any date shall mean the discount factor which, when used in computing the present value on the Issue Date of all payments of principal of and interest on, or sales proceeds (net of sales commissions) in respect of, such Investments either received on or before such date or thereafter scheduled to be received, compounding semiannually, results in an amount equal to the aggregate present value on the Issue Date, compounding semiannually at the same discount rate, of the respective Costs of such Investments. SECTION 1.2: Notices. Wherever this Order provides for notice to Bondholders of any event, such notice shall be sufficiently given (unless otherwise herein provided) if in writing and mailed, first-class postage prepaid, to each Bondholder, at the address of such Bondholder as it appears in the Bond Register. Neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Bondholder shall affect the sufficiency of such notice with respect to all other Bondholders. Wherever this Order provides for notice in any manner, such notice may be waived in writing by the Person entitled to received such notice, either before or after the event with respect to which such notice is given, and such waiver shall be the equivalent of such notice. Waivers of notice by 6 Bondholders shall be filed with the Issuer, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.3: Effect of Headings and Table of Contents. The Section headings herein and in the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.4: Order a Contract: Amendments. This Order shall constitute a contract with the Holders of the Bonds from time to time accepted by the initial purchaser of the Bonds, shall be binding on the Issuer and its successors and assigns whether or not so expressed, and shall not be amended or repealed by the Issuer so long as any Bond remains Outstanding except as permitted in this Section. The Issuer may, without the consent of or notice to any Bondholder, from time to time and at any time amend this Order in any manner not detrimental to the interests of the Holders of the Bonds, including the curing of any ambiguity, inconsistency, or form defect or omission herein or therein. In addition, the Issuer may, with the written consent of the Holders of a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of this Order; provided that, without consent of the Holders of all of the affected Outstanding Bonds, no such amendment, addition, or rescission shall (1) change the Stated Maturity of the Bonds or any installment of interest thereon, reduce the principal amount thereof, the Redemption Price therefor, or the rate of interest thereon, change the place or places at, or the coin or currency in, which any Bond or the interest thereon is payable, or in any other way modify the terms of payment of the principal of or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) modify any of the provisions of this Section, except to increase the percentage provided hereby or to provide that certain other provisions of this Order cannot be modified or waived without the consent of the Holder of each Bond affected thereby. SECTION 1.5: Benefits of Order. Nothing in this Order, expressed or implied, is intended or shall be construed to confer upon any Person (other than the Issuer and the Bondholders) any right, remedy, or claim, legal or equitable, under or by reason of this Order or any provision hereof, this Order and all its provisions being intended to be and being for the sole and exclusive benefit of the Issuer and the Bondholders. SECTION 1.6: Repealer. All orders and resolutions, or parts thereof, which are in conflict with any provision of this Order are hereby repealed and declared to be inapplicable to the extent of such conflict, and the provisions of this Order shall be and remain controlling as to the matters prescribed herein. SECTION 1.7: Governing Law. This Order shall be construed in accordance with and governed by the laws of the State of Texas and the federal law of the United States of America. SECTION 1.8: Severability. If any provisions of this Order or any application thereof shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions and applications shall not in any way be affected or impaired thereby. 7 SECTION 1.9: Open Meeting. It is hereby officially found and determined that the meeting at which this Order was adopted was open to the public, and public notice of the time, place, and purposed of said meeting was given, all as required by the Texas Government Code, Section 551 and Section 49.063 and 49.064, Texas Water Code, as amended. SECTION 1.10: Authority of Officers. The President and the Vice President of the Governing Body, or either of them, and the Secretary, and any Deputy or Acting Secretary of the Governing Body, or any of them, are authorized to evidence adoption of this Order and to do any and all things proper and necessary to carry out the intent hereof. SECTION 1.11: District's Successor's and Assigns. Whenever in this Order the District is named and referred to it shall be deemed to include its successors and assigns, and all covenants and agreements in this Order by or on behalf of the District, except as otherwise provided herein, shall bind and inure to the benefit of its successors and assigns whether or not so expressed. SECTION 1.12: Defeasance and Refunding. The District reserves the right to defease or refund the Bonds in any manner provided by the then current law. SECTION TWO AUTHORIZATION, DESCRIPTION, AND EXECUTION OF BONDS SECTION 2.1: Amount, Name, Purpose, and Authorization. The Bonds of the District, to be known and designated as Brazoria County Municipal Utility District No. 1 Waterworks and Sewer System Combination Unlimited Tax and Revenue Bonds, Series 2006 shall be issued in the aggregate principal amount of $1,980,000. The District hereby authorizes issuance of bonds of the Issuer, in the form specified herein and bearing the terms herein provided, in order to (i) finance the District's portion of the costs of acquisition or construction of (a) water distribution, wastewater collection and storm drainage facilities to serve Tranquility Lakes, Section 1, Tranquility Lakes Section 2, and Oak Road, the Tranquility Bay apartments, and Stepping Stones III; and (b) the Tranquility Lakes Section 1 Lift Station: (ii) finance the District's cost of Water Plant No. 1 and Water Plant No. 2 Recoating and Well Rework and Water Plant No. 2 booster Pump additions; (iii) pay engineering fees related to the afore mentioned facilities and projects; (iv) pay interest on funds advanced on the District's behalf by developers of land located within the District; and (v) pay for administrative, organizational and issuance costs, legal fees, fiscal agent's fees, a fee to the Texas Commission on Environmental Quality ("TCEQ"), and certain financing costs related to the issuance of the Bonds. which under applicable law may properly be paid from the proceeds of such bonds, all under and in strict conformity with Article XVI, Section 59 of the Constitution of the State of Texas and the laws of the State of Texas, including particularly (but not by way of limitation) Chapters 49 and 54 of the Texas Water Code, together with alI amendments and additions thereto, by authority of elections held for and within the Issuer on November 3, 1981 and September 8, 1984. SECTION 2.2: Date, Denomination, Interest Rate, and Maturities. The Bonds will be issued in fully registered form, in the denomination of 8 $5,000 or any integral multiple thereof. The Stated Maturities of the Bonds shall be September 1 of the years and as to the principal amounts set forth below, and interest on the Bonds of such Stated Maturities shall accrue from July 1, 2006, which shall be the "Dated Date" thereof, or the most recent Interest Payment Date to which interest has been paid or duly provided for, until such Bonds are paid or due provision therefor is made at or after the Maturity thereof, at the per annum rate set forth after the Stated Maturity below, calculated on the basis of a 360 -day year of twelve 30 -day months and payable semiannually on each March 1 and September 1 commencing September 1, 2006 two-month interest payment): Stated Bond Maturity Principal Interest No. (September 1) Amount Rate % B-1 2006 $185,000 % 13-2 2007 $110,000 % B-3 2008 $120,000 % B-4 2009 $125,000 % B-5 2010 $130,000 % B-6 2011 $135,000 % B-7 2012 $145,000 % B-8 2013 $150,000 % 13-9 2014 $160,000 B-10 2015 $165,000 % B-11 2016 $175,000 % B-12 2017 $185,000 % B-13 2018 $195,000 % SECTION 2.3: Optional and Mandatory. The Bonds are subject to optional and mandatory redemption at the dates and for the redemption prices set forth in the form of bonds set forth herein. All bonds, including the Term Bond, are subject to optional redemption, in whole or in part. Notice of any redemption identifying the Bonds to be redeemed shall be given by the Registrar at least 30 days prior to the date fixed for redemption by sending written notice by first-class mail, postage prepaid, to the Owner of each Bond to be redeemed, in whole or in part, at the address shown on the Register. Such notices shall state the redemption date, the redemption price, the place at which Bonds are to surrendered for payment and, if fewer than all Bonds outstanding are to be redeemed, the numbers of the Bonds or portions thereof to be redeemed. Any notice given as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Owner receives such notice. By the date fixed for redemption, due provision shall be made with the Registrar for payment of the portions of the Bonds to be 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 tea uinate on the date fixed for redemption. SECTION 2.4: Payments. The principal of and interest on the Bonds shall be payable at the Place of Payment all subject to the terms and conditions of this Order. If the specified date for any payment of principal (or Redemption Price) of or interest on the Bonds shall be a Saturday, Sunday, or legal holiday or equivalent (other than a moratorium) for banking institutions generally in the city in which the Place of Payment is located. such payment may be made on the next succeeding day which is not one of the foregoing days 9 without additional interest and with the same force and effect as if made on the specified date for such payment. The Paying Agent shall pay the principal or Redemption Price of the Bonds at the Maturity thereof, upon surrender, to the Holders thereof from funds deposited with it for such purpose by the Issuer. SECTION 2.5: Delivery and Execution of Bonds. The Bonds shall be executed on behalf of the Issuer by the President or Vice President of the Governing Body under its seal reproduced or impressed thereon and attested by its Secretary or one of its Deputy or Acting Secretaries. The signatures of any of these officers on the Bonds may be manual or facsimile. Bonds bearing the manual or facsimile signatures of individuals who were at the time of execution the proper officers of the Governing Body shall bind the Issuer, notwithstanding that such individuals or any of them shall cease to hold such offices prior to the certifications or authentication and delivery of such Bonds. The President or Vice President of the Governing Body shall execute one Bond of each Stated Maturity, dated July 1, 2006 representing the entire principal amount of all Bonds of such Stated Maturity, in the name of the initial purchaser thereof or his designee, and shall submit such Bonds, together with the record of the proceedings authorizing the issuance thereof and any and all other necessary orders, certificates, and records, to the Attorney General of Texas for approval. After the Attorney General has approved such Bonds, the President or Vice President of the Governing Body shall cause such Bonds to be delivered to the Comptroller of Public Accounts of the State of Texas for registration. Upon registration of the Bonds, the Comptroller is authorized and directed to deliver the Bonds in accordance with instructions of the President or Vice President of the Governing Body. At any time thereafter the Issuer may deliver such Bonds to the Paying Agent and the Paying Agent shall thereupon, within not more than five business days following receipt of instructions from the payee named therein designating the Persons, maturities, and principal amounts to and in which such Bonds are to be transferred, authenticate, and deliver such Bonds as provided in such instructions. Bonds registered and delivered subsequent to the Initial Bonds shall be consecutively numbered by the Registrar and no two bonds shall be given the same number Bonds registered and delivered subsequent to the Initial Bonds. Bonds shall be in denominations of $5,000 or any integral multiple thereof. The officers or acting officers of the Governing Body are authorized to execute and deliver on behalf of the Governing Body such certificates and instruments as may be necessary to accomplish or in furtherance of the delivery of the Bonds to and payment therefor by the initial purchaser thereof. All Bonds authenticated and delivered by the Paying Agent hereunder shall be dated the date of their authentication. No Bond shall be entitled to any right or benefit under this Order, or be valid or obligatory for any purpose, unless there appears on such Bond either a certificate of registration substantially in the form provided in Section 5.2, executed by the Comptroller of Public Accounts of the State of Texas or his duly authorized agent by manual signature, or a certificate of authentication substantially in the form provided in Section 5.4, executed by the Paying Agent by manual signature and either such certificate upon any Bond shall be conclusive evidence, and the only evidence, that such Bond has been duly certified or authenticated and delivered. 10 SECTION 2.6: Registration, Transfer,_ and Exchange. The Issuer shall cause to be kept at the Place of Payment a register (herein referred to as the "Bond Register") in which, subject to such reasonable regulations as the Issuer or the Paying Agent may prescribe, the Paying Agent shall provide for the registration of the Bonds and of transfers of the Bonds as herein provided. Upon surrender for transfer of any Bond at the Place of Payment, the Issuer shall execute and the Paying Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Bonds of the same Stated Maturity, of any authorized denominations, and of a like aggregate principal amount. At the option of the Holder, Bonds may be exchanged for other Bonds of the same Stated Maturity, of any authorized denominations, and of like aggregate principal amount, upon surrender of the Bonds to be exchanged at the Place of Payment. Whenever any Bonds are so surrendered for exchange, the Issuer shall execute and the Paying Agent shall authenticate and deliver the Bonds which the Bondholder making the exchange is entitled to receive. All Bonds issued upon any transfer or exchange of Bonds shall be the valid obligations of the Issuer evidencing the same debt, and entitled to the same benefits under this Order, as the Bonds surrendered upon such transfer or exchange. Every Bond presented or surrendered for transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Paying Agent duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to the Holder for any registration, transfer, or exchange of Bonds, but the Issuer or the Paying Agent may require payment by the Bondholder requesting such transfer or exchange of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Bonds. Neither the Issuer nor the Paying Agent shall be required (1) to transfer or exchange any Bond during a period beginning at the opening or business 15 days before the day of the first mailing of a notice of redemption of Bonds hereunder and ending at the close of business on the day of such mailing or (2) thereafter to transfer or exchange in whole or in part any Bond so selected for redemption. SECTION 2.7: Book -Entry Only System. Notwithstanding the provisions of any other Language in this Order relating to payment, transfer/exchange and redemption of the Bonds, the District hereby approves and authorizes the use of `Book -Entry Only" securities clearance, settlement and transfer system provided by DTC in accordance with DTC' s requirements and procedures, and authorizes the District and Paying Agent/Registrar to take such actions as necessary to qualify the Bonds with DTC and to deliver the Bonds to DTC. (a) The Initial Bonds shall be registered in the name of the Underwriter. Except as provided in Section 2.7 hereof, all other Bonds shall be registered in the name of Cede &Co., as nominee of DTC, or such other nominee as may be requested by an authorized representative of DTC. 11 (b) With respect to Bonds registered in the name of Cede & Co., as nominee of DTC, the District and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such DTC Participant holds an interest in the Bonds, except as provided in this Order. Without limiting the immediately preceding sentence, the District and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (i) the accuracy of the records DTC, Cede & Co., or any DTC Participant with respect to any ownership interest in the Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Owner, as shown on the Register, of any notice with respect to the Bonds, including any notice of redemption or (iii) the payment to any DTC Participant or any other person, other than an Owner, as shown on the Register, or any amount with respect to principal of, premium, if any, or interest on the Bonds. Notwithstanding any other provision of this Order to the contrary, the District 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 an interest on the Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfer with respect to such Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of, 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 Order, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the District's obligations with respect to payments of principal, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Register, shall receive a Bond certificate evidencing the obligation of the District to make payments of amounts due pursuant to this Order. 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 of this Order with respect to interest checks being mailed to the Owner of record as the Record Date, the phrase "Cede & Co.," in this Order shall refer to such new nominee of DTC. (c) The execution and delivery of the Blanket Issuer Letter of Representations is hereby approved with such changes as may be approved by the President or Vice President of the Board, and the President or Vice President of the Board is hereby authorized and directed to execute such Blanket Issuer Letter of Representations. (d) In the event that the District in its sole discretion, determines that the beneficial owners of the Bonds be able to obtain certificated Bonds, or in the event DTC discontinues the services described herein, the District shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants, as identified by DTC, of the appointment of such successor securities depository or (ii) notify DTC and DTC Participants, as identified by DTC, of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts, as identified by DTC. In such event, the Bonds shall no 12 longer be restricted to being registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Owners transferring or exchanging Bonds shall designate, in accordance with the provisions of this Order. (e) Notwithstanding any other provisions of this Order to the contrary, so long as any Bonds are registered in the name of Cede & Co, as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Bonds, and all notices with respect to such Bonds, shall be made and given, respectively, in the manner provided in the Blanket Issuer Letter of Representations. SECTION 2.8: Interest Rights and Payments. Interest on the bonds, which is punctually paid or duly provided for on or within 10 days after any Interest Payment Date, shall be paid to the Person in whose name that Bond (or one or more Predecessor Bonds) is registered at the close of business on the Record Date therefor. Interest on the bonds which is payable on any Interest Payment Date but is not paid or duly provided for by 10 days after (herein referred to as "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Record Date solely by virtue of having been such Holder; and such Defaulted Interest shall be paid to the Persons in whose names such Bonds (or their respective Predecessor Bonds) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Issuer shall notify the Paying Agent in writing of the amount of Defaulted Interest proposed to be paid on each Bond and the date of the proposed payment and shall simultaneously deposit with the Paying Agent an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or make arrangements satisfactory to the Paying Agent for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Section provided. Thereupon, the Paying Agent shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days after the receipt of the proposed payment and not less than 10 days after the receipt by the Paying Agent of the notice of the proposed payment. The Paying Agent shall promptly notify the Issuer of such Special Record Date and, in the name and at the expense of the Issuer, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Bondholder at the address of such Bondholder as it appears in the Bond Register not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Bonds (or their respective Predecessor Bonds) are registered on such Special Record Date. All payments of interest on the Bonds shall be paid by check or draft mailed, first-class postage prepaid, by the Paying Agent to the Person entitled to such payment at the address of such Person as it appears in the Bond Register or by such other customary banking arrangements to which such Person and the Paying Agent may agree. Subject to the foregoing provisions of this Section, each Bond delivered under this Order upon transfer or in lieu of or in exchange for any other Bond shall carry all the 13 rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond. and each such Bond shall bear interest from such date, that neither gain nor Ioss in interest shall result from such transfer, exchange, or substitution. SECTION 2.9: Mutilated, Destroyed. Lost, and Stolen Bonds. If (1) any mutilated Bond is surrendered to the Paying Agent, or the Issuer and the Paying Agent received evidence to their satisfaction of the destruction, loss, or theft of any Bond, and (2) there is delivered to the Issuer and the Paying Agent such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Issuer and the Paying Agent that such Bond has been acquired by a bona fide purchaser, the Issuer shall execute and upon its request the Paying Agent shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost, or stolen Bond, a new Bond of the same Stated Maturity and of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost, or stolen Bond has become or is about to become due and payable, the Issuer in its discretion may pay such Bond instead of issuing a new Bond. Upon the issuance of any new Bond under this Section, the Issuer or the Paying Agent may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every new Bond issued pursuant to this Section in lieu of any mutilated, destroyed, lost, or stolen Bond shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost, or stolen Bond shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Order equally and ratably with all other Outstanding Bonds. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement and payment of mutilated, destroyed, lost, or stolen Bonds. SECTION 2.10: Ownership: Unclaimed Principal and Interest. Subject to the further provisions of this Section, the District, the Paying Agent, 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 all payments on the Bond and for all other purposes, whether or not such Bond is overdue, and neither the District nor the Paying Agent shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this Section shall be valid and effectual and shall discharge the liability of the District and the Paying Agent upon such Bond to the extent of the sums paid. Principal and interest deposited with the Paying Agent and remaining unclaimed for three (3) years shall be reported and disposed of in accordance with the provisions of Title 6 of the Texas Property code, as amended, to the extent that such provisions are applicable. SECTION 2.11: Cancellation. All Bonds surrendered for payment, redemption, transfer, exchange, or replacement, if surrendered to the Paying Agent. shall be promptly cancelled by it and, if surrendered to the Issuer, shall be delivered to the Paying Agent and, if not already cancelled, shall be promptly cancelled by the Paying Agent. The 14 Issuer may at any time deliver to the Paying Agent for cancellation any Bonds previously certified or authenticated and delivered which the Issuer may have acquired in any planner whatsoever, and all Bonds so delivered shall be promptly cancelled by the Paying Agent. No Bond shall be authenticated in lieu of or in exchange for any Bond cancelled as provided in this Section, except as expressly provided by this Order. All cancelled Bonds held by the Paying Agent shall be disposed of as directed by Issuer Request. SECTION THREE PRIOR REDEMPTION OF BONDS SECTION 3.1: Redemption of Bonds. The Bonds maturing on or after September 1, 2014 are subject to redemption prior to their scheduled maturities at the option of the Issuer, as a whole or from time to time in part, on September 1, 2013 or on any date thereafter at a price equal to the principal amount of the Bonds called for redemption plus accrued interest from the most recent interest payment date to the date fixed for redemption. SECTION 3.2: Exercise of Option. The exercise by the Issuer of its option to redeem any Bonds shall be by Order or Resolution entered in the minutes of the Board of Directors of the District. The District shall, at least thirty (30) days prior to the Redemption Date (unless a shorter notice shall be satisfactory to the Paying Agent), notify the Paying Agent of such Redemption Date and of the principal amount of Bonds of each Stated Maturity to be redeemed. SECTION 3.3: Procedures. If less than all of the Outstanding Bonds of any Stated Maturity are to be redeemed, the particular Bonds of such Stated Maturity or portions thereof to be redeemed shall be selected by the District from the Outstanding Bonds which have not previously been called for redemption, by such random method as the District shall deem customary and equitable and which may provide for the selection for redemption of portions (equal to $5,000 or a multiple thereof) of the principal amount of Bonds of a denomination larger than $5,000. The District shall promptly notify the Paying Agent in writing of the Bonds selected for redemption and, in the case of any Bond selected for partial redemption, the principal amount thereof to be redeemed. For purposes of this Order, unless the context otherwise requires, all provisions relating to the redemption of Bonds shall relate, in the case of any Bond redeemed only in part, to the portion of the principal of such Bond which has or is to be redeemed. SECTION 3.4: Notice to Holders of Redemption. Notice of redemption shall be mailed by the Paying Agent in the name of and at the expense of the District, not less than thirty (30) days prior to the Redemption Date, to each Holder of Bonds to be redeemed. Notice of redemption shall also be given by publication of notice one time, not less than thirty (30) days prior to the Redemption Date, in a financial journal or publication of general circulation in the United States of America. All notices of redemptions shall include a statement as to (i) the Redemption Date, (ii) the Redemption Price, (iii) the principal amount and identification (by Bond and CUSIP number, Stated Maturity, interest rate, and Issue Date and, in the case of partial redemption, the respective principal amounts) of the Bonds to be redeemed, (iv) that on the Redemption Date the Redemption Price of each of the Bonds to be redeemed will become due and payable and that interest thereon shall cease to accrue from and after such date, and (v) that such Bonds are 15 to be surrendered for payment of the Redemption Price at the principal office of the Paying Agent, and the address of such office. The Paying Agent shall give written notice of redemption, by registered mail, overnight delivery, or other comparably secure means, not less than 30 days prior to the Redemption Date, to each registered securities depository (and to each national information service that disseminates redemption notices) known to the Paying Agent, but neither the failure to give such notice nor any defect therein shall affect the sufficiency of notice given to Bondholders as hereinabove stated. SECTION 3.5: Payment. Notice of redemption having been given as aforesaid, the Bonds so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price, and from and after such date (unless the District shall default in the payment of the Redemption Price) such bonds shall cease to bear interest. Upon the surrender of such Bonds for redemption in accordance with such notice, such Bonds shall be paid by the Paying Agent at the Redemption Price out of money supplied by the District. Installments of interest with a Stated Maturity on or prior to the Redemption Date shall be payable to the Holders of such bonds registered as such on the relevant Record Dates according to their terms. If any Bond called for redemption shall not be so paid on the date set for redemption by reason of the failure of the District to provide collected funds, the same shall continue to bear interest from the Redemption Date at the rate borne by such Bond. SECTION 3.6: Partial Redemption. Any Bond which is to be redeemed only in part shall be surrendered at the office of the Paying Agent (if payment is to be made to other than the registered owner with due endorsement by, or a written instrument of transfer in form satisfactory to the Paying Agent duly executed by, the Holder thereof or his attorney duly authorized in writing) and the District shall execute and the Paying Agent shall register and deliver to the Holder of such Bond, without service charge to the Holder, a new Bond or Bonds of the same Stated Maturity and of any authorized denomination or denominations as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. SECTION FOUR FINANCIAL GUARANTY INSURANCE SECTION 4.1: Financial Guaranty Insurance Company Insurance Policy. In this Section, "Insurer" shall mean Financial Guaranty Insurance Company. ("Financial Guaranty" or "FGIC"), as the provider of a municipal bond insurance policy for the Bonds and the following terms and conditions apply: SECTION 4.2: Purpose and Purchase of Bond Insurance. In consideration for the Insurer's issuance of the Policy, the District hereby makes the agreements, covenants, and representations set forth in this Section. The provisions of this Section shall be in effect only for so long as the Bonds are outstanding and the Policy is in effect with respect to the Bonds. This Section has been adopted solely for the benefit of the Insurer, and may be modified or amended at any time with the consent of, or may be waived 16 in whole or in part by, the Insurer, and may not be enforced or relied upon, in any way by any of the Owners of the Bonds; and SECTION 4.3: Bond Legend. The Bonds shall bear a Statement on Insurance in the following form: Form of Statement of Insurance Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of JPMorgan Chase Bank, Dallas, Texas, as paying agent ("the "Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the require payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY SECTION FIVE FORM OF BONDS AND CERTIFICATES SECTION 5.1: Forms Generally. The Bonds, the Registration 17 Certificate of the Comptroller of Public Accounts of the State of Texas to be reproduced on the initial Bonds, the Certificate of Authentication to be reproduced on subsequently delivered Bonds, and the form of Assignment to be reproduced on each of the Bonds shall be substantially in the forms set forth in this Section with such appropriate insertions, omissions, substitutions, and other variations as are permitted or required by this Order, and the Bonds may have such letters, numbers, or other marks of identification (including identifying numbers and letters of the Committee on Uniform Securities Identification Procedures of the American Bankers Association) and such legends and endorsements (including any reproduction of an opinion of counsel or notice of insurance) thereon as may, consistent herewith, be determined by the officers executing such Bonds as evidenced by their execution thereof. Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The definitive Bonds shall be issued as Book -Entry Only Bonds, but the initial Bonds submitted to the Attorney General of Texas may be typewritten, photocopied, or otherwise reproduced. The Bonds authorized by this Order shall be in substantially the following form, with such omissions, insertions, and variations as may be necessary and desirable and consistent with the terms of this Order: SECTION 5.2: Form of Bonds. The Bonds authorized by this Order shall be in substantially the following form, with such omissions, insertions, and variations as may be necessary and desirable and consistent with the terms of this Order: REGISTERED NO. REGISTERED United States of America State of Texas County of Brazoria BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1 WATERWORKS AND SEWER SYSTEM COMBINATION UNLIMITED TAX AND REVENUE BONDS SERIES 2006 Interest Rate: Stated Maturity: Date of Series: CUSIP No. September 1, July 1, 2006 BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1 a conservation and reclamation district, a body politic and corporate and a governmental agency created under the Constitution and laws of the State of Texas, situated in Brazoria County, Texas (herein the "Issuer"), FOR VALUE RECEIVED hereby acknowledges itself indebted to and PROMISES TO PAY TO 18 or registered assigns, on the Stated Maturity specified above, the principal sum of DOLLARS and to pay interest thereon from the Date of Series specified above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, until such principal is paid or duly provided for on or after such Stated Maturity or any earlier Redemption Date, payable semiannually on March 1 and September 1 in each year commencing September 1, 2006 (two-month interest payment), at the per annum Interest Rate specified above, computed on the basis of a 360 -day year of twelve 30 -day months. The interest so payable on, and punctually paid or duly provided for on or within 10 days after, any Interest Payment Date will be paid to the Person in whose name this Bond (or one or more Predecessor Bonds evidencing the same debt) is registered at the close of business on the Record Date for such interest, which shall be the 15th day (whether or not a business day) of the calendar month next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided shall forthwith cease to be payable to the Person in whose name such Bond is registered on such. Record Date, and shall be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Paying Agent, notice whereof being given to the Holders of the Bonds not less than 10 days prior to the Special Record Date. All such interest shall be payable at the principal office of the Paying Agent of the Issuer in the City of Dallas, Texas (hereinafter referred to as the "Place of Payment"), which shall initially be the principal office of JPMorgan Chase Bank of Texas, National Association, Dallas, Texas, and shall be paid by check or draft mailed to the address of the Holder as the same appears on the Bond Register of the Issuer kept by the Paying Agent or in accordance with other customary arrangements acceptable to the Paying Agent made by the Holder. The principal or Redemption Price of this Bond is payable at the Place of Payment upon presentation and surrender of this Bond. All payments hereon shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. If the specified date for any such payment shall be a Saturday, Sunday, or legal holiday or equivalent (other than a moratorium) for banking institutions generally in the city in which the Place of Payment is located, such payment may be made on the next succeeding day which is not one of the foregoing days without additional interest and with the same force and effect as if made on the specified date for such payment. The obligation to pay the principal of and the interest on this Bond is solely and exclusively the obligation of the Issuer until such time, if ever, as the Issuer is dissolved and this Bond is assumed as described below. No other entity, including the City of Pearland, Texas, Brazoria County, Texas, and the State of Texas, is obligated, directly, indirectly, contingently, or in any other manner, to pay the principal of or interest on this Bond from any source whatsoever. This Bond is one of the series specified in its title issued in the aggregate principal amount of $1,980.000 (herein referred to as the ."Bonds") pursuant to an order of the Board of Directors of the Issuer adopted June 28, 2006 (hereinafter referred to as the "Bond Order"), for the purpose of (i) finance the District's portion of the costs of acquisition or construction of (a) water distribution, wastewater collection and storm drainage facilities 19 to serve Tranquility Lakes, Section 1, Tranquility Lakes Section 2, and Oak Road, the Tranquility Bay apartments, and Stepping Stones III; and (b) the Tranquility Lakes Section 1 Lift Station; (ii) finance the District's cost of Water Plant No. 1 and Water Plant No. 2 Recoating and Well Rework and Water Plant No. 2 booster Pump additions; (iii) pay engineering fees related to the afore mentioned facilities and projects; (iv) pay interest on funds advanced on the District's behalf by developers of land located within the District; and (v) pay for administrative, organizational and issuance costs, legal fees, fiscal agent's fees, a fee to the Texas Commission on Environmental Quality ("TCEQ"), and certain financing costs related to the issuance of the Bonds. which under applicable law may properly be paid from the proceeds of such bonds as authorized by the Constitution and laws of the State of Texas including specifically (but not by way of limitation) Chapters 49 and 54 of the Texas Water Code, together with all amendments and additions thereto, by authority of elections held for and within the Issuer on November 3, 1981 and September 8, 1984. The Bonds maturing on or after September 1, 2014 may be redeemed at the option of the Issuer, on not less than 30 days prior notice to the Holders thereof by mail as provided in the Bond Order, as a whole or from time to time in part on September 1, 2013 or on any date thereafter, upon payment of the Redemption Price, which shall consist of the principal amount thereof together with interest, if any, accrued thereon from most recent Interest Payment Date to the Redemption Date. The Bond issued as a Term Bond maturing September 1, 2012, ("Term Bond") is subject to mandatory redemption prior to maturity in the following amounts (subject to reduction as hereinafter provided), on the following dates ("Mandatory Redemption Dates"), at a price equal to the principal amount redeemed plus accrued interest to the Mandatory Redemption Date, subject to the conditions set forth below: Bond Maturing September I, 2012 Mandatory Redemption Date (Sentemberl) Amount 2011 $9O 00 On or before 30 days prior to each Mandatory Redemption Date set forth above, the Registrar shall (i) determine the principal amount of such Term Bond that must be mandatorily redeemed on such Mandatory Redemption Date, after taking into account deliveries for cancellation and optional redemptions as more fully provided for below, (ii) select, buy lot or other customary random method, the Term Bond or portions of the Term Bond of such maturity to be mandatorily redeemed on such Mandatory Redemption Date, and (iii) give notice of such redemption as provided in the Order. The principal amount of the Term Bond to be mandatorily redeemed on such Mandatory Redemption Date shall be reduced by the principal amount of such Term Bond which, by the 45` day prior to such Mandatory Redemption Date, either have been purchased in the open market and delivered or tendered for cancellation by or on behalf of the District to the Registrar or optionally redeemed and which, in either case. have not previously been made the basis for a reduction under this sentence. Bonds of a denomination larger than $5,000 may he redeemed in part (S5,000 or any integral multiple thereof) and upon any partial redemption of any such Bond the same shall 20 be surrendered in exchange for one or more new Bonds of the same Stated Maturity in authorized denominations for the unredeemed portion of principal. Bonds (or portions thereof) for whose redemption and payment provision is made in accordance with the Bond Order shall thereupon cease to bear interest from and after the Redemption Date. The Bonds are payable from the proceeds of a tax levied upon all taxable property within the Issuer which is not legally limited as to rate or amount and are further payable from and secured by a pledge of all income or increment which may grow out of the ownership and operation of the District's improvements or facilities less such portion of said revenue income as reasonably may be required to provide for the administration, efficient operation and adequate maintenance of said service facilities as authorized by the Constitution and laws of the State of Texas. Reference is hereby made to the Bond Order for a description of the covenants by which the Bonds are secured, the respective rights thereunder of the Holders of such Bonds and the Issuer, and the terms upon which such Bonds are, and are to be, authenticated and delivered. Notwithstanding any provision hereof to the contrary, however, the obligation of the Issuer to make money available to pay this Bond may be defeased by the deposit of money and/or certain debt obligations sufficient for such purpose as provided in the Bond Order, and, if the District is abolished and dissolved by a City Ordinance and the City assumes the assets and liabilities of the District, including this Bond, the sources of payment of this Bond may be modified under the laws of the State of Texas. The Bond Order permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Bonds under the Bond Order at any time by the Issuer with the consent of the Holders of a majority in aggregate principal amount of the Bonds at the time outstanding affected by such modification. Any such consent by the Holder of this Bond or any Predecessor Bond herefor evidencing the same debt shall be conclusive and binding upon such Holder and all future Holders of this Bond and of any Bond issued upon the transfer or in lieu hereof or in exchange hereof, whether or not notation of such consent is made upon this Bond. As provided in the Bond Order and subject to certain limitations therein set forth, this Bond is transferable on the Bond Register of the Issuer upon surrender of this Bond for transfer to the Paying Agent at the Place of Payment duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Paying Agent duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new fully registered Bonds of the same Stated Maturity, of authorized denominations, and for the same aggregate principal amount will be issued to the designated transferee or transferees. The Bonds are issuable as fully registered Bonds in the denomination of $5,000 and any integral multiple thereof. Upon surrender of this Bond for exchange to the Paying Agent at the Place of Payment, and subject to certain limitations set forth in the Bond Order, one or more new fully registered Bonds of the same Stated Maturity, of designated authorized denominations, and for the same aggregate principal amount will be issued to the registered Holder of this Bond. No service charge shall be made for any transfer or exchange hereinabove referred to, but the Issuer or the Paying Agent may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. 21 The Issuer, the Paying Agent, and any agent of either of them may treat the Person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Bond be overdue, and the Issuer, the Paying Agent, and any such agent shall not be affected by notice to the contrary. It is hereby certified, covenanted, and represented that all acts, conditions, and things required to be performed, exist, and be done precedent to or in the issuance of this Bond in order to render the same a legal, valid, and binding obligation of the Issuer have been performed, exist, and have been done, in regular and due time, form, and manner, as required by law, and that the issuance of the Bonds does not exceed any constitutional or statutory limitation. For the faithful performance of all covenants, recitals, and stipulations herein contained, the full faith, credit, and resources of the Issuer are hereby pledged. In case any provision in this Bond or any application thereof shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions and applications shall not in any way be affected or impaired thereby. This Bond shalt be construed in accordance with and governed by the laws of the State of Texas and the federal law of the United States of America. Unless either the Registration Certificate of the Comptroller of Public Accounts of the State of Texas or the Certificate of Authentication hereon has been executed by such Comptroller or his duly authorized agent or by the Paying Agent, respectively, by manual signature, this Bond shall not be entitled to any benefit under the Bond Order or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this Bond to be duly executed under its official seal. BRAZORIA COUNTY MUNICIPAL UTILITY DISTRICT NO. 1 BY: President, Board of Directors A 1"IEST: Secretary, Board of Directors (SEAL) SECTION 5.3: Form of Registration Certificate of Comptroller of Public Accounts. 22 REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS OFFICE OF THE COMPTROLLER § OF PUBLIC ACCOUNTS § THE STATE OF TEXAS § REGISTER NO. I HEREBY CERTIFY THAT there is on file and of record in my office a certificate to the effect that the Attorney General of the State of Texas has examined and finds that this Bond has been issued in conformity with the Constitution and laws of the State of Texas and is a valid and binding obligation of Brazoria County Municipal Utility District No. 1 and further that this Bond has been registered this day by me. WITNESS my signature and seal of office this day of , 2006. (SEAL) Comptroller of Public Accounts of the State of Texas SECTION 5.4: Form of Certificate of Authentication. CERTIFICATE OF AUTHENTICATION This is one of the Bonds referred to in the within -mentioned Bond Order, a Predecessor Bond for which has been approved by the Attorney General of Texas and registered by the Comptroller of Public Accounts of the State of Texas. JPMORGAN CHASE BANK, as Paying Agent BY: Authorized Signature Date of Authentication: SECTION 5.5: Form of Assignment. ASSIGNMENT FOR VALUE RECEIVED, the undersigned sells, assigns, and transfers unto (Name of Assignee) 23 (Address of Assignee) (Social Security or Taxpayer Identification Number of Assignee) the within bond and all rights thereunder and does hereby irrevocably constitute and appoint JPMorgan Chase Bank, a New York banking corporation, or its successor, as Registrar to transfer the said bond on the books kept for registration thereof with full power of substitution in the premises. DATE: 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. The following abbreviations, when used in the inscription on the face of the within Bond or above Assignment, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - TEN ENT -- JT TEN - - - as tenants in common as tenants by the entireties as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT Custodian (Cust.) (Minor) under Uniform Gifts to Minors Act State Additional abbreviations may also be used though not in the above list. SECTION 5.6: BOND LEGEND 24 Form of Statement of Insurance Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the Bonds, such policy being on file at the principal office of JPMorgan Chase Bank, Dallas, Texas, as paying agent ("the "Paying Agent"): Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal or accreted value (if applicable) of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to principal or accreted value (if applicable), the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which the payment of principal or accreted value (if applicable) of the Bonds is due by reason of call for redemption (other than mandatory sinking fund redemption), acceleration or other advancement of maturity, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that the require payment of principal, accreted value or interest (as applicable) has not been made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer or the borrower(s) of bond proceeds who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY SECTION SIX SECURITY OF THE BONDS SECTION 6.1: Pledge and Levy of Taxes. For each year while any Bond is Outstanding and the Issuer remains in existence there shall be and is hereby Levied and assessed a continuing direct annual ad valorem tax upon each $ 100 valuation of taxable property within the Issuer at a rate from year to year sufficient, full allowance being made for anticipated delinquencies, together with revenues and receipts from other sources which are legally available for such purposes, (1) to pay interest on the Bonds as it becomes due, (2) to provide a sinking fund for the payment of the principal of the Bonds when due or the 25 Redemption Price at any earlier required Redemption Date, and (3) to pay the expenses of assessing and collecting such tax. The Issuer shall timely assess and diligently collect such tax and apply the collections thereof solely as provided herein. Each order of the Governing Body levying and establishing the rate of ad valorem taxes shall specify (a) the portion of such rate levied to pay principal (and Redemption Price) of, interest on, and Paying Agent fees and expenses with respect to the Bonds (including allocable delinquencies), (b) the portion, if any, of such rate levied to pay other contractual obligations of the Issuer payable in whole or in part from taxes, and (c) the portion, if any, of such rate levied for operating and maintenance purposes. All collections of ad valorem taxes, including penalty and interest attributable thereto, shall be allocated among such purposes in proportion to the respective levies in the tax year with respect to which such taxes are owed. For so long as any Bond remains Outstanding, all collections of Issuer taxes levied to pay debt service requirements on the Bonds, less allocable expenses of assessing and collecting such taxes, shall be deposited not less frequently than monthly to the Bond Fund. SECTION 6.2: Pledge of Revenues. The Net Revenues are hereby pledged to the payment of the principal, interest, redemption price, and bank charges on the Bonds. The Revenues hereby pledged shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the lien of this pledge shall be valid and binding as against alt parties of any kind having a claim of any kind in tort, contract, or otherwise against the District, irrespective of whether such parties have notice thereof. To the extent provided by law, such pledge of Revenues will terminate when any city or cities annexes or abolishes the District in its entirety, and assumes all of the assets and obligations of the District. SECTION SEVEN DISPOSITION OF BOND PROCEEDS SECTION 7.1: Creation of Funds. There shall be created the following funds: (a) The Bond Fund; (b) The Construction Fund; and (c) The Operating Fund. Each fund shall be kept separate and apart from all other funds of the District. The Bond Fund shall constitute a trust fund which shall be held in trust for the benefit of the Bondholders and, to the extent allowed by law, the Holders of Additional Bonds, if any. The Construction Fund shall also constitute a trust fund and shall be used solely as provided in this Order. SECTION 7.2: Bond Fund. The District shall deposit or cause to be deposited into the Bond Fund the aggregate of the following at the time specified; (a) As soon as practicable after the Bonds are sold, accrued interest on the Bonds from their dated date to the date of their delivery. 26 (b) As soon as practicable after the Bonds are sold, a sum equal to twelve (12) months interest on the Bonds. No later than five (5) days prior to any principal and/or interest payment date on the Bonds, the Board of Directors shall cause the transfer of monies out of the Bond Fund to the Paying Agent in an amount not less than that which is sufficient to pay the principal which matures on such date, the interest which accrues on such date, and the Paying Agent's fees for handling such payments on that date. SECTION 7.3: Operating Fund. The District shall cause to be deposited into the Operating Fund the revenues from operation and certain proceeds of the Bonds as may be approved for use in the administration and efficient operation of the District. SECTION 7.4: Construction Fund. The Construction Fund shall comprise the capital improvements funds of the Issuer. The Issuer shall deposit to the credit of the Construction Fund the balance of the proceeds of the Bonds remaining after the deposits to the Bond Fund provided in Section 7.2 (less the amounts, if any, required by the TCEQ to be placed in escrow). The Construction Fund shall be applied solely (1) to pay the costs necessary or appropriate to accomplish the purposes described in Section 2.1 for which the Bonds are issued, and (2) to the extent the proceeds of any series of bonds deposited to the Construction Fund and investment income attributable thereto are in excess of the amounts required for any such purpose, then at the discretion of the Governing Body to transfer such unexpended proceeds or income to the Bond Fund or to apply the same for any other lawful purpose for which surplus construction funds may be used, subject to the prior approval of the TCEQ, if such approval is required. The Bond proceeds required to be placed in escrow by the TCEQ shall be deposited in an escrow fund established under a separate escrow agreement, to be utilized as provided and in accordance with the orders and rules of the TCEQ. SECTION 7.5: Investments and Security for Funds. Subject to Section 7.4, the Governing Body may deposit money held for the credit of any fund or account established or confirmed by this Order in time or demand deposits and may invest such money in any obligation authorized by law at the time of such investment. Any such obligation shall mature, or shall be subject to redemption by the holder thereof at the option of the holder, not later than the respective dates when money is expected to be required for the purposes intended. Obligations so purchased as an investment of money credited to any such fund or account shall at all times be deemed to be a part of such fund or account. Each fund and account established or confirmed by this Order shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer, subject to Section 7.4. SECTION EIGHT ISSUER COVENANTS SECTION 8.1: Agency. The Issuer will at all times maintain an agency in the City of Dallas, Texas, meeting the qualifications herein described, for the performance of the duties of the Paying Agent hereunder. JPMorgan Chase Bank of Texas, National 27 Association, Dallas, Texas is hereby appointed Paying Agent for such purposes. The Paying Agent may be removed from its duties hereunder at any time with or without cause by action of the Governing Body of the Issuer entered in its minutes and not less than 30 days notice to each Bondholder specifying the substitution of another Paying Agent, the effective date thereof, and the address of such successor Paying Agent, but no such removal shall become effective until such successor shall have accepted the duties of the Paying Agent hereunder by written instrument. Every Paying Agent appointed hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, subject to supervision or examination by federal or state authority, having authority to act as Paying Agent/Registrar for the Bonds, and having an office in the City of Dallas, Texas. The terms of the agreement with the initial Paying Agent attached hereto are hereby approved, and the President and the Vice President of the Governing Body, or either of them, and the Secretary and any Assistant or Acting Secretary of the Governing Body, or any of them, are hereby authorized to execute and deliver such agreement for and on behalf of the Issuer substantially in the form and to the effect attached hereto. SECTION 8.2: To Maintain and Insure Property. The Issuer shall maintain its properties in good conditions and repair, ordinary wear and tear and obsolescence excepted. The Issuer shall maintain insurance on its properties of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business, but considering any governmental immunities to which the Issuer may be entitled. SECTION 8.3: Audit Books and Inspections. The Issuer shall keep accurate records and accounts and employ an independent certified public accountant to audit and report on its financial affairs at the close of each fiscal year. Such audits shall be in accordance with applicable laws, rules, and regulations in effect from time to time, including particularly Section 49.191 et seq. of the Texas Water Code, as amended, and the Water District Accounting Manual, as amended and adopted by the TCEQ. A copy of such audit shall be filed in the office of the Issuer and shall be open to inspection by any interested person during normal office hours. The Issuer shall allow any Holders of not less than 25% in principal amount of the Bonds then Outstanding to inspect the properties of the Issuer relating thereto at all reasonable times and shall furnish a copy of such audit report to any such Holders upon request. SECTION 8.4: Tax -Exempt Status of Bonds. A. Not to Cause Interest to Become Taxable. The Issuer shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property acquired, constructed, or improved with Gross Proceeds) in a manner which, if made or omitted, respectively, would cause interest on any Bond not to be excludable from the gross income. as defined in Section 61 of the Code, of the owners thereof for federal income tax purposes in accordance with Section 103 of the Code. Without limiting the generality of the foregoing, the Issuer shall comply with each of the specific covenants in this Section, unless and until the Issuer shall have received a written opinion of counsel nationally recognized 28 in the field of municipal bond law to the effect that failure to comply with such covenant either generally or to the extent or in the instance stated therein will not adversely affect any such excludability of interest, and thereafter such covenant shall no longer be binding upon the Issuer either generally or to such extent or in such instance, as applicable, anything in any other Subsection of this Section to the contrary notwithstanding. B. No Private Use or Private Payments. The Issuer shall either, (i) not use or permit the use of Gross Proceeds (or any property acquired, constructed, or improved with Gross Proceeds) in any trade or business carried on by any Person (or in any activity of any Person other than a natural person) other than a state or local government or (ii) not directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds (or any property acquired, constructed, or improved with Gross Proceeds) in any trade or business carried on by any Person (or in any activity of any Person other than a natural person) other than a state or local government, in either case at all times prior to the last Maturity of Bonds, unless either (a) such use is merely as a member (and is extended by the Issuer on the same terms as to all other members) of the general public or (b) such charge or payment consists of taxes of general application within the Issuer or interest earned on Investments acquired with Gross Proceeds pending application for their intended purposes. For purposes of this Subsection B, property is considered to be "used" by a Person if: (1) it is sold or otherwise disposed of, or leased to such Person; (2) it is operated, managed, or otherwise physically employed, utilized. or consumed by such Person, excluding operation or management pursuant to an agreement if (a) such agreement (i) has a term (including renewal options) which does not exceed five years, (ii) may be cancelled by the Issuer at the end of any three-year period, and (111) provides for compensation to such Person that is reasonable in relation to the services performed, is not based on a share of net profits or net revenue, and, as to not less 50% of such compensation annually, is based on a periodic fixed fee, (h) no member of the Governing Body, individually or with other such members, owns a controlling interest in such Person or is an employee or member of the governing board of such Person, and (c) no employee of the Issuer is a member of the governing board of such Person; (3) capacity in or output or service from such property is reserved or committed to such Person under a take -or -pay, output, incentive payment, or similar contract or arrangement; (4) such property is used to provide service to (or such service is committed to or reserved for) such Person on a basis or terms which (except possibly for the amount of use and any corresponding rate adjustment) are different from the basis or terms on which such service is provided (or committed or reserved) to members of the 2g public generally; (5) such Person is a developer and a significant amount of property acquired, constructed, or improved with proceeds from the sale of the Bonds (or income from the investment thereof) serves only a limited area substantially all of which is owned by such Person, or a limited group of developers, unless such area is developed and sold to (and occupied by) members of the general public with reasonable speed; or (6) substantial burdens and benefits of ownership of such property are otherwise effectively transferred to such Person. C. No Private Loan. The Issuer shall not use Gross Proceeds to make or finance loans to any Person other than a state or local government, excluding loans consisting of temporary investments of Gross Proceeds pending application for their intended purposes. For purposes of this Subsection C, Gross Proceeds are considered to be "loaned" to a Person if (1) property acquired, constructed, or improved with Gross Proceeds is sold or leased to such Person in a transaction which creates a debt for federal income tax purposes, (2) capacity in or service from such property is committed to such Person under a take-or-pay,output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits of ownership, of Gross Proceeds or such property are otherwise transferred to such Person in a transaction which is the economic equivalent of a loan. D. Not to Invest at Higher Yield. The Issuer shall not, at any time prior to the final Maturity of the Bonds, directly or indirectly invest Gross Proceeds in any Investment (or use Gross Proceeds to replace money so invested), if as a result of such investment the Yield from the Issue Date of all Investments acquired with Gross Proceeds (or with money replaced thereby), whether then held or previously disposed of, exceeds the Yield of the Bonds. Notwithstanding the foregoing, however, the following Investments shall be excluded from the limitation and calculation described in this Subsection D: (1) Investments acquired with proceeds from the sale of Bonds or income from the investment thereof, to the extent such Investments are held during the first three years after the Issue Date and, in the case of proceeds or income held for the account of the Construction Funds, prior to the date on which the project or projects for which the Bonds are being issued have been completed, if earlier; (2) Investments acquired with income from investment of proceeds from the sale of the Bonds, to the extent such Investments are held during the first year after receipt of such income; (3) Certain investments acquired with amounts held for the credit of the Bond Fund to the extent such investments are held for the durations specified in the Code or current regulations; and (4) Any other Investments to the extent the aggregate cost thereof, adjusted upward by the amortized portion (calculated on a straight-line basis) of any discount at which such Investments were acquired, does not exceed the lesser of $ 100,000 or 5% of the proceeds from sale of the Bonds. The Issuer shall pursue work on the project or projects for which the Bonds are being issued 30 with due diligence until completion. The Issuer shall not (a) use any money to pay principal of or interest on the Bonds, or pledge (or permit to be pledged) or otherwise restrict any money, funds, or Investments so as to give reasonable assurance of their availability for such purpose, except in each case amounts deposited to the Bond Fund, (b) apply any proceeds from the sale of Bonds or income from the investment thereof, directly or indirectly, to pay principal of or interest on any other indebtedness of the Issuer, or any corporate or other instrumentality of the Issuer or any such governmental entity, or (c) at any time prior to the Maturity of the Bonds, invest amounts held for the credit of the Bond Fund in any investment for which there is not an established market at the time of such investment, except for Investments described in Clauses (1) through (5) of this Subsection to the extent such Investments are acquired and either mature or are disposed of during the period, if any, described in such Clause. E. No Rebate Required. The Issuer warrants and represents that (1) all of the proceeds of the Bonds and income from the investment thereof will be used for the governmental activities of the Issuer; (2) the aggregate face amount of all debt obligations issued or expected to be issued by the Issuer in the calendar year of the Issue Date (including the Bonds) is not reasonably expected to exceed $5,000,000; (3) there are no other Persons which derive their authority from or are subject to the control of the Issuer and which have authority to issue obligations described in section 103 of the Code; and (4) consequently the Issuer satisfies the requirements of paragraphs (2) and (3) of section 148(f) of the Code with respect to the Bonds without making the payments to the United States described in such section. F. No Federal Guaranty. The District covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code and applicable regulations thereunder, except as permitted by Section 149(b) (3) of the Code and such regulations. G. Information Reporting. The District covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with Section 149(e) of the Code and applicable regulations thereunder. SECTION 8.5: Bondholder's Mandamus. If the Issuer shall default in the payment of the principal of or interest on the Bonds when due or in the observance or performance of any of the covenants, conditions, or obligations set forth in this Order, any Bondholder shall, in addition to all other rights and remedies of such Bondholder provided by the laws of the State of Texas, be entitled to a writ of mandamus issued by a court of proper jurisdiction compelling and requiring the Governing Body and other officers of the Issuer to make such payment or to observe and perform such covenant, obligation, or condition. No delay or omission by any Bondholder to exercise any right or power accruing 31 to such Bondholder upon default shall impair any such right and power, or shall be construed to be a waiver of any such default or acquiescence therein, and in every such right or power may be exercised from time to time and as often as may be deemed expedient. SECTION NINE CONTINUING DISCLOSURE UNDERTAKING SECTION 9.1. Definitions. As used in this Section, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Bond. "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. "SID" means any person designed by the State of Texas or an authorized department, office, 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. SECTION 9.2: Annual Reports. The District willprovide certain updated financial information and operating data to certain information vendors annually. The information to be updated with respect to the District includes all quantitative financial information and operating data of the general type included in this Official Statement under the headings "DISTRICT DEBT," "TAX DATA," AND IN "APPENDIX B." The District will update and provide this information within six months after the end of each of its fiscal years ending in or after 2006. The District will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to any state information depository ("SID") that is designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the "SEC"). The District may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by SEC Rule 15c2-12. The updated information will include audited financial statements if it commissions an audit and the audit is completed by the required time. If the audit of such financial statements is not complete within such period, then the District shall provide unaudited financial statements for the applicable fiscal year to each NRMSIR and any SID within such six month period, and audited financial statements when the audit report on such statements becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in the Bond Order or such other accounting principles as the District may be required to employ from time to time pursuant to sate law or regulations. The District's fiscal year end is currently December 31. Accordingly, it must provide 32 updated information by June 30 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify each NRMSIR and any SID of the change. SECTION 9.3: Material Event Notices. The District will also provide timely notices of certain events to any SID and to either each NRMSIR or the Municipal Securities Rulemaking Board ("MSRB"). The District will provide notice of any of the following events with respect to the Board, if the 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) Bond calls; (9) defeasances; (10) release, substitution or sale of property securing repayment of the Bonds; and (11) rating changes affecting the Bonds. Neither the Bonds nor the Bond Order make any provision for debt service reserves, credit enhancement, or liquidity enhancement. In addition, the District will provide timely notice of any failure by the District to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The District will provide each notice described in this paragraph to any SID and to either each NRMSIR or the Municipal Securities Rulemaking Board. SECTION 9.4: Availability of Information from NRMSIRs. SID And MSRB. The District has agreed to provide the foregoing information only to NRMSIRs and any SID. The information will be available to holders of 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 do so. The Municipal Advisory Council of Texas (the "MAC") has been designated by the State of Texas as a SID and has received a no -action letter from the SEC dated August 29, 1995 that recognizes the MAC as a SID. The address of the MAC is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6974. Any filing under this agreement may be made solely by transmitting such filing to the MAC as provided at http.l/www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. SECTION 9.5: Limitations and Amendments. The District has agreed to update information and to provide notices of material events only as described above. The District 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 District 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 District disclaims any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement, or from any statement made pursuant to its agreement, although holders and beneficial owners of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time 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 District, but only if the 33 agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with Rule 15c2-12, taking into account any amendments and interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and either the holders of a majority in aggregate principal amount. of the outstanding Bonds consent to the amendment or any person unaffiliated with the District (such as nationally recognized bond counsel) determines that the amendment will not materially impair the interests of the beneficial owners of the Bonds. The District may also amend or repeal the agreement if the SEC amends or repeals the applicable provisions of such rule or a court of final jurisdiction determines that such provisions are invalid, but in either case only to the extent that its right to do so would not prevent the Underwriter from lawfully purchasing the Bonds in the offering described herein. If the District so 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. SECTION TEN TAX COVENANTS --LIMITATIONS ON EXPENDITURE ON PROCEEDS AND DISPOSITIONS OF PROPERTY SECTION 10.1: Allocation of, and Limitation on, Expenditures for the Project. The Issuer covenants to account for the expenditure of sale proceeds and investment earnings to be used for the purposes described in Section 2.1 of this Order (the "Project") on its books and records by allocating proceeds to expenditures within 18 months of the later of the date that (1) the expenditure is made, or (2) the Project is completed. The foregoing notwithstanding, the Issuer shall not expend sale proceeds or investment earnings thereon more than 60 days after the earlier of (1) the fifth anniversary of the delivery of the Bonds, or (2) the date the Bonds are retired, unless the Issuer obtains an opinion of nationally -recognized bond counsel that such expenditure will not adversely affect the tax- exempt status of the Bonds. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. SECTION 10.2: Disposition of Project. The Issuer covenants that the property constituting the Project will not be sold or otherwise disposed in a transaction resulting in the receipt by the Issuer of cash or other compensation, unless the Issuer obtains an opinion of nationally -recognized bond counsel that such sale or other disposition will not adversely affect the tax-exempt status of the Bonds. For purposes of the foregoing, the portion of the property comprising personal property and disposed in the ordinary course shall not be treated as a transaction resulting in the receipt of cash or other compensation. For purposes hereof, the Issuer shall not be obligated to comply with this covenant if it obtains an opinion that such failure to comply will not adversely affect the excludability for federal income tax purposes from gross income of the interest. SECTION ELEVEN ADDITIONAL BONDS AND REFUNDING BONDS SECTION 11.1: Additional Bonds. The District expressly reserves the right to issue, in one or more series, the remaining authorized but unissued bonds as well as 34 such other bonds as may be authorized at subsequent elections. Such bonds may be payable from and equally secured by (i) to the extent permitted by law, a pledge of taxes and (ii) Net Revenues to the same extent as pledged for and in all things on a parity with the lien on the Bonds. SECTION 11.2: Refunding Bonds. The District reserves the right to issue Refunding Bonds in any manner permitted by the then current law to refund any bonds at or prior to their respective dates of maturity or redemption. SECTION TWELVE DEFEASANCE SECTION 12.1: Discharge of Obligations. Any Bond shall be deemed to be paid and shall no longer be considered to be a Bond within the meaning of this Order when payment of the principal of and interest on such Bond to the Stated Maturity thereof or (if notice of redemption shall have been duly given, irrevocably provided for, or waived as provided herein) to the Redemption Date shall have been made or shall have been provided for by deposit with the Paying Agent for such payment (or with any other bank or trust company which has agreed to hold the same for such purpose) (1) money sufficient to make such payment, (2) Governmental Securities certified by an independent public accounting firm of national reputation to be of such maturities and interest payment dates and to bear such interest as will, without further investment or reinvestment or either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment, or (3) a combination of money and Governmental Securities together so certified sufficient to make such payment, provided that all the expenses pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Paying Agent (and to such other bank or trust company). In the event such deposit is made with respect to some but not all of the Bonds then Outstanding, the Issuer shall designate the Stated Maturities of the Bonds with respect to which such deposit is made. If such deposit shall be sufficient to provide for the payment of the principal of and interest on some but not all Outstanding Bonds of a particular Stated maturity so designated, the Paying Agent shall select the Outstanding Bonds of such Stated Maturity with respect to which such deposit if made by such random method as the District shall deem fair and appropriate and which may provide for the selection of portions (equal to $5,000 or any integral multiple thereof) of the principal amount of Bonds of a denomination larger than $5,000. Notwithstanding anything herein to the contrary, no such deposit shall have the effect described in this Section (a) if made during the existence of a default in the payment of any Bond unless made with respect to all of the Bonds then Outstanding or (b) unless accompanied by an opinion of counsel of recognized standing in the field of federal income taxation to the effect that neither such deposit nor the investment thereof shall adversely affect the excludability of interest on any Bond from the gross income of any owner thereof for federal income tax purposes. Any money and Governmental Securities deposited for such purpose shall be held by the Paying Agent (or other bank or trust company) with which such deposit is made 35 in a segregated account in trust or escrow for the Holders of the Bonds with respect to which such deposit is made and, together with any investment income therefrom, shall be disbursed solely to pay the principal of and interest on such Bonds when due, except that cash receipts may be withdrawn and paid to the Issuer provided the date and amount of such withdrawals are taken into account in the most recent verification of the accounting firm referred to in this Section. No money or Governmental Securities so deposited shall be invested or reinvested unless in Governmental Securities and unless such money and Governmental Securities not invested and such new investments are together certified by an independent public accounting firm of national reputation to be of such amounts, maturities, and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment. At such times as a Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be entitled to the benefits of this Order, except for the purposes of any such payment from such money or Governmental Securities. SECTION THIRTEEN SALE AND TAX EXEMPTION SECTION 13.1: Sale. The Governing Body hereby confirms the sale of the Bonds to the Underwriter after the taking of public bids therefor on this date, at a price of 97% of par plus accrued interest to the date of delivery, in accordance with the terms specified in the Official Notice of Sale. The effective interest rate of the Bonds as calculated pursuant to Article 717k-2, Vernon's Texas Civil Statutes, as amended, is 4.0551%. SECTION 13.2: Official Statement. The Board hereby ratifies, authorizes, and approves, in connection with the sale of the Bonds, the preparation and distribution of the Preliminary Official Statement dated May 25, 2006 and a final Official Statement substantially in the same form containing such additional information and amendments as may be necessary to conform to the terms of the Bonds, this Order, and the bond purchase agreement for the Bonds. The appropriate officials of the District are hereby authorized to sign such Official Statement and/or deliver certificates pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds. SECTION 13.3: Oualified Tax -Exempt Obligations. The District hereby designates the Bonds as "qualified tax-exempt obligations" for purpose of Section 265(b) of the Code. In connection therewith, the District represents (a) that the aggregate amount of tax-exempt obligations issued by the District during calendar year 2006, including the bonds, which have been designated as "qualified tax-exempt obligations" under Section 265(b) (3) of the Code does not exceed $10,000,000. For purposes of this Section 13.3, the term "tax-exempt obligations" does not include private activity bonds" within the meaning of Section 141 of the Code, other than "qualified 501(c) (3) bonds" within the meaning of Section 145 of the Code. In addition, the purposes of this Section 13.3 the District includes all governmental units which are "subordinate entities" of the District, within the meaning of Section 265(b) of the Code. This Order shall be in force and effect from and after its passage, and it is so ordered. 36 PASSED AND APPROVED this the 2 /s/ Bill Cox, Jr. President, Board of Directors ATTEST: /sI Loice Cottingham Secretary, Board of Directors (SEAL)