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Ord. 1273 2006-06-12 In Process
This Document is being Processed ORDINANCE NO. 1273 AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN EMERGENCY BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND: ARTICLE I FINDINGS AND DETERMINATIONS Section 1.1: Findings and Determinations. The City Council hereby officially finds and determines that: (a) The City of Pearland, Texas (the "City"), acting through its City Council, is authorized pursuant to and in accordance with the provisions of Texas Local Government Code, Chapter 271, Subchapter C, as amended (the "Act"), to issue certificates of obligation to provide all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights - of -way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 288 and the construction of an approximately 200-acre foot regional storm water detention facility on such land, the construction of storm sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv) professional services rendered in connection with the above listed projects. (b) The City Council authorized the publication of a notice of intention to issue Certificates of Obligation, Series 2006 (the "Certificates") to the effect that the City Council was tentatively scheduled to meet at 7:30 p.m. on June 12, 2006 at its regular meeting place to adopt an ordinance authorizing the issuance of the Certificates to be payable from (i) an ad valorem tax levied, within the limits prescribed by law, on the taxable property located within the City, and (ii) the revenues to be derived from the City's water and sewer system (the "System") after the payment of all operation and maintenance expenses thereof (the "Net Revenues") in an amount not to exceed $10,000, to the extent that ad valorem taxes are ever insufficient or unavailable for HOU:2570159.2 such purposes, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. (c) Such notice was published at the times and in the manner required by the Act. (d) No petition signed by at least five percent (5%) of the qualified voters of the City has been filed with or presented to any official of the City protesting the issuance of such Certificates on or before June 12, 2006, or the date of passage of this Ordinance. (e) The City has determined that it is in the best interests of the City and that it is otherwise desirable to issue the Certificates to provide all or part of the funds to pay contractual obligations to be incurred for the purposes authorized by the Act. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. As used herein, the following terms shall have the meanings specified, unless the context clearly indicates otherwise: "Act" shall mean Texas Local Government Code, Chapter 271, Subchapter C, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal and interest on the Certificates as provided therein. "Bond Insurer" shall mean CIFG Assurance North America, Inc. "Certificate" or "Certificates" shall mean any or all of the City of Pearland, Texas Certificates of Obligation, Series 2006, authorized by this Ordinance. "City" shall mean the City of Pearland, Texas and, where appropriate, its City Council. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "DTC" shall mean The Depository Trust Company, New York, New York, or any successor securities depository. 2 HOU:2570159.2 "DTC Participant" shall mean brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of October of a calendar year and ending on the last day of September of the next succeeding calendar year and each such period may be designated with the number of the calendar year in which such period ends. "Interest Payment Date," when used in connection with any Certificate, shall mean March 1, 2007, and each March 1 and September 1 thereafter until maturity or earlier redemption of such Certificate. "Issuance Date" shall mean the date on which the Certificates are delivered to and paid for by the Purchaser. hereto. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements "Outstanding", when used with reference to the Certificates, shall mean, as of a particular date, all Certificates theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Certificates canceled by or on behalf of the City at or before such date; (b) any Certificates defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Certificates in lieu of or in substitution for which a replacement Certificate shall have been delivered pursuant to this Ordinance. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Houston, Texas, and its successors in that capacity. "Purchaser" shall mean the entity or entities specified in Section 7.1 hereof. "Record Date" shall mean the close of business on the fifteenth day of the calendar month immediately preceding the applicable Interest Payment Date. "Register" shall mean the registration books for the Certificates kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts registered to, each Registered Owner of Certificates. "Registered Owner" shall mean the person or entity in whose name any Certificate is registered in the Register. Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the 3 HOU:2570159.2 validity of the Certificates and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Certificates. ARTICLE III TERMS OF THE CERTIFICATES Section 3.1: Amount, Purpose and Authorization. (a) The Certificates shall be issued in fully registered form, without coupons, under and pursuant to the authority of the Act in the total authorized aggregate principal amount of NINE MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($9,700,000) for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the purposes described in paragraph 1.1(a) hereof. Section 3.2: Designation, Date and Interest Payment Dates. The Certificates shall be designated as the "City of Pearland, Texas Certificates of Obligation, Series 2006," and, shall be dated July 1, 2006. The Certificates shall bear interest at the rates set forth in Section 3.3 below, from the later of July 1, 2006 or the most recent Interest Payment Date to which interest has been paid or duly provided for, calculated on the basis of a 360-day year of twelve 30-day months, payable on March 1, 2007, and each March 1 and September 1 thereafter until maturity or earlier redemption. If interest on any Certificate is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Registered Owner as of the close of business on the day prior to mailing of such notice. Section 3.3: Numbers, Denomination, Interest Rates and Maturities. The Certificates shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this Ordinance. The Certificates shall mature on March 1 in each of the years and in the amounts set out in such schedule. Certificates delivered in transfer of or in exchange for other Certificates shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the denomination of $5,000 or integral multiples thereof and shall mature on the same date and bear interest at the same rate as the Certificate or Certificates in lieu of which they are delivered. Certificate Year of Principal Interest Number Maturity Amount Rate R-1 2008 $25,000 6.125% R-2 2009 25,000 6.125 R-3 2010 50,000 6.125 4 HOU:2570159.2 R-4 2011 125,000 6.125 R-5 2012 315,000 6.125 R-6 2013 335,000 6.125 R-7 2014 355,000 6.125 R-8 2015 370,000 6.125 R-9 2016 395,000 5.250 R-10 2017 405,000 4.125 R-11 2018 405,000 4.200 R-12 2019 505,000 4.250 R-13 2020 470,000 4.300 R-14 2021 500,000 4.300 R-15 2022 525,000 4.375 R-16 2023 555,000 4.400 R-17 2024 585,000 4.450 R-18 2025 605,000 4.500 R-19 2026 730,000 4.500 R-20 2027 765,000 4.500 R-21 2028 805,000 4.500 R-22 2029 850,000 4.500 Section 3.4: Redemption Prior to Maturity. (a) Optional Redemption. The Certificates maturing on and after March 1, 2017 are subject to redemption prior to maturity, at the option of the City, in whole or in part, on March 1, 2016, or any date thereafter, at par plus accrued interest .to the date fixed for redemption. (b) Certificates may be redeemed in part only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon presentation and surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. (c) Notice of any redemption, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being Outstanding except for the purpose of being paid with the funds so provided for such payment. 5 HOU:2570159.2 Section 3.5: Manner of Payment, Characteristics, Execution and Authentication. The Paying Agent/Registrar is hereby appointed the paying agent for the Certificates. The Certificates shall be payable, shall have the characteristics and shall be executed, sealed, registered and authenticated, all as provided and in the manner indicated in the FORM OF CERTIFICATES set forth in Article IV of this Ordinance. If any officer of the City whose manual or facsimile signature shall appear on the Certificates shall cease to be such officer before the authentication of the Certificates or before the delivery of the Certificates, such manual or facsimile signature shall nevertheless be valid and sufficient for all.purposes as if such officer had remained in such office. The approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, may be printed on the back of the Certificates over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Certificates, but errors or omissions in the printing of either the opinion or- the numbers shall have no effect on the validity of the Certificates. Section 3.6: Authentication. Except for the Certificates to be initially issued, which need not be authenticated by the Registrar, only such Certificates as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Certificate so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.7: Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such Certificate for the purpose of making and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Registered Owner of any Certificate in accordance with this Section shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.8: Registration, Transfer and Exchange. The Paying Agent/Registrar is hereby appointed the registrar for the Certificates. So long as any Certificate remains Outstanding, the Paying Agent/Registrar shall keep the Register at the City Administrator's office in which, subject to such reasonable regulations as it may prescribe, the. Paying Agent/Registrar shall provide for the registration and transfer of the Certificates in accordance with the terms of this Ordinance. Each Certificate shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Certificate for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Certificate or Certificates, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate 6 HOU:2570159.2 principal amount and bearing interest at the same rate as the Certificate or Certificates so presented and surrendered. All Certificates shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates, maturity and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Certificate or Certificates presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Certificates in accordance with the provisions of this Section. Each Certificate delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such Certificate is delivered. All Certificates issued in transfer or exchange shall be delivered to the Registered Owners thereof at the principal corporate trust office of the Paying Agent/Registrar or sent by United States mail, first class, postage prepaid. The City or the Paying Agent/Registrar may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Certificate. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. The Paying Agent/Registrar shall not be required to transfer or exchange any Certificate called for redemption in whole or in part during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that this restriction shall not apply to the transfer or exchange by the Registered Owner of the unredeemed portion of a Certificate called for redemption in part. Section 3.9: Book -Entry Only System. The definitive Certificates shall be initially issued in the form of a separate single fully registered Certificate for each of the maturities thereof. Upon initial issuance, the ownership of each such Certificate shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section 3.11 hereof, all of the Outstanding Certificates shall be registered in the name of Cede & Co., as nominee of DTC. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or. obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the 'Certificates, (b) the delivery to any DTC Participant or any other person, other than a Certificateholder, as shown on the Register, of any notice with respect to the Certificates, 7 HOU:2570159.2 including any notice of redemption or (c) the payment to any. DTC Participant or any other person, other than a Certificateholder as shown in the Register, of any amount with respect to principal of Certificates, premium, if any, or interest on the Certificates. Except as provided in Section 3.10 of this Ordinance, the City and the Paying Agent/Registrar shall be entitledto treat and consider the person in whose name each Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of, premium, if any, and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Certificates, premium, if any, and interest on the Certificates only to or upon the order of the respective owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of, premium, if any, and interest on the Certificates to the extent of the sum or sums so paid. No person other than an owner shall receive a Certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Section 3.10: Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with. respect to principal of, premium, if any, and interest on the Certificates, and all notices with respect to such Certificates shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC: Section 3.11: Successor Securities. Depository; Transfer Outside Book -Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Certificates that they be able to obtain certificated Certificates, the City or the Paying Agent/Registrar shall (a) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor securities depository or (b) notify DTC of the availability through DTC of Certificates and transfer one or more separate Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being. registered in the Register in the name of Cede & Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Certificateholders transferring or exchanging Certificates shall designate, in accordance with the provisions of this Ordinance. Section 3.12: Replacement Certificates. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate, of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Registered Owner of such Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in 8 HOU:2570159.2 connection therewith and any other expenses connected therewith, including the fees and expenses of the Paying Agent/Registrar and the City. If any Certificate is lost, apparently destroyed or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice or knowledge that such Certificate has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Certificate of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding, provided that the Registered Owner thereof shall have: (a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Certificate; (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save and hold them harmless; (c) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (d) met any other reasonable requirements of the City and the Paying Agent/Registrar. If, after the delivery of such replacement Certificate, a bona fide purchaser of the original Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Certificate, authorize the Paying Agent/Registrar to pay such Certificate. Each replacement Certificate delivered in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. Section 3.13: Cancellation. All Certificates paid or redeemed in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Certificates. 9 HOU:2570159.2 ARTICLE IV FORM OF CERTIFICATES The Certificates, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate, Statement of Insurance and Form of Assignment, shall be in substantially the following forms, with such omissions, insertions and variations as may be necessary or desirable, and not prohibited by this Ordinance: 10 HOU:2570159.2 NUMBER R- REGISTERED UNITED STATES OF AMERICA STATE OF TEXAS CITY OF PEARLAND, TEXAS DENOMINATION CERTIFICATE OF OBLIGATION REGISTERED SERIES 2006 INTEREST RATE: DATED DATE: MATURITY DATE: CUSIP: July 1, 2006 March 1, REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS THE CITY OF PEARLAND, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of Wells Fargo Bank, N.A., Houston, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Certificate is payable on March 1, 2007, and each March 1 and September 1 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class, postage prepaid, by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $9,700,000 issued pursuant to an ordinance adopted by the City Council of the City on June 12, 2006 (the "Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights -of -way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 11 HOU:2570159.2 288, including the construction of an approximately 200-acre foot storm water detention storage facility, the construction of storm sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, :including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv) professional services rendered in connection with the above listed projects. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after March 1, 2017, in whole or in part, on March 1, 2016, or any date thereafter, at par plus accrued interest to the date fixed for redemption. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of. any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. 12 HOU:2570159.2 THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance .and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City. and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. 13 HOU:2570159.2 IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City Secretary by their manual, lithographed or printed facsimile signatures. (SEAL) * CITY OF PEARLAND, TEXAS Mayor COUNTERSIGNED: City Secretary HOU:2570159.2 14 FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Certificates initially delivered: THE STATE OF TEXAS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS I hereby certify that this certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been registered by the Comptroller of Public Accounts of the State of Texas. REGISTER NO. WITNESS MY SIGNATURE AND SEAL OF OFFICE this [SEAL] Comptroller of Public Accounts of the State of Texas * * * FORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Certificates other than those initially delivered: AUTHENTICATION CERTIFICATE WELLS FARGO BANK, N.A. By: Authorized Signature Date of Authentication: * * * 15 HOU:2570159.2 STATEMENT OF INSURANCE CIFG Assurance North America, Inc. ("CIFG NA"), New York, New York, has delivered its financial guaranty insurance policy (the "Policy"( with respect to the scheduled payments of principal and interest on this Bond as described herein below to Wells Fargo Bank, N.A., Houston, Texas or its successor, as paying agent/registrar (the "Paying Agent/Registrar") for the $9,700,000 City of Pearland, Texas Certificates of Obligation, Series 2006. Said Policy is on file and available for inspection at the principal office of the Paying Agent/Registrar and a copy may be obtained from CIFG NA or the Paying Agent/Registrar. FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Certificates: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in every particular, without any alteration, enlargement or change whatsoever. ARTICLE V SECURITY FOR THE CERTIFICATES Section 5.1: Pledge and Levy of Taxes and Revenues. (a) To provide for the payment of principal of and interest on the Certificates, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Certificates or any part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad valorem tax upon all taxable property within the City sufficient to pay the interest on the 16 HOU:2570159.2 Certificates and to create and provide a sinking fund of not less than 2% of the principal amount of the Certificates or not less than the principal payable out of such tax, whichever is greater, with full allowance being made for tax delinquencies and the costs of tax collection, and such taxes, when collected, shall be applied to the payment of principal of and interest on the Certificates by deposit to the Certificates of Obligation, Series 2006 Debt Service Fund and to no other purpose. (b) The City hereby declares its purpose and intent to provide and levy a tax legally sufficient to pay the principal of and interest on the Certificates, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax. As long as any Certificates remain outstanding, all moneys on deposit in, or credited to, the Certificates of Obligation, Series 2006 Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. (c) In addition, pursuant to the authority of Chapter 1502, Texas Government Code, as amended, the City also hereby pledges the revenues to be derived from the City'swater and sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues . is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. Section 5.2: Debt Service Fund. The Certificates of Obligation, Series 2006 Debt Service Fund is hereby created as a special fund solely for the benefit of the Certificates. The City shall establish and maintain such fund at an official City depository and shall keep such fund separate and apart from all other funds and accounts of the City. Any amount on deposit in the Certificates of Obligation, Series 2006 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Certificates. Such amount, plus any other amounts deposited by -the City into such fund and any and all investment earnings on amounts on deposit in such fund, shall be used only to pay the principal of, premium, if any, and interest on the Certificates. Section 5.3: Further Proceedings. After the Certificates to be initially issued have been executed, it shall be the duty of the Mayor to deliver the Certificates to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Certificates to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 17 HOU:2570159.2 ARTICLE VI CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1: Acceptance. Wells Fargo Bank, N.A., Houston, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Certificates pursuant to the terms and provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract between the Paying Agent/Registrar and the City and/or the deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 6.2: Trust Funds. All money transferred to the Paying Agent/Registrar in its capacity as Paying Agent/Registrar for the Certificates under this Ordinance (except any sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall be the property of the City and shall be disbursed in accordance with this Ordinance. Section 6.3: Certificates Presented. Subject to the provisions of Section 6.4, all matured Certificates presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Certificates shall be canceled as provided herein. Section 6.4: Unclaimed Funds Held by the Paying Agent/Registrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Certificates remaining unclaimed by the Registered Owner thereof after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposedof by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the. Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. The Paying Agent/Registrar shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with this Section. Section 6.5: Paying Agent/Registrar May Own Certificates. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6: Successor Paying Agents/Registrars. The City covenants that at all times while any Certificates are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Certificates. The City reserves the right to change the Paying Agent/Registrar for the Certificates on not less than 18 HOU:2570159.2 sixty (60) days' written notice to the Paying Agent/Registrar, as long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Certificates. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying Agent/Registrar, and the new Paying Agent/Registrar shall notify each Registered Owner, by United States mail, first class, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. ARTICLE VII PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF CERTIFICATES Section 7.1: Sale of Certificates; Insurance. The sale of the Certificates to A.G. Edwards & Sons, Inc. (the "Purchaser") at a price of the par value thereof plus a cash premium of $970.00, plus accrued interest on the Certificates, is hereby approved, and delivery of the Certificates to the Purchaser shall be made upon payment therefor in accordance with the terms of sale and the terms and conditions of the Purchaser's bid. It is hereby officially found, determined and declared that the Purchaser is the highest bidder for the Certificates as a result of invitations for competitive bids. It is further officially found, determined and declared that the Certificates have been sold at public sale to the bidder offering the lowest interest cost, which is hereby determined to be a net effective interest rate of 4.570046%, after receiving sealed bids pursuant to an Official Notice of Sale and Preliminary Official Statement prepared and distributed in connection with the sale of the Certificates. The City hereby acknowledges that the Purchaser's bid is contingent upon the issuance of a policy of the Bond Insurance Policy from the Bond Insurer insuring the timely payment of principal of and interest on the Certificates. The terms and conditions of the Bond Insurance Policy, as set out in Exhibit E hereto, are incorporated herein for all purposes for so long as such policy remains in effect. Such Bond Insurance Policy is to be obtained at the Purchaser's expense. The appropriate officials and representatives of the City are hereby authorized and directed to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Certificates of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 7.2: Approval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Certificates and all necessary records and proceedings pertaining thereto pending their delivery, and the Mayor and other officers and employees of the City are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Certificates and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Certificates by the Comptroller. Upon registration of the Certificates, the Comptroller (or the Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificates prescribed herein to be attached or affixed to each Certificates initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. 19 HOU:2570159.2 Section 7.3: Offering Documents; Ratings. The City hereby approves the form and contents of the Official Notice of Sale, Preliminary Official Statement and the final Official Statement, dated as of the date hereof, relating to the Certificates, and any addenda, supplement or amendment thereto, and ratifies and approves the distribution of such Preliminary Official Statement and Official Statement in the offer and sale of the Certificates and in the reoffering of the Certificates by the Purchaser, with such changes therein or additions thereto as the officials executing same may deem advisable, such determination to be conclusively evidenced by their execution thereof. The Mayor is hereby authorized and directed to execute, and the City Secretary is hereby authorized and directed to attest, the final Official Statement. It is further hereby officially found, determined and declared that the statements and representations contained in the Official Notice of Sale, Preliminary Official Statement and final Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council, and that, as of the date thereof, the Preliminary Official Statement was an official statement of the City with respect to the Certificates that was deemed "final" by an authorized official of the City except for the omission of no more than the information permitted by subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. Copies of the Official Notice of Sale, the Preliminary Official Statement and the Official Statement are attached hereto as Exhibits B, C and D, respectively. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking a rating on the Certificates from Moody's Investors Service, Inc. and Standard & Poor's Ratings Services and such actions are hereby ratified and confirmed. Section 7.4: Application of Proceeds of Certificates. Proceeds from the sale of the Certificates shall, promptly upon receipt by the City, be applied as follows: (1) Accrued interest shall be deposited into the Certificates of Obligation, Series 2006 Debt Service Fund created in Section 5.2 of this Ordinance; (2) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Certificates; (3) The remaining proceeds shall be applied, together with other funds of the City, to provide funds to pay contractual obligations to be incurred for the purposes set forth in Section 3.1 of this Ordinance. Section 7.5: Tax Exemption. Tax Exemption. The City intends that the interest on the Certificates shall be excludable from gross income of the owners thereof for federal income tax purposes pursuant to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and all applicable temporary, proposed and final regulations (the "Regulations") and procedures promulgated thereunder and applicable to the Certificates. For this purpose, the City covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Certificates (including all property the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Certificates) and take or omit to take such other and further actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause interest 20 HOU:2570159.2 on the Certificates to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Certificates for federal income tax purposes. Without limiting the generality of the foregoing, the City shall comply with each of the following covenants: (a) The City will use all of the proceeds of the Certificates to (i) provide funds to pay contractual obligations to be incurred for the purposes set forth in Section 3.1 hereof, which will be owned and operated by the City and (ii) to pay the costs of issuing the Certificates. The City will not use any portion of the proceeds of the Certificates to pay the principal of or interest or redemption premium on, any other obligation of the City or a related person. (b) The City will not directly or indirectly take any action, or omit to take any action, which action or omission would cause the Certificates to constitute "private activity bonds" within the meaning of Section 141(a) of the Code. (c) Principal of and interest on the Certificates will be paid solely from both ad valorem taxes and pledged revenues collected by the City, investment earnings on such collections, and as available, proceeds of the Certificates. (d) Based upon all facts and estimates now known or reasonably expected to be in existence on the date the Certificates are delivered, the City reasonably expects that the proceeds of the Certificates will not be used in a manner that would cause the Certificates or any portion thereof to be an "arbitrage bond" within the meaning of Section 148 of the Code. (e) At all times while the Certificates are outstanding, the City will identify and properly account for all amounts constituting gross proceeds of the Certificates in accordance with the Regulations. The City will monitor the yield on the investments of the proceeds of the Certificates and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to a yield which is not materially higher than the yield on the Certificates.. To the extent necessary to prevent the Certificates from constituting "arbitrage bonds," the City will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Certificates to be less than the yield that is materially higher than the yield on the Certificates. (f) The City will not take any action or knowingly omit to take any action that, if taken or omitted, would cause the Certificates to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code. (g) The City represents that not more than fifty percent (50%) of the proceeds of the Certificates will be invested in nonpurpose investments (as defined in Section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expects that at least eighty-five percent (85%) of the spendable proceeds of the Certificates will be used to carry out the governmental purpose of the Certificates within the three-year period beginning on the date of issue of the Certificates. (h) The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the gross proceeds of the Certificates, if any, be rebated to the federal government. Specifically, the City will (i) maintain records regarding the 21 HOU:2570159.2 receipt, investment, and expenditure of the gross proceeds of the Certificates as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City and retain such records for at least six years after the day on which the last outstanding Certificate is. discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid in whole or in part, the requirements of Section 148 of the Code, including any specified method of accounting required by applicable Regulations to be used for all or a portion of any gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the gross proceeds of the Certificates and (iv) timely pay, as required by applicable Regulations, all amounts required to be rebated to the federal government. In addition, the City will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, interest thereon and any penalty. (i) The City will not directly or indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Certificates that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if such arrangement had been at arm's length and had the yield on the Certificates not been relevant to either party. (j) The City will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Certificates on such form and in such place as the Secretary may prescribe. (k) The City will not issue or use the Certificates as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax-exempt obligations. (1) Proper officers of the City charged with the responsibility for issuing the Certificates are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Certificates and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the date of issuance of the Certificates, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. 22 HOU:2570159.2 (m) The covenants and representations made or required by this Section are for the benefit of the Certificate holders and any subsequent Certificate holder, and may be relied upon by the Certificate holders and any subsequent Certificate holder and bond counsel to the City. . In complying with the foregoing covenants, the City may rely upon an unqualified opinion issued to the City by nationally recognized bond counsel that any action by the City or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Certificates to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Ordinance, the City's representations and obligations under the covenants and provisions of this Section 7.5 all survive the defeasance and discharge of the Certificates for as long as such matters are relevant to the exclusion of interest on the Certificates from the gross income of the owners for federal income tax purposes. Section 7.6: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, the Mayor, the Mayor, City Secretary and all other appropriate officers, agents, representatives and employees of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance and delivery of the Certificates, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, notices, and other documents as may be reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of this Ordinance. ARTICLE VIII CONTINUING DISCLOSURE UNDERTAKING Section 8.1: Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 2006, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 7.3 of this Ordinance, being the financial information and operating data described in the Official Statement under the captions "INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE DISTRICT — Current Investments," "CITY TAX DEBT," "TAX DATA (except under the subheading "Estimated Overlapping Taxes")," "SELECTED FINANCIAL DATA" and in Appendix B to the Official Statement. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Appendix B to the Official Statement and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. 23 HOU:2570159.2 The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. Section 8.2: Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Certificates, if such event is material within the meaning of the federal securities laws: (a) Principal and interest payment delinquencies; (b) Non-payment related defaults; (c) Unscheduled draws on debt service reserves reflecting financial difficulties; (d) Unscheduled draws on credit enhancements reflecting financial difficulties; (e) Substitution of credit or liquidity providers, or their failure to perform; (f) Adverse tax opinions or events affecting the tax-exempt status of the Certificates; (g) Modifications to rights of holders of the Certificates; (h) Certificate calls; (i) Defeasances; (j) Release, substitution, or sale of property securing repayment of the Certificates; and (k) Rating changes. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 8.1 of this Ordinance by the time required by such Section. Section 8.3: Limitations, Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give the notice required by Section 8.2 of any Certificate calls and defeasance that cause the City to be no longer such an "obligated person." The provisions of this Article are for the sole benefit of the holders and beneficial owners of the Certificates, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided 24 HOU:2570159.2 in accordance with this Article or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Article may be amended by the City from time to time to adapt the changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell the Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the holder and beneficial owners of the Certificates. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 8.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Article if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Article in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates, giving effect to '(a) such provisions as so amended and (b) any amendments or interpretations of the Rule. Section 8.4: Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: 25 HOU:2570159.2 "MSRB" means the Municipal Securities Rulemaking Board. "NRIVISIR" 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 designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. ARTICLE IX MISCELLANEOUS Section 9.1: Defeasance. Subject to Section 10.8 hereof, the City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Certificates to pay the principal of and interest thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar or with the Comptroller of Public Accounts of the State of Texas either: (a) cash in an amount equal to the principal amount of such Certificates plus interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or. its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, which, in the case of (i), (ii) or (iii), may be in book -entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in 26 HOU:2570159.2 this Ordinance. Upon such deposit, such Certificates shall no longer be regarded to be Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall be returned to the City. Section 9.2: Ordinance a Contract - Amendments. This Ordinance shall constitute a contract with the Registered Owners from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Certificate remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Registered Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Registered Owners who own in the aggregate 51 % of the principal amount of the Certificates then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Registered Owners of Outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Registered Owners for consent to any such amendment, addition, or rescission. Section 9.3: Legal Holidays. In any case where the date interest accrues and becomes payable on the Certificates or principal of the Certificates matures or the date fixed for redemption of any Certificates or a Record Date shall be in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close, then payment of interest or principal need not be made on such date, or the Record Date shall not occur on such date, but payment may be made or the Record Date shall occur on the next succeeding day which is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close with the same force and effect as if (i) made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment or (ii) the Record Date had occurred on the fifteenth day of that calendar month. Section 9.4: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Certificates or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Certificates. Section 9.5: Further Proceedings. The Mayor, Mayor Pro-Tem, City Secretary and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 9.6: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions ofthis Ordinance. 27 HOU:2570159.2 Section 9.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at which this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at City Hall for the time required by law preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this meeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 9.8: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.9: Emergency. It is hereby officially found and determined that this Ordinance relates to an immediate public emergency affecting life, health, property and the public peace, and that such emergency exists, the specific emergency being that the proceeds from the sale of the Certificates are required as soon as possible for necessary and urgently needed improvements, and that this Ordinance be passed and approved on the date of its introduction. Section 9.10: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. 28 HOU:2570159.2 PASSED AND APPROVED on first reading pursuant to Section 3.10 of the City Charter this June /V, 2006. CITY OF PEARLAND, TEXAS Mayor ATTEST Q a4. ml s �f l °°`� , - ,,-,4),---. I :I 1 0 1 ib iori. S. lQo xhitht..1, , , gent/Registrar Agreement E°bit B - Offa* Notice of Sale ExhigfflOgn!°itriniinary Official Statement Exhibit D - Official Statement Exhibit E - Insurance Provisions 2,„ S-1 HOU:2570159.1 r r CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION SERIES 2006 r r TRANSCRIPT OF PROCEEDINGS r r r r r Andrews Kurth LLP 600 Travis, Suite 4200 Houston,Texas 77002 (713) 220-4200 r rHOU:648931.1 r CITY OF PEARLAND, TEXAS (Brazoria and Harris Counties,Texas) CERTIFICATES OF OBLIGATION SERIES 2006 INDEX OF CONTENTS CERTIFICATE PROCEEDINGS AND DOCUMENTS rClosing Memorandum 1 Resolution Authorizing Publication of Notice 2 of Intention to Issue Certificates Affidavits of Publication of Notice of Intent 3 Ordinance Authorizing Issuance of the Certificates 4 Preliminary Official Statement and Official Notice of Sale 5 Official Statement 6 Paying Agent/Registrar Agreement 7 CERTIFICATES General Certificate 8 Signature Identification and No-Litigation Certificate 9 Federal Tax Certificate and Form 8038G 10 Official Statement Certificate 11 Official Statement Certificate of the Bond Insurer 12 OPINIONS rApproving Opinion of Bond Counsel 13 Opinion of Attorney General of Texas with Certificate of Comptroller of Public Accounts 14 Opinion of Counsel to the Bond Insurer 15 HOU:2585252.1 I I MISCELLANEOUS Receipt and Cross Receipt 16 Registrar's Receipt 17 Insurance Policy 18 fRating Agency Letters 19 Specimen Certificate 20 Winning Bid 21 Bond Review Board Questionnaire 22 Reliance Letter to Bond Insurer 23 F 1 i HOU:2585252.1 R B C John H.Robuck Associate Public Capital Finance RBC Markets Phone(713)651-3340 Fax(713)651-3347 July 10,2006 Ms.Deri Ward Wells Fargo Bank,N.A. Corporate Trust Services 1000 Louisiana Street,Suite 640 Houston,Texas 77002 Re: $9,700,000 City of Pearland,Texas Certificates of Obligation,Series 2006 Dear Deri: The delivery of the above captioned certificates(the"Certificates")is scheduled for Thursday,July 13,2006,at 10:00 A.M.at your bank. Mr.Marcus Deitz of Andrews Kurth LLP,Houston,Texas,Bond Counsel,will handle all legal matters relating to the closing. Andrews Kurth will provide the Good Faith Check at closing. The Good Faith Check is to be endorsed by the City and returned to A.G.Edwards&Sons Inc.via overnight courier. Prior to closing, A.G. Edwards& Sons Inc. ("AG Edwards")will make arrangements to pay the insurance premium of$19,800.00 to CIFG Assurance North America,Inc.("CIFG")as follows: rJPMorgan Chase Bank ABA Routing Number: 0210-0002-1 For the Account of Brown Brothers Harriman&Co. Account Number: 920-1-033231 For Credit to: 2311694 CIFG Assurance North America,Inc.(Premium Account) Policy Number: CIFG NA-1017 Attn.: Yahayra Reyes(212)909-0436 ***Include Policy Number on Wire*** At or prior to closing,AG Edwards will wire$9,716,237.42 in immediately available funds calculated as follows: Principal Amount of the Certificates $9,700,000.00 Plus: Premium 970.00 Plus: Accrued Interest 15,267.42 Total Amount to be Wired $9,716,237.42 r 1 r r Ms.Deri Ward July 10,2006 Page 2 AG Edwards will wire the aforementioned sum of$9,716,237.42 to Wells Fargo Bank("WFB")as follows: Wells Fargo Bank ABA Routing Number: 121000248 Account Number: 0001038377 For further credit to 99990909 Re: The City of Pearland Attn: Deri Ward(713)319-1658 WFB will disburse the total amount of$9,716,237.42 as follows: 1. $9,700,470.00(representing$9,600,000.00 in project fund proceeds and$100,470.00 in issuance costs on the Certificates)shall be wired to the City's depository account as follows: Wells Fargo Bank,N.A. ABA Routing Number: 121000248 Account Number: 2010419505 For further credit: City of Pearland Attn: Tim Kreitzer 2. $15,267.42 representing accrued interest shall be wired to the City's Debt Service Fund,as follows: Wells Fargo Bank,N.A. ABA Routing Number: 121000248 Account Number: 2010419505 ' For further credit: City of Pearland Attn: Tim Kreitzer 3. $500 shall be withdrawn by WFB from the proceeds of the Certificates and credit such sum to its account as the Paying Agent Annual Administration Fee for the Series 2006 Certificates. If I may be of further assistance,please do not hesitate to contact me at 713-651-3340. Sincerely, John H.Robuck Associate cc: Rick Witte,Andrews Kurth LLP Marcus Deitz,Andrews Kurth LLP Bill Eisen,City of Pearland Claire Manthei,City of Pearland r Pam Larson,A.G.Edwards&Sons,Inc. Yahayra Reyes,CIFG Assurance North America,Inc. Frank Ildebrando,RBC Capital Markets Ryan O'Hara,RBC Capital Markets Karen Blogg,RBC Capital Markets r CERTIFICATE FOR RESOLUTION THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the"City"),hereby certify as follows: 1. The City Council of the City convened in a special meeting on May 15, 2006, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Tom Reid Mayor Kevin Cole Mayor Pro Tern Richard F. Tetens Council Member Woodrow"Woody"Owens Council Member Larry R. Marcott Council Member Steve Saboe Council Member Young Lorfing City Secretary and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $10,000,000 FOR THE ACQUISITION, CONSTRUCTION AND IMPROVEMENT OF CERTAIN PUBLIC WORKS, AUTHORIZING DISTRIBUTION OF A PRELIMINARY OFFICIAL STATEMENT RELATING TO SUCH CERTIFICATES AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO (the "Resolution") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that such Resolution be adopted; and, after due discussion, the motion, carrying with it the adoption of the Resolution, prevailed and carried by the following vote: AYES: 5 NAYS: 0 ABSTENTIONS: 0 2. That a true, full and correct copy of the Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of such meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Resolution; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and 1 HOU:2567722.2 subject of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this May 15, 2006. . --�� cj SealMayor Y O' 'EARL ND, TEXAS CITY OF PEARLAND, TEXAS `I�III11111////� 4k''' ' • .•S i •k 1 • ',' /il/tf 11/tt1.10%,� F I r" 2 HOU:2567722.2 RESOLUTION NO. 2006-36 RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $10,000,000 FOR THE ACQUISITION, CONSTRUCTION AND IMPROVEMENT OF CERTAIN PUBLIC WORKS, AUTHORIZING DISTRIBUTION OF A PRELIMINARY OFFICIAL STATEMENT RELATING TO SUCH CERTIFICATES AND AUTHORIZING CERTAIN OTHER MATTERS RELATING THERETO STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § WHEREAS, the City Council (the "City Council") of the City of Pearland, Texas (the "City"), is authorized to issue certificates of obligation to pay contractual obligations to be incurred for the construction of public works, for the purchase of materials, supplies, equipment, machinery, buildings, land and rights-of-way for authorized needs and purposes, and for the payment of contractual obligations for professional services pursuant to Subchapter C of Chapter 271, Texas Local Government Code, as amended; WHEREAS, the City Council has determined that it is in the best interests of the City and otherwise desirable to issue certificates of obligation in a principal amount not to exceed $10,000,000 styled "City of Pearland, Texas Certificates of Obligation, Series 2006" (the "Certificates") for the design, engineering, acquisition and construction of certain public works and the purchase of certain equipment for authorized needs and purposes; WHEREAS, in connection with the Certificates, the City Council intends to publish notice of intent to issue the Certificates (the "Notice") in a newspaper of general circulation in the City; i WHEREAS, for purposes of providing for the sale of the Certificates, the City Council intends to authorize the preparation of a Preliminary Official Statement (the "Preliminary Official Statement") to be used in the public offering of the Certificates; and WHEREAS, the City Council has been presented with and has examined the proposed form of Notice and finds that the form and substance thereof are satisfactory, and that the recitals and findings contained therein are true, correct and complete. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. Preamble. The facts and recitations contained in the preamble of this Resolution are hereby found and declared to be true and correct. HOU:2575744.2 J Section 2. Authorization of Notice. The City Secretary is hereby authorized and directed to execute and deliver the Notice set forth in Exhibit A hereto and to publish such Notice on behalf of the City once a week for two (2) consecutive weeks in a newspaper which is of general circulation in the City, the date of the first publication to be at least fifteen (15) days before the date tentatively set in the Notice for the passage of the ordinance authorizing the issuance of the Certificates. Section 3. Engagement of Professionals. This City Council hereby approves the engagement of Andrews Kurth LLP, as bond counsel ("Bond Counsel") in connection with the issuance of the Certificates. Section 4. Authorization of a Preliminary Official Statement. This City Council hereby approves the preparation and distribution by the City's financial advisor to prospective purchasers of the Certificates of the Preliminary Official Statement, as the same may be completed, modified, or supplemented with the approval of the Mayor or other authorized officers and agents of the City. Section 5. Authorization of Other Matters Relating Thereto. The Mayor, City Secretary and other officers and agents of the City are hereby authorized and directed to do any and all things necessary or desirable to carry out the provisions of this Resolution. Section 6. Effective Date. This Resolution shall take effect immediately upon passage. Section 7. Public Meeting. It is officially found, determined and declared that the meeting at which this Resolution is adopted was open to the public and public notice of the time, place and subject matter of the public business to be considered at such meeting, including this Resolution, was given all as required by the Texas Government Code, Chapter 551, as amended. [Remainder of Page Intentionally Left Blank] 2 1401125757442 PASSED AND APPROVED this 15`h day of May, 2006. Td1-0 Mayor City of Pearland, Texas ATTEST: Secr ty of Pearland, Texas /0 • s I p p 3 HOU:2575744.2 3 EXHIBIT A NOTICE OF INTENTION TO ISSUE CERTIFICATES NOTICE IS HEREBY GIVEN that the City Council of the City of Pearland, Texas (the "City") will meet at its regular meeting place at City Hall, Pearland, Texas at 7:30 p.m. on the 12th day of June, 2006, which is the time and place tentatively set for the passage of an ordinance and such other action as may be deemed necessary to authorize the issuance of the City's certificates of obligation, payable from ad valorem taxation and a limited (in an amount not to exceed $10,000) subordinate pledge of certain revenues of the water and sewer system of the City, in the maximum aggregate principal amount of$10,000,000, bearing interest at any rate or — rates, not to exceed the maximum interest rate now or hereafter authorized by law, as shall be determined within the discretion of the City Council at the time of issuance and maturing over a period of years not to exceed forty (40) years from the date thereof, for the purpose of evidencing — the indebtedness of the City to pay all or any part of the contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights-of-way for authorized needs and purposes and for the payment of — contractual obligations for professional services, to wit (i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 288, including the construction of an approximately 200-acre foot storm water detention storage facility, the construction of storm sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv) professional services rendered in connection with the above listed projects. WITNESS MY HAND AND THE OFFICIAL SEAL OF THE CITY, this day of May, 2006. a City Secretary City of Pearland, Texas — - - a — AFFIDAVIT OF NEWSPAPER PUBLISHER THE STATE OF TEXAS § § COUNTIES OF BRAZORIA AND HARRIS § Before me,the undersigned authority,on this day personal pear Ar, eizz' o , bei g by y sw rn deposes and says that he/she is the of the en d that said newspaper(i)devotes n t 1 s han 2 %o its total column lineage to general interest ite s,(ii)is published at least once each week,(iii)is entered as a second-class postal matter in the county in which it is published and is generally circulated within the territory of the City of Pearland,Texas(the "City"), and(iv)was published regularly and continuously for at least 12 months before May 17, 2006,the first "` date on which the City published the attached notice in said newspaper. 7 4 Publisher SUBSCRIBED AND SWORN TO before me this the day of 2006. N ary Pub c, tate o exas • `*�� LAURA ANN EMMONS : G� ' " Notary Public, State of Texas • My commission expires: ! L "Q : Commission Expires 09-09-2006 • i•s • . 2 f/& i o o cO o ZpW ZW Q WJ ql m . . . oc = ny = te," oU 2 Z. m o=a v ai m ' > a a orr _ > `lNcmUJ XUEa),cM vp,T Q o = 0.c rn a"! Z Z ,oV O -E U V .h- gm c _pcgv L 1-_- m1°—oQ z a Z o c o m ec Le, cc O. Ii x zCO y0 ONy V - OQ . 1 c ofit) N1H— % oUa ° Lo.� ai m oa a UnLs a cZ o.a. co F- n C.) � a E N = o o o w Q a, '�m h '�N__ AFFIDAVIT OF NEWSPAPER PUBLISHER ma THE STATE OF TEXAS § § COUNTIES OF BRAZORIA AND HARRIS § !. Before me,the undersigned authority,on this day personally ap ear 4rth-,Lx., � 2IJ2 , w1being b my sworn,deposes and says that he/she is the/ of the 6101/%/ `61,-er and that said newspaper(i)devotes not 1 s than 25p/o of its total column lineage to general interest itims,(ii)is published at least once each week,(iii)is entered as a second-class postal matter in the county in which it is published and is generally circulated within the territory of the City of Pearland,Texas(the 11„ "City"),and(iv)was published regularly and continuously for at least 12 months before May 24, 2006,the first date on which the City published the attached notice in said newspaper. u sii,... - ç:;;I(lisheri SUBSCRIBED AND SWORN TO before me this the 'ay o 't , 2006. • `• ''"Pt* LAURA ANN EMMON' •t. Public,tate o exas • • .� • Notary Public,State of Texas • • • • "',40.0. Commission Expires 09-09-2006 : /�� • — ..•♦ commission expires: c m W W O W O v co U) - — c a) • t c CD 5 c <o a) 0 N co 02Sz = C1 co ch c c o H c -C_ o`o i� t u CD o ; in a 1- --— z t. i0 co 'c m Cl.) o �= m ,i.�n) c 0 Z - A -8 a y e c z o Z H LL a) c. c) N, U m J m U >_.a x U o y.a, i g- ccoo v c T O —i O Q <o O L O U D Q) 1- L 1? co O in — L -� a7 U' J W W T O U Nil _V -- N ao`i c O O O m _ p co E '- CO LL z Q O - CO W N N 27 c° c m a) O 0,O C.) CO O O 0,y C 72 0 (n q O_ CD ` a) mN OQ _�_ z2 LcnU o co m m y co cN co w o c CO c O- w a W W 2 0 0 Q o) m L co N .- 3 a) a) v a J c 0 `� a o o N L CD a) co acne c- .� _ N U = 2 � COQQ H ? y � '" c E co L.L. co, E d y m @ o 0 o - m • a '- m 12 a n m O V 1- J O — Li.) ce o- c E m o m Cc axi a -c 0 a) a) a) "2 m� a) d y m N a t as '- c a z -J c) a 0 c.) 1- O O z o d a 0 a co 1- -au 0 0 a E O` .c <n -c in O -c CC ..... o L fo ci 7,365 r CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § rWe, the undersigned officers of the City of Pearland, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on June 12, 2006, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Tom Reid Mayor Richard Tetens Mayor Pro-Tern Helen Beckman Councilmember Steve Saboe Councilmember Felicia Kyle Councilmember Kevin Cole Councilmember and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written rAN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN EMERGENCY (the "Ordinance") was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that the Ordinance be adopted on first reading; and, after r due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: AYES: 5 NAYS: 0 ABSTENTIONS: 0 2. That a true, full and correct copy of the Ordinance adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Ordinance has been duly recorded in the City Council's minutes of such meeting; that the above r HOU:2570159.2 r and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of such meeting pertaining to the adoption of the Ordinance; that the persons named in the above and foregoing paragraph are the duly chosen, qualified and acting officers and members of the City Council as indicated therein; that each of the officers and members of the City Council was duly and sufficiently notified officially and personally, in advance, of the date, hour, place and rsubject of the aforesaid meeting, and that the Ordinance would be introduced and considered for adoption at such meeting, and each of such officers and members consented, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required rby law; and that public notice of the date, hour, place and subject of such meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code. SIGNED AND SEALED this June_, 2006. r � Ci Secret Mayor C OF ARLAN , T S CITY OF PEARLAND, TEXAS A lie •32,'14. i r r r r r r_ r rSAHOU:2570159.1 r rORDINANCE NO. 1273 r AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006; PRESCRIBING THE TERMS AND FORM THEREOF; PROVIDING FOR THE PAYMENT OF THE PRINCIPAL r THEREOF AND INTEREST THEREON; AWARDING THE SALE THEREOF; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE CERTIFICATES; r AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH CERTIFICATES, INCLUDING USE OF THE PROCEEDS THEREOF, AND MATTERS INCIDENT THERETO; AND DECLARING AN rEMERGENCY BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND: rARTICLE I IFINDINGS AND DETERMINATIONS Section 1.1: Findings and Determinations. The City Council hereby officially finds rand determines that: (a) The City of Pearland, Texas (the "City"), acting through its City Council, is r authorized pursuant to and in accordance with the provisions of Texas Local Government Code, Chapter 271, Subchapter C, as amended (the "Act"), to issue certificates of obligation to provide all or part of the funds to pay contractual obligations to be incurred for the construction of public r works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights- of-way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (i) the purchase of approximately 40 acres of land to be used for a r regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 288 and the construction of an approximately 200-acre foot regional storm water detention facility on such land, the construction of storm I sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning r Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv)professional services rendered in connection with the above listed projects. r (b) The City Council authorized the publication of a notice of intention to issue Certificates of Obligation, Series 2006 (the"Certificates") to the effect that the City Council was r tentatively scheduled to meet at 7:30 p.m. on June 12, 2006 at its regular meeting place to adopt an ordinance authorizing the issuance of the Certificates to be payable from (i) an ad valorem tax levied, within the limits prescribed by law, on the taxable property located within the City, and r (ii) the revenues to be derived from the City's water and sewer system (the "System") after the payment of all operation and maintenance expenses thereof(the "Net Revenues") in an amount not to exceed $10,000, to the extent that ad valorem taxes are ever insufficient or unavailable for r rHOU:2570159.2 r such purposes,provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. (c) Such notice was published at the times and in the manner required by the Act. (d) No petition signed by at least five percent (5%) of the qualified voters of the City has been filed with or presented to any official of the City protesting the issuance of such Certificates on or before June 12, 2006, or the date of passage of this Ordinance. (e) The City has determined that it is in the best interests of the City and that it is otherwise desirable to issue the Certificates to provide all or part of the funds to pay contractual obligations to be incurred for the purposes authorized by the Act. rARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1: Definitions. As used herein, the following terms shall have the meanings specified,unless the context clearly indicates otherwise: "Act" shall mean Texas Local Government Code, Chapter 271, Subchapter C, as amended. "Attorney General" shall mean the Attorney General of the State of Texas. ' "Bond Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal and interest on the Certificates as provided therein. "Bond Insurer"shall mean CIFG Assurance North America, Inc. t "Certificate" or "Certificates" shall mean any or all of the City of Pearland, Texas Certificates of Obligation, Series 2006, authorized by this Ordinance. ( "City" shall mean the City of Pearland,Texas and,where appropriate, its City Council. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. "DTC" shall mean The Depository Trust Company, New York, New York, or any successor securities depository. I ' 2 HOU:2570159.2 r "DTC Participant" shall mean brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Fiscal Year" shall mean the City's then designated fiscal year, which currently is the twelve-month period beginning on the first day of October of a calendar year and ending on the last day of September of the next succeeding calendar year and each such period may be designated with the number of the calendar year in which such period ends. "Interest Payment Date," when used in connection with any Certificate, shall mean March 1, 2007, and each March 1 and September 1 thereafter until maturity or earlier redemption of such Certificate. "Issuance Date" shall mean the date on which the Certificates are delivered to and paid for by the Purchaser. "Ordinance" shall mean this Ordinance and all amendments hereof and supplements hereto. I "Outstanding", when used with reference to the Certificates, shall mean, as of a particular ' date, all Certificates theretofore and thereupon delivered pursuant to this Ordinance except: (a) any Certificates canceled by or on behalf of the City at or before such date; (b) any Certificates defeased pursuant to the defeasance provisions of this Ordinance or otherwise defeased as permitted by applicable law; and (c) any Certificates in lieu of or in substitution for which a replacement Certificate shall have been delivered pursuant to this Ordinance. "Paying Agent/Registrar" shall mean Wells Fargo Bank, N.A., Houston, Texas, and its successors in that capacity. "Purchaser"shall mean the entity or entities specified in Section 7.1 hereof. "Record Date" shall mean the close of business on the fifteenth day of the calendar ' month immediately preceding the applicable Interest Payment Date. "Register" shall mean the registration books for the Certificates kept by the Paying Agent/Registrar in which are maintained the names and addresses of, and the principal amounts registered to, each Registered Owner of Certificates. "Registered Owner" shall mean the person or entity in whose name any Certificate is registered in the Register. Section 2.2: Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the J 3 HOU:2570159.2 r validity of the Certificates and the validity of the levy of ad valorem taxes to pay the principal of and interest on the Certificates. rARTICLE III TERMS OF THE CERTIFICATES Section 3.1: Amount, Purpose and Authorization. (a) The Certificates shall be issued r in fully registered form, without coupons, under and pursuant to the authority of the Act in the total authorized aggregate principal amount of NINE MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($9,700,000) for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the purposes described in paragraph 1.1(a)hereof. r Section 3.2: Designation, Date and Interest Payment Dates. The Certificates shall be designated as the "City of Pearland, Texas Certificates of Obligation, Series 2006," and shall be dated July 1, 2006. The Certificates shall bear interest at the rates set forth in Section 3.3 below, from the later of July 1, 2006 or the most recent Interest Payment Date to which interest has been paid or duly provided for, calculated on the basis of a 360-day year of twelve 30-day months, payable on March 1, 2007, and each March 1 and September 1 thereafter until maturity or earlier redemption. If interest on any Certificate is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Registered Owner as of the close of business on the day prior to mailing of such notice. Section 3.3: Numbers, Denomination, Interest Rates and Maturities. The Certificates shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in the following schedule, and may be transferred and exchanged as set out in this r Ordinance. The Certificates shall mature on March 1 in each of the years and in the amounts set out in such schedule. Certificates delivered in transfer of or in exchange for other Certificates shall be numbered in order of their authentication by the Paying Agent/Registrar, shall be in the Cdenomination of$5,000 or integral multiples thereof and shall mature on the same date and bear interest at the same rate as the Certificate or Certificates in lieu of which they are delivered. Certificate Year of Principal Interest Number Maturity Amount Rate R-1 2008 $25,000 6.125% R-2 2009 25,000 6.125 R-3 2010 50,000 6.125 4 HOU:2570159.2 r rR-4 2011 125,000 6.125 R-5 2012 315,000 6.125 r R-6 2013 335,000 6.125 R-7 2014 355,000 6.125 R-8 2015 370,000 6.125 rR-9 2016 395,000 5.250 R-10 2017 405,000 4.125 R-11 2018 405,000 4.200 rR-12 2019 505,000 4.250 R-13 2020 470,000 4.300 r R-14 2021 500,000 4.300 R-15 2022 525,000 4.375 R-16 2023 555,000 4.400 r R-17 2024 585,000 4.450 R-18 2025 605,000 4.500 R-19 2026 730,000 4.500 r R-20 2027 765,000 4.500 R-21 2028 805,000 4.500 R-22 2029 850,000 4.500 rSection 3.4: Redemption Prior to Maturity. (a) Optional Redemption. The Certificates maturing on and after March 1, 2017 are subject to redemption prior to maturity, at the option of r the City, in whole or in part, on March 1, 2016, or any date thereafter, at par plus accrued interest to the date fixed for redemption. r (b) Certificates may be redeemed in part only in integral multiples of $5,000. If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of$5,000. In selecting portions of r Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of$5,000 denomination which is obtained by dividing the principal amount of such Certificate by$5,000. Upon presentation and surrender of any Certificate for redemption in part, r the Paying Agent/Registrar, in accordance with the provisions of this Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate rso surrendered. (c) Notice of any redemption, identifying the Certificates or portions thereof to be r redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the Register, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be r made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby r automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being Outstanding except for the purpose of being paid with the funds so provided for such payment. r r5 HOU:2570159.2 r Section 3.5: Manner of Payment, Characteristics, Execution and Authentication. The Paying Agent/Registrar is hereby appointed the paying agent for the Certificates. The Certificates shall be payable, shall have the characteristics and shall be executed, sealed, registered and authenticated, all as provided and in the manner indicated in the FORM OF CERTIFICATES set forth in Article IV of this Ordinance. If any officer of the City whose rmanual or facsimile signature shall appear on the Certificates shall cease to be such officer before the authentication of the Certificates or before the delivery of the Certificates, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. The approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, may be printed on the back of the Certificates over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Certificates,but errors or omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Certificates. Section 3.6: Authentication. Except for the Certificates to be initially issued, which rneed not be authenticated by the Registrar, only such Certificates as shall bear thereon a certificate of authentication, substantially in the form provided in Article IV of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Certificate so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.7: Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Certificate is registered as the absolute owner of such fCertificate for the purpose of making and receiving payment of the principal thereof and interest thereon and for all other purposes, whether or not such Certificate is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Registered Owner of any Certificate in accordance with this Section shall be valid and effective and shall discharge the liability of the City and the Paying Agent/Registrar upon such Certificate to the extent of the sums paid. Section 3.8: Registration, Transfer and Exchange. The Paying Agent/Registrar is hereby appointed the registrar for the Certificates. So long as any Certificate remains rOutstanding, the Paying Agent/Registrar shall keep the Register at the City Administrator's office in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Certificates in accordance with the terms of this Ordinance. Each Certificate shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Certificate for transfer, the Paying rAgent/Registrar shall authenticate and deliver in exchange therefor, within seventy-two (72) hours after such presentation, a new Certificate or Certificates, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate r6 HOU:2570159.2 r principal amount and bearing interest at the same rate as the Certificate or Certificates so presented and surrendered. rAll Certificates shall be exchangeable upon the presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates, maturity and interest rate and in any authorized denomination, in an aggregate principal amount equal to the unpaid principal amount of the Certificate or Certificates presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Certificates in accordance with the provisions of this Section. Each Certificate delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu rof which such Certificate is delivered. All Certificates issued in transfer or exchange shall be delivered to the Registered r Owners thereof at the principal corporate trust office of the Paying Agent/Registrar or sent by United States mail, first class, postage prepaid. The City or the Paying Agent/Registrar may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Certificate. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. The Paying Agent/Registrar shall not be required to transfer or exchange any Certificate called for redemption in whole or in part during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that this restriction shall not apply to the transfer or exchange by the Registered Owner of the unredeemed portion of a Certificate called rfor redemption in part. Section 3.9: Book-Entry Only System. The definitive Certificates shall be initially issued in the form of a separate single fully registered Certificate for each of the maturities thereof. Upon initial issuance, the ownership of each such Certificate shall be registered in the name of Cede & Co., as nominee of DTC, and except as provided in Section 3.11 hereof, all of the Outstanding Certificates shall be registered in the name of Cede & Co., as nominee of DTC. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede & Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Certificates registered in the name of Cede & Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Certificates. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the rrecords of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Certificates, (b) the delivery to any DTC Participant or any other person, other than a Certificateholder, as shown on the Register, of any notice with respect to the Certificates, r HOU:2570159.2 r including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a Certificateholder as shown in the Register, of any amount with respect to principal of Certificates, premium, if any, or interest on the Certificates. Except as provided in Section 3.10 of this Ordinance, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Certificate is registered in the Register as the absolute owner of such Certificate for the purpose of payment of principal of, premium, if any, and interest on Certificates, for the purpose of giving notices of redemption and other matters with respect to such Certificate, for the purpose of registering transfer with respect to such Certificate, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Certificates, premium, if any, and interest on the Certificates only to or upon the order of the respective owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with ' respect to payment of principal of, premium, if any, and interest on the Certificates to the extent of the sum or sums so paid. No person other than an owner shall receive a Certificate evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Section 3.10: Payments and Notices to Cede & Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Certificates are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on the Certificates, and all notices with respect to such Certificates shall be made and given,respectively,in the manner provided in the representation letter of the City to DTC. Section 3.11: Successor Securities Depository; Transfer Outside Book-Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Certificates that they be able to obtain certificated Certificates, the City or the Paying Agent/Registrar shall (a) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the appointment of such successor securities depository and transfer one or more separate Certificates to such successor rsecurities depository or (b) notify DTC of the availability through DTC of Certificates and transfer one or more separate Certificates to DTC Participants having Certificates credited to their DTC accounts. In such event, the Certificates shall no longer be restricted to being rregistered 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 Certificateholders transferring or exchanging Certificates shall designate, in accordance with the rprovisions of this Ordinance. Section 3.12: Replacement Certificates. Upon the presentation and surrender to the rPaying Agent/Registrar of a damaged or mutilated Certificate, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Certificate, of the same maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The rCity or the Paying Agent/Registrar may require the Registered Owner of such Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in r r 8 HOU:2570159.2 r connection therewith and any other expenses connected therewith, including the fees and r expenses of the Paying Agent/Registrar and the City. I If any Certificate is lost, apparently destroyed or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and ordinances of the City, and in the absence of notice r or knowledge that such Certificate has been acquired by a bona fide purchaser, shall execute, and the Paying Agent/Registrar shall authenticate and deliver, a replacement Certificate of the same maturity, interest rate and principal amount, bearing a number not contemporaneously routstanding,provided that the Registered Owner thereof shall have: (a) furnished to the City and the Paying Agent/Registrar satisfactory evidence of the 1 ownership of and the circumstances of the loss, destruction or theft of such Certificate; (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save and hold them harmless; (c) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and r (d) met any other reasonable requirements of the City and the Paying Agent/Registrar. If, after the delivery of such replacement Certificate, a bona fide purchaser of the original r Certificate in lieu of which such replacement Certificate was issued presents for payment such original Certificate, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Certificate from the person to whom it was delivered or any person taking r therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Paying Agent/Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Certificate has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Certificate, authorize the Paying Agent/Registrar to pay such Certificate. Each replacement Certificate delivered in accordance with this Section shall be entitled to r the benefits and security of this Ordinance to the same extent as the Certificate or Certificates in lieu of which such replacement Certificate is delivered. r Section 3.13: Cancellation. All Certificates paid or redeemed in accordance with this Ordinance, and all Certificates in lieu of which exchange Certificates or replacement Certificates are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Certificates. I I I HOU:2570159.2 9 r ARTICLE IV rFORM OF CERTIFICATES The Certificates, including the Form of Comptroller's Registration Certificate, Form of r Paying Agent/Registrar Authentication Certificate, Statement of Insurance and Form of Assignment, shall be in substantially the following forms, with such omissions, insertions and variations as may be necessary or desirable, and not prohibited by this Ordinance: r r r r r r r r r r r ► 10 HOU:2570159.2 r UNITED STATES OF AMERICA STATE OF TEXAS rCITY OF PEARLAND, TEXAS NUMBER DENOMINATION R- REGISTERED CERTIFICATE OF OBLIGATION REGISTERED SERIES 2006 INTEREST RATE: DATED DATE: MATURITY DATE: CUSIP: July 1, 2006 March 1, rREGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS THE CITY OF PEARLAND, TEXAS, a municipal corporation of the State of Texas (the "City"), for value received, hereby promises to pay to the Registered Owner identified above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided), upon presentation and surrender of this Certificate at the principal corporate trust office of Wells Fargo Bank, N.A., Houston, Texas, or its successor (the "Paying Agent/Registrar"), the principal amount identified above (or so much thereof as shall not have been paid or deemed to have been paid upon prior redemption) payable in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due to the United States of America, and to pay interest thereon at the rate shown above, calculated on a basis of a 360-day year composed of twelve 30-day months, from the later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Certificate is payable on March 1, 2007, and each March 1 and September 1 thereafter until maturity or earlier redemption of this Certificate, by check sent by United States mail, first class,postage prepaid,by the Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar month immediately preceding the applicable interest payment date, as shown on the registration books kept by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Certificate at the principal corporate trust office of the Paying Agent/Registrar. rTHIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of $9,700,000 issued pursuant to an ordinance adopted by the City Council of the City on June 12, 2006 (the "Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights-of-way for authorized needs and purposes and for the payment of contractual obligations for professional services, to wit (i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway r 11 HOU:2570159.2 r 288, including the construction of an approximately 200-acre foot storm water detention storage facility, the construction of storm sewer channel facilities for drainage and detention mitigation r and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary r engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv)professional services rendered in connection with the above listed projects. rTHIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller r of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after March 1, 2017, in whole or in part, on March 1, 2016, or any rdate thereafter, at par plus accrued interest to the date fixed for redemption. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of$5,000. r If a Certificate subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of$5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of$5,000 denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of any Certificate for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and r deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. r NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the r Paying Agent/Registrar, not less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they rshall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar, accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and rconditions of the Ordinance. r r 12 HOU:2570159.2 r THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. ' THE PAYING AGENT/REGISTRAR is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. IT IS FURTHER DECLARED AND REPRESENTED that the revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof(the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, Esecured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered rOwners of the Certificates assent by acceptance of the Certificates. r r 13 HOU:2570159.2 r rIN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the rCity Secretary by their manual, lithographed or printed facsimile signatures. CITY OF PEARLAND, TEXAS r r Mayor (SEAL) rCOUNTERSIGNED: r City Secretary r * * * r r r r r r r r r r r14 HOU:2570159.2 r FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE r The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Certificates initially delivered: r THE STATE OF TEXAS REGISTER NO. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS rI hereby certify that this certificate has been examined, certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been rregistered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OFFICE this r ' Comptroller of Public Accounts of the State of Texas [SEAL] * * * rFORM OF PAYING AGENT/REGISTRAR'S AUTHENTICATION CERTIFICATE The following form of authentication certificate shall be printed on the face of each of the Certificates other than those initially delivered: AUTHENTICATION CERTIFICATE r WELLS FARGO BANK,N.A. r By: Authorized Signature Date of Authentication: ► * * * ► 15 HOU:2570159.2 r STATEMENT OF INSURANCE r CIFG Assurance North America, Inc. ("CIFG NA"), New York, New York, has delivered its financial guaranty insurance policy (the "Policy"( with respect to the scheduled payments of principal and interest on this Bond as described herein below to Wells Fargo Bank, N.A., rHouston, Texas or its successor, as paying agent/registrar (the "Paying Agent/Registrar") for the $9,700,000 City of Pearland, Texas Certificates of Obligation, Series 2006. Said Policy is on file and available for inspection at the principal office of the Paying Agent/Registrar and a copy may rbe obtained from CIFG NA or the Paying Agent/Registrar. * * * * FORM OF ASSIGNMENT The following form of assignment shall be printed on the back of each of the Certificates: ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto r (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer such bond on the books kept for registration thereof, with full power of substitution in the premises. r DATED: Signature Guaranteed: Registered Owner NOTICE: The signature above must correspond to the name of the Registered Owner as shown on the face of this bond in r NOTICE: Signature must be guaranteed by a every particular, without any alteration, member firm of the New York Stock Exchange enlargement or change whatsoever. or a commercial bank or trust company. r * * * * rARTICLE V SECURITY FOR THE CERTIFICATES Section 5.1: Pledge and Levy of Taxes and Revenues. (a) To provide for the payment of principal of and interest on the Certificates, there is hereby levied, within the limits prescribed by law, for the current year and each succeeding year thereafter, while the Certificates or any part of the principal thereof and the interest thereon remain outstanding and unpaid, an ad valorem tax upon all taxable property within the City sufficient to pay the interest on the 16 HOU:2570159.2 r Certificates and to create and provide a sinking fund of not less than 2% of the principal amount of the Certificates or not less than the principal payable out of such tax, whichever is greater, r with full allowance being made for tax delinquencies and the costs of tax collection, and such taxes, when collected, shall be applied to the payment of principal of and interest on the Certificates by deposit to the Certificates of Obligation, Series 2006 Debt Service Fund and to no other purpose. (b) The City hereby declares its purpose and intent to provide and levy a tax legally rsufficient to pay the principal of and interest on the Certificates, it having been determined that the existing and available taxing authority of the City for such purpose is adequate to permit a legally sufficient tax. As long as any Certificates remain outstanding, all moneys on deposit in, or credited to, the Certificates of Obligation, Series 2006 Debt Service Fund shall be secured by a pledge of security, as provided by law for cities in the State of Texas. (c) In addition, pursuant to the authority of Chapter 1502, Texas Government Code, as amended, the City also hereby pledges the revenues to be derived from the City's water and sewer system, after the payment of all operation$10000 andthe maintenance expenses thereof (the "Net rRevenues"), in an amount not to exceed , , topayment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. rSection 5.2: Debt Service Fund. The Certificates of Obligation, Series 2006 Debt Service Fund is hereby created as a special fund solely for the benefit of the Certificates. The City shall establish and maintain such fund at an official City depository and shall keep such fund separate and apart from all other funds and accounts of the City. Any amount on deposit in the Certificates of Obligation, Series 2006 Debt Service Fund shall be maintained by the City in trust for the Registered Owners of the Certificates. Such amount, plus any other amounts deposited by the City into such fund and any and all investment earnings on amounts on deposit in such fund, shall be used only to pay the principal of, premium, if any, and interest on the Certificates. Section 5.3: Further Proceedings. After the Certificates to be initially issued have been rexecuted, it shall be the duty of the Mayor to deliver the Certificates to be initially issued and all pertinent records and proceedings to the Attorney General for examination and approval. After the Certificates to be initially issued shall have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Certificates to be initially issued, the Comptroller (or a deputy lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's registration certificate prescribed herein to be affixed or attached to the Certificates to be initially issued, and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. r T17 HOU:2570159.2 ARTICLE VI CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1: Acceptance. Wells Fargo Bank, N.A., Houston, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Certificates pursuant to the terms and provisions of the Paying Agent/Registrar Agreement by and between the City and the Paying Agent/Registrar. The Paying Agent/Registrar Agreement shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, and the Mayor is hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of any fees pursuant to the terms of any contract Ebetween the Paying Agent/Registrar and the City and/or the deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 6.2: Trust Funds. All money transferred to the Paying Agent/Registrar in its capacity as Paying Agent/Registrar for the Certificates under this Ordinance (except any sums representing Paying Agent/Registrar's fees) shall be held in trust for the benefit of the City, shall be the property of the City and shall be disbursed in accordance with this Ordinance. Section 6.3: Certificates Presented. Subject to the provisions of Section 6.4, all matured Certificates presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Certificates shall be canceled as provided herein. Section 6.4: Unclaimed Funds Held by the Paying Agent/Registrar. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Certificates remaining unclaimed by the Registered Owner thereof after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposed of by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. The Paying Agent/Registrar shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with this Section. Section 6.5: Paying Agent/Registrar May Own Certificates. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent/Registrar. Section 6.6: Successor Paying Agents/Registrars. The City covenants that at all times while any Certificates are Outstanding it will provide a legally qualified bank, trust company, financial institution or other agency to act as Paying Agent/Registrar for the Certificates. The City reserves the right to change the Paying Agent/Registrar for the Certificates on not less than r 18 HOU:2570159.2 r sixty (60) days' written notice to the Paying Agent/Registrar, as long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Certificates. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying Agent/Registrar, and the new Paying Agent/Registrar shall notify each Registered Owner, by United States mail, first class, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. ARTICLE VII fPROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF CERTIFICATES Section 7.1: Sale of Certificates; Insurance. The sale of the Certificates to A.G. Edwards & Sons, Inc. (the "Purchaser") at a price of the par value thereof plus a cash premium of $970.00, plus accrued interest on the Certificates, is hereby approved, and delivery of the Certificates to the Purchaser shall be made upon payment therefor in accordance with the terms of sale and the terms and conditions of the Purchaser's bid. It is hereby officially found, determined and declared that the Purchaser is the highest bidder for the Certificates as a result of invitations for competitive bids. It is further officially found, determined and declared that the Certificates have been sold at public sale to the bidder offering the lowest interest cost, which is hereby determined to be a net effective interest rate of 4.570046%, after receiving sealed bids pursuant to an Official Notice of Sale and Preliminary Official Statement prepared and distributed in connection with the sale of the Certificates. The City hereby acknowledges that the Purchaser's bid is contingent upon the issuance of a policy of the Bond Insurance Policy from the Bond Insurer insuring the timely payment of principal of and interest on the Certificates. The terms and conditions of the Bond Insurance Policy, as set out in Exhibit E hereto, are incorporated herein for all purposes for so long as such policy remains in effect. Such Bond Insurance Policy is to be obtained at the Purchaser's expense. The appropriate officials and representatives of the City are hereby authorized and rdirected to execute such documents and certificates and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Certificates of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 7.2: Approval, Registration and Delivery. The Mayor is hereby authorized to have control and custody of the Certificates and all necessary records and proceedings pertaining rthereto pending their delivery, and the Mayor and other officers and employees of the City are hereby authorized and directed to make such certifications and to execute such instruments as may be necessary to accomplish the delivery of the Certificates and to assure the investigation, examination and approval thereof by the Attorney General and the registration of the initial Certificates by the Comptroller. Upon registration of the Certificates, the Comptroller (or the Comptroller's certificates clerk or an assistant certificates clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificates prescribed herein to be attached or affixed to each Certificates initially delivered and the seal of the Comptroller shall be impressed or printed or lithographed thereon. T 19 HOU:2570159.2 r Section 7.3: Offering Documents; Ratings. The City hereby approves the form and contents of the Official Notice of Sale, Preliminary Official Statement and the final Official Statement, dated as of the date hereof, relating to the Certificates, and any addenda, supplement or amendment thereto, and ratifies and approves the distribution of such Preliminary Official Statement and Official Statement in the offer and sale of the Certificates and in the reoffering of the Certificates by the Purchaser, with such changes therein or additions thereto as the officials executing same may deem advisable, such determination to be conclusively evidenced by their execution thereof. The Mayor is hereby authorized and directed to execute, and the City rSecretary is hereby authorized and directed to attest, the final Official Statement. It is further hereby officially found, determined and declared that the statements and representations contained in the Official Notice of Sale, Preliminary Official Statement and final Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council, and that, as of the date thereof, the Preliminary Official Statement was an official statement of the City with respect to the Certificates that was deemed "final" by an authorized official of the City except for the omission of no more than the information permitted by subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. Copies of the Official Notice of Sale, the Preliminary Official Statement and the Official Statement are attached hereto as Exhibits B, C and D,respectively. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking a rating on the Certificates from Moody's Investors Service, Inc. and Standard & Poor's Ratings Services and such actions are hereby ratified and confirmed. Section 7.4: Application of Proceeds of Certificates. Proceeds from the sale of the Certificates shall,promptly upon receipt by the City,be applied as follows: (1) Accrued interest shall be deposited into the Certificates of Obligation, Series 2006 Debt Service Fund created in Section 5.2 of this Ordinance; (2) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Certificates; (3) The remaining proceeds shall be applied, together with other funds of the City, to provide funds to pay contractual obligations to be incurred for the purposes set forth in Section 3.1 of this Ordinance. Section 7.5: Tax Exemption. Tax Exemption. The City intends that the interest on the Certificates shall be excludable from gross income of the owners thereof for federal income tax purposes pursuant to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the "Code"), and all applicable temporary, proposed and final regulations (the "Regulations") and procedures promulgated thereunder and applicable to the Certificates. For this purpose, the City covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Certificates (including all property the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Certificates) and take or omit to take such other and further actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause interest r20 HOU:2570159.2 on the Certificates to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Certificates for federal income tax purposes. Without limiting the generality of the foregoing, the City shall comply with each of the following covenants: (a) The City will use all of the proceeds of the Certificates to (i) provide funds to pay contractual obligations to be incurred for the purposes set forth in Section 3.1 hereof, which will be owned and operated by the City and (ii) to pay the costs of issuing the Certificates. The City will not use any portion of the proceeds of the Certificates to pay the principal of or interest or redemption premium on, any other obligation of the City or a related person. (b) The City will not directly or indirectly take any action, or omit to take any action, which action or omission would cause the Certificates to constitute "private activity bonds" within the meaning of Section 141(a) of the Code. (c) Principal of and interest on the Certificates will be paid solely from both ad valorem taxes and pledged revenues collected by the City, investment earnings on such collections, and as available,proceeds of the Certificates. (d) Based upon all facts and estimates now known or reasonably expected to be in existence on the date the Certificates are delivered, the City reasonably expects that the proceeds of the Certificates will not be used in a manner that would cause the Certificates or any portion thereof to be an "arbitrage bond"within the meaning of Section 148 of the Code. (e) At all times while the Certificates are outstanding, the City will identify and properly account for all amounts constituting gross proceeds of the Certificates in accordance with the Regulations. The City will monitor the yield on the investments of the proceeds of the Certificates and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to a yield which is not materially higher than the yield on the Certificates. To the extent necessary to prevent the Certificates from constituting "arbitrage bonds," the City will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Certificates to be less than the yield that is materially higher than the yield on the Certificates. (f) The City will not take any action or knowingly omit to take any action that, if taken or omitted, would cause the Certificates to be treated as "federally guaranteed" obligations ' for purposes of Section 149(b) of the Code. (g) The City represents that not more than fifty percent (50%) of the proceeds of the Certificates will be invested in nonpurpose investments (as defined in Section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expects that at least eighty-five percent (85%) of the spendable proceeds of the Certificates will be used to carry out the governmental purpose of the Certificates within the three-year period beginning on the date of issue of the Certificates. (h) The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the gross proceeds of the Certificates, if any,be rebated to the federal government. Specifically, the City will (i) maintain records regarding the r21 HOU:2570159.2 r receipt, investment, and expenditure of the gross proceeds of the Certificates as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City and retain such records for at least six years after the day on which the last outstanding Certificate is discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid in whole or in part, the requirements of Section 148 of the Code, including any specified method of accounting required by applicable Regulations to be used for r all or a portion of any gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the gross proceeds of the Certificates and (iv) timely pay, as required by applicable Regulations, all ramounts required to be rebated to the federal government. In addition, the City will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error rwithin a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, interest thereon and any penalty. (i) The City will not directly or indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of ' the Certificates that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if such arrangement had been at arm's length and had the yield on the Certificates not been relevant to either party. (j) The City will timely file or cause to be filed with the Secretary of the Treasury of rthe United States the information required by Section 149(e) of the Code with respect to the Certificates on such form and in such place as the Secretary may prescribe. (k) The City will not issue or use the Certificates as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that ' attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax-exempt robligations. (1) Proper officers of the City charged with the responsibility for issuing the Certificates are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Certificates and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the date of issuance of the Certificates, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. r r 22 HOU:2570159.2 r (m) The covenants and representations made or required by this Section are for the benefit of the Certificate holders and any subsequent Certificate holder, and may be relied upon by the Certificate holders and any subsequent Certificate holder and bond counsel to the City. In complying with the foregoing covenants, the City may rely upon an unqualified opinion issued to the City by nationally recognized bond counsel that any action by the City or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Certificates to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Ordinance, the City's representations and obligations under the covenants and provisions of this Section 7.5 all survive the defeasance and discharge of the Certificates for as long as such matters are relevant to the exclusion of interest on the Certificates from the gross income of the owners for federal income tax purposes. rSection 7.6: Related Matters. In order that the City shall satisfy in a timely manner all of its obligations under this Ordinance, the Mayor, the Mayor, City Secretary and all other appropriate officers, agents, representatives and employees of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the issuance and delivery of the Certificates, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, notices, and other documents as may be reasonably necessary to satisfy the City's obligations under this Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of this Ordinance. ARTICLE VIII CONTINUING DISCLOSURE UNDERTAKING Section 8.1: Annual Reports. The City shall provide annually to each NRMSIR and r any SID, within six months after the end of each fiscal year ending in or after 2006, financial information and operating data with respect to the City of the general type included in the final Official Statement authorized by Section 7.3 of this Ordinance, being the financial information and operating data described in the Official Statement under the captions "INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE DISTRICT — Current Investments," "CITY TAX DEBT," "TAX DATA (except under the subheading "Estimated Overlapping Taxes")," "SELECTED FINANCIAL DATA" and in Appendix B to the Official Statement. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Appendix B to the Official Statement and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided,then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. r 23 HOU:2570159.2 r The financia l information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC. Section 8.2: Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Certificates, if such event is material within the meaning of the federal securities laws: (a) Principal and interest payment delinquencies; (b) Non-payment related defaults; (c) Unscheduled draws on debt service reserves reflecting financial difficulties; (d) Unscheduled draws on credit enhancements reflecting financial difficulties; (e) Substitution of credit or liquidity providers, or their failure to perform; (f) Adverse tax opinions or events affecting the tax-exempt status of the Certificates; (g) Modifications to rights of holders of the Certificates; (h) Certificate calls; (i) Defeasances; (j) Release, substitution, or sale of property securing repayment of the Certificates; and (k) Rating changes. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 8.1 of this Ordinance by the time required by such Section. Section 8.3: Limitations, Disclaimers and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as,but only for so long as, the City remains an "obligated person" with respect to the Certificates within the meaning of the Rule, except that the City in any event will give the notice required by Section 8.2 of any Certificate calls and defeasance that cause the City to be no longer such an "obligated person." The provisions of this Article are for the sole benefit of the holders and beneficial owners of the Certificates, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided 24 HOU:2570159.2 f in accordance with this Article or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Certificates at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY CERTIFICATE OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under the Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive, or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Article may be amended by the City from time to time to adapt the changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the City, but only if (1) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell the Certificates in the primary offering of the Certificates in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either(a) the holders of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the outstanding Certificates consent to such amendment or (b) a person that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the holder and beneficial owners of the Certificates. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 8.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Article if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this rArticle in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Certificates in the primary offering of the Certificates, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. rSection 8.4: Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: r r25 HOU:2570159.2 p "MSRB"means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule r 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 designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. ARTICLE IX MISCELLANEOUS Section 9.1: Defeasance. Subject to Section 10.8 hereof, the City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Certificates to pay the principal of and interest thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar or with the Comptroller of Public Accounts of the State of Texas either: • (a) cash in an amount equal to the principal amount of such Certificates plus interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer ' adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, which, in the case of(i), (ii) or (iii), may be in book-entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Certificates are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in r 26 HOU:2570159.2 r this Ordinance. Upon such deposit, such Certificates shall no longer be regarded to be Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall be returned to the City. Section 9.2: Ordinance a Contract - Amendments. This Ordinance shall constitute a ' contract with the Registered Owners from time to time, be binding on the City, and shall not be amended or repealed by the City so long as any Certificate remains Outstanding except as permitted in this Section. The City may, without the consent of or notice to any Registered Owners, from time to time and at any time, amend this Ordinance in any manner not detrimental to the interests of the Registered Owners, including the curing of any ambiguity, inconsistency, or formal defect or omission herein. In addition, the City may, with the consent of Registered Owners who own in the aggregate 51% of the principal amount of the Certificates then Outstanding, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Registered Owners of Outstanding Certificates, no such amendment, addition, or rescission shall (i) extend the time or times of payment of the principal of and interest on the Certificates, reduce the principal amount thereof, the redemption price, or the rate ' of interest thereon, or in any other way modify the terms of payment of the principal of or interest on the Certificates, (ii) give any preference to any Certificate over any other Certificate, or (iii) reduce the aggregate principal amount of Certificates required to be held by Registered Owners for consent to any such amendment, addition, or rescission. Section 9.3: Legal Holidays. In any case where the date interest accrues and becomes payable on the Certificates or principal of the Certificates matures or the date fixed for redemption of any Certificates or a Record Date shall be in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close, then payment of interest or principal need not be made on such date, or the Record Date shall not occur on such date,but payment may be made or the Record Date shall occur on the next succeeding day which is not in the City a Saturday, Sunday, legal holiday or a day on which banking institutions are authorized by law to close with the same force and effect as if(i)made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment or (ii) the Record Date had occurred on the fifteenth day of that calendar month. Section 9.4: No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Certificates or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Certificates. Section 9.5: Further Proceedings. The Mayor, Mayor Pro-Tern, City Secretary and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 9.6: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. r r27 HOU:2570159.2 r rSection 9.7: Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at rwhich this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at City Hall for the time required by law preceding this meeting, as required by the Open Meetings Law, Chapter 551, Texas Government Code, and that this rmeeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting rthereof. Section 9.8: Repealer. All orders, resolutions and ordinances, or parts thereof, IFinconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.9: Emergency. It is hereby officially found and determined that this rOrdinance relates to an immediate public emergency affecting life, health, property and the public peace, and that such emergency exists, the specific emergency being that the proceeds from the sale of the Certificates are required as soon as possible for necessary and urgently r needed improvements, and that this Ordinance be passed and approved on the date of its introduction. r Section 9.10: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. r r r r r r r r r r 28 HOU:2570159.2 r PASSED AND APPROVED on first reading pursuant to Section 3.10 of the City Charter this June /y, 2006. CITY OF PEARLAND, TEXAS a-I/- Mayor rATTEST Secr toottitiittolio ...4.. /L) Ai 'edr: _ . .ti% • xhit ; - ' . in gent/Registrar Agreement NE' bit B - Off Notice of Sale Exhi iminary Official Statement Exhibit D - Official Statement Exhibit E-Insurance Provisions r r r r r r S-1 rHOU:2570159.1 EXHIBIT A PAYING AGENT/REGISTRAR AGREEMENT See Tab No. 7 HOU:2570159.2 r IEXHIBIT B OFFICIAL NOTICE OF SALE See Tab No. 5 HOU:2570159.2 EXHIBIT C PRELIMINARY OFFICIAL STATEMENT See Tab No. 5 ! a a a HOU:2570159.2 r 1 EXHIBIT D 1 OFFICIAL STATEMENT See Tab No. 6 ► 1 1 1 1 r 1 1 r r r rHOU:2570159.2 EXHIBIT E INSURANCE PROVISIONS 1 r r I I I I r r r r I r r rHOU:2570159.2 OFFICIAL STATEMENT DATED JUNE 12,2006 In the opinion of Bond Counsel, interest on the Certificates is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under"Tax Exemption"herein,and is not includable in the alternative minimum taxable income of individuals. See `* 'TAX EXEMPTION"for a discussion of the opinion of Bond Counsel,including the alternative minimum tax on corporations. NEW ISSUE: BOOK-ENTRY-ONLY RATINGS: Moody's Investors Service,Inc. "Aaa" Standard&Poor's Ratings Services "AAA" $9,700,000 CITY OF PEARLAND, TEXAS (A political subdivision of the State of Texas located within Brazoria and Hams Counties) CERTIFICATES OF OBLIGATION, SERIES 2006 Dated: July 1,2006 Due: March 1,as shown below Principal of and interest on the$9,700,003 City of Pearland,Texas,Certificates of Obligation,Series 2006(the"Certificates")are payable by Wells Fargo Bank,N.A.,Houston,Texas,the paying agent/registrar(the"Paying Agent/Registrar"). The Certificates are initially registered and delivered only to Cede&Co.,the nominee of The Depository Trust Company("DTC")pursuant to the Book-Entry-Only System described herein. Beneficial ownership of the Certificates may be acquired in denominations of$5,000 or integral multiples thereof. No physical delivery of the Certificates will be made to the beneficial owners thereof. Principal of and interest on the Certificates will be payable by the Paying Agent/Registrar to Cede &Co.,which will make distribution of the amounts so paid to the beneficial owners of the Certificates. See"THE CERTIFICATES-Book-Entry- Only System" herein. Interest on the Certificates will accrue from July 1, 2006 and is payable on September 1 and March 1 of each year, commencing March 1.2007,to the registered owners(initially Cede&Co.)appearing on the registration books of the Paying Agent/Registrar on the ... 15th day of the month preceding each interest payment date(the"Record Date"). See"THE CERTIFICATES-Description." The Certificates will be authorized by an ordinance (the "Ordinance")to be approved by City Council on June 12,2006. The Certificates, when issued,will constitute valid and binding obligations of the City of Pearland,Texas(the"City")and will be payable from the proceeds of an annual ad valorem tax,levied within the limits prescribed by law,against all taxable property within the City and will be further payable from a limited junior and subordinate pledge of the Net Revenues(as defined in the Ordinance)of the City's waterworks and sewer system(the"System")in an amount not to exceed$10,000. See"THE CERTIFICATES-Source of Payment." Proceeds of the sale of the Certificates will be used for the purchase of land,the construction of storm sewer channels,the construction of a detention .. storage facility and the construction of a road and bridge. Proceeds from the sale of the Certificates will also be used to pay the costs of issuance of the Certificates. See"THE CERTIFICATES-Use of Proceeds." Payment of the principal of and interest on the Bonds when due will be insured by a municipal bond insurance policy to be issued by CIFG Assurance North America,Inc.simultaneously with the delivery of the Bonds. 40 I CIFG . IXIS FINANCIAL GUARANTY oft PRINCIPAL AMOUNTS,MATURITIES,INTEREST RATES AND PRICES (Due March I) Initial CUSIP Initial CUSIP Principal Interest Reoffering Nos. Principal Interest Reoffering Nos. Maturity Amount Rate Yield(a) 704862(b) Maturity Amount Rate Yield(a) 704862(b) 2008 $ 25,000 6.125% 3.650% XD 8 2019(c) $505,000 4.250% 4.370% XQ 9 2009 25,000 6.125 3.700 XE 6 2020(c) 470,000 4.300 4.420 XR 7 2010 50,000 6.125 3.750 XF 3 2021(c) 500,000 4.300 4.460 XS 5 2011 125,000 6.125 3.780 XG 1 2022(c) 525,000 4.375 4.500 XT 3 2012 315,000 6.125 3.875 XH 9 2023(c) 555,000 4.400 4.540 XU 0 2013 335,000 6.125 3.930 XJ 5 2024(c) 585,000 4.450 4.570 XV 8 2014 355,000 6.125 4.030 XK 2 2025(c) 605,000 4.500 4.590 XW 6 2015 370,000 6.125 4.080 XL 0 2026(c) 730,000 4.500 4.610 XX 4 2016 395,000 5.250 4.110 XM 8 2027(c) 765,000 4.500 4.640 XY 2 2017(c) 405,000 4.125 4.200 XN 6 2028(c) 805,000 4.500 4.660 XZ 9 2018(c) 405,000 4.200 4.300 XP 1 2029(c) 850,000 4.500 4.680 YA 3 (a) The initial yields will be established by and are the sole responsibility of the Underwriters,and may subsequently be changed. (b) CUSIP numbers have been assigned to the Certificates by Standard and Poor's CUSIP Service Bureau, A Division of the McGraw-Hill Companies. Inc., and are included solely for the convenience of the registered owners of the Certificates. Neither the City, the Financial Advisor,nor the Underwriters are responsible for the selection or correctness of the CUSIP numbers set forth herein. (c) The Certificates maturing on March 1,2017 and thereafter,are subject to redemption,at the option of the City,at par value thereof plus accrued interest on March 1,2016,or any date thereafter. See'THE CERTIFICATES-Redemption Provisions." The Certificates are offered when,as and if issued,subject to the approving opinion of the Attorney General of the State of Texas and the opinion of Andrews Kurth LLP,Houston,Texas,Bond Counsel for the City,as to the validity of the issuance of the Certificates under the Constitution and laws of the State of Texas. See"LEGAL MATTERS." Delivery of the Certificates is expected to be on or about July 13,2006. No dealer,broker,salesman or other person has been authorized by the City to give any information or to make any representation other than those contained in this Official Statement,and,if given or made,such other information or representations must not be relied upon as having been authorized by the City. This Official Statement is not to be used in an offer to sell or the solicitation of an offer to buy in any state in which •.. such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement contains, in part, estimates, assumptions and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates, assumptions or matters of opinion or as to the likelihood that they will be realized. Any information and expressions of opinion herein contained are subject to change without notice,and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances,create any implication that there has been no change in the condition of the City or other matters described herein since the date hereof. TABLE OF CONTENTS INTRODUCTORY STATEMENT....----3 TAX DATA»...»»»»..».. .»»». ••-•••»»••• ...16 -' SALE AND DISTRIBUTION OF THE General •• 16 CERTIFICATES....................»... ....3 Property Tax Code and County-Wide Sale of the Certificates 3 Appraisal District 16 Prices and Marketability 3 Tax Rate Limitations 17 Securities Laws 3 Property Subject to Taxation by the City 17 THE BOND INSURER AND THE FINANCIAL Tax Increment Reinvestment Zone 18 GUARANTY INSURANCE POLICY--....--4 Notice and Hearing Procedures 19 _ CIFG Assurance North America,Inc 4 Levy and Collection of Taxes 19 General 4 Collection of Delinquent Taxes 19 Capitalization 4 Historical Analysis of Tax Collection 20 MUNICIPAL BOND RATINGS .....».».».»......»..5 Analysis of Tax Base 21 MEP OFFICIAL STATEMENT SUMMARY .».........6 Estimated Overlapping Taxes 22 INTRODUCTION»..»»...._»...».....»........»....»........»..8 Sales Tax 22 THE CERTIFICATES......»».........»..»....... .».........8 SELECTED FINANCIAL DATA.»..........»..».......» 23 Description 8 Historical Operations of the City's Redemption Provisions 8 General Fund 23 Notice of Redemption 8 General Fund and Debt Service Fund Book-Entry-Only System 9 Balance for the Past Five Fiscal ... Use of Certain Terms in Other Sections Years 24 of this Official Statement 10 Pension Fund 24 Successor Paying Agent/Registrar 10 Financial Statements 24 Source of Payment 11 ADMINISTRATION OF THE CITY.............».».....24 Authorization of the Certificates 11 Mayor and City Council 24 Use of Proceeds 11 Administration 25 Future Debt 11 Consultants 25 Legal Investments in Texas 11 LEGAL MATTERS.........»...»....».»..._..—.».».....—25 Remedies in the Event of Default 11 Legal Opinions 25 INVESTMENT AUTHORITY AND No-Litigation Certificate 26 INVESTMENT OBJECTIVES OF THE No Material Adverse Change 26 CITY ... ... ......... _.12 TAX EXEMPTION-.»»...-............».»»................. 26 Legal Investments 12 TAX TREATMENT OF ORIGINAL ISSUE Investment Policies 13 DISCOUNT AND PREMIUM Current Investments 13 CERTIFICATES...—. .»»»».............».._.-».27 Additional Provisions 13 Discount Certificates 27 CITY TAX DEBT 14 Premium Certificates 28 Tax Supported Debt Statement 14 CONTINUING DISCLOSURE OF Bonded Indebtedness Payable from Ad INFORMATION...... ............»» ....29 Valorem Taxes 14 Annual Reports 29 Tax Supported Debt Service Schedule 15 Material Event Notices 29 Estimated Overlapping Debt 16 Availability of Information From Debt Ratios 16 NRMSIRs and SID 29 i a a Limitations and Amendments 30 Audited Financial Report of the City 30 APPENDIX A— Economic and Demographic Characteristics Compliance With Prior Undertakings 30 APPENDIX B— Audited Financial Statements of the City GENERAL CONSIDERATIONS 31 APPENDIX C— Form of Legal Opinion Sources and Compilation of Information 31 APPENDIX D— Specimen of Financial Guaranty Certification as to Official Statement 31 Insurance Policy Updating of Official Statement 31 a a a a a a a • a a a a a a a tt $9,700,000 CITY OF PEARLAND,TEXAS CERTIFICATES OF OBLIGATION,SERIES 2006 INTRODUCTORY STATEMENT Information contained in this Official Statement, including Appendix B, has been obtained from the City of Pearland,Texas(the"City")in connection with the offering by the City of its$9,700,000 Certificates of Obligation, Series 2006(the"Certificates")identified on the cover page hereof. All financial and other information presented in this Official Statement has been provided by the City from its records, except for information expressly attributed to other sources. The presentation of information, including tables of receipts from taxes and other sources,is intended to show recent historic information,and is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made ON. that past experience, as is shown by that financial and other information, will necessarily continue or be repeated in the future. SALE AND DISTRIBUTION OF THE CERTIFICATES Sale of the Certificates After requesting competitive bids for the Certificates, the City accepted the lowest bid, which was tendered by a syndicate managed by A. G. Edwards & Sons, Inc. (collectively, referred to herein as the "Underwriters") to purchase the Certificates,bearing the interest rates on the inside cover page of this Official Statement,at a cash price of $9,700,970, plus accrued interest to the date of delivery. The net effective interest rate on the certificates is 4.570046%. Prices and Marketability The delivery of the Certificates is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriters on or before the date of delivery of the Certificates stating the prices at which a substantial amount of the Certificates of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is bondhouse, broker or similar person acting in the capacity of underwriter or wholesaler. The City has no control over trading of the Certificates after a bona fide offering of the Certificates is made by the Underwriters at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriters. The prices and other terms respecting the offering and sale of the Certificates may be changed from time to time by the Underwriters after the Certificates are released for sale, and the Certificates may be offered and sold at prices NOW other than the initial offering price,including sales to dealers who may sell the Certificates into investment accounts. IN CONNECTION WITH THE OFFERING OF THE CERTIFICATES, THE UNDERWRITERS MAY OVER- ALLOT OR El•PECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES, AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,IF COMMENCED,MAY BE DISCONTINUED AT ANY TIME. Securities Laws No registration statement relating to the Certificates has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, in reliance upon the exemptions provided thereunder. The Certificates have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Certificates been registered or qualified under the securities acts of any jurisdiction. The City assumes no responsibility for registration or qualification of the Certificates under the securities laws of any jurisdiction in which the Certificates may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Certificates shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such jurisdictions. 3 THE BOND INSURER AND THE FINANCIAL GUARANTY INSURANCE POLICY CIFG Assurance North America,Inc. The information set forth in the following paragraphs has been provided by CIFG Assurance North America, Inc., referred to in this Official Statement as the Insurer or CIFG,for inclusion in this Official Statement. General CIFG Assurance North America, Inc. is a monoline financial guaranty insurance company incorporated under the laws of the State of New York (the "Insurer"). The address of the principal executive offices of the Insurer is 825 Third Avenue, Sixth Floor,New York, New York 10022; its toll-free telephone number is (866)CIFG-212 and its general telephone number is(212)909-3939. The Insurer is a member of the CIFG Group of financial guaranty companies, which also includes C1FG Europe, a French insurance company licensed to do business in twenty member countries of the European Union, and CIFG Guaranty, a dedicated French reinsurance corporation. In addition to its capital and surplus as set forth below, the Insurer is supported by a net worth maintenance agreement from CIFG Guaranty, which provides that CIFG Guaranty will maintain the Insurer's New York statutory capital and surplus at no less than $80 million, and may cede a substantial portion (not to exceed 90%) of its exposure on each transaction to CIFG Guaranty through a facultative reinsurance agreement. Each of the Insurer, CIFG Europe and C1FG Guaranty has received an insurer financial strength rating of"AAA" from Fitch,an insurer financial strength rating of"Aaa"from Moody's,and an insurer financial enhancement rating of"AAA"from Standard and Poor's, the highest rating assigned by each rating agency. Each such rating should be evaluated independently. The ratings reflect the respective rating agency's current assessment of each company's capacity to pay claims on a timely basis and are not recommendations to buy, sell or hold the Bonds. Such ratings may be subject to revision or withdrawal at any time. The Insurer is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York, its state of domicile,and is licensed to do business in 46 jurisdictions. The Insurer is subject to Article 69 of the New York Insurance Law which, among other things, limits the business of such insurers to financial guaranty insurance and related lines, requires that such insurers maintain a minimum surplus to policyholders, establishes contingency, loss and unearned premium reserve requirements for such insurers, and limits the size of individual transactions and the volume of transactions that may be underwritten by such insurers. Other provisions of the New York Insurance Law applicable to non-life insurance companies such as the Insurer regulate, among other things, permitted investments, payment of dividends, transactions with affiliates, mergers, consolidations,acquisitions or sales of assets and incurrence of liabilities for borrowings. Capitalization The following tables set forth the capitalization of the Insurer on the basis of accounting practices prescribed or `W permitted by the New York State Insurance Department("statutory accounting practices"). Statutory Accounting Practices December 31,2005 (in thousands of US dollars) Unaudited Admitted Assets $ 175,333 Liabilities $ 66,758 Capital and Surplus $ 108,575 s 4 The following table sets forth the capitalization of CIFG Guaranty on the basis of accounting principles generally accepted in France("French GAAP"). French GAAP December 31,2005 Unaudited (in thousands (in thousands of euros) of US dollars)(1) Assets E 745,839 $ 883,036 Liabilities E 158,672 $ 187,860 Shareholder's Equity @ 587,167 $ 695,176 (I) The translation of euros to U.S. dollars is presented solely for the convenience of the reader, using the observed exchange rate at December 31,2005 of$1.18395 to E1.00.The convenience translation should not be construed as representation that the euro amounts have been, could have been, or in the future could be, converted into U.S.dollars at this or any rate of exchange. For further information concerning the Insurer and CIFG Guaranty, see the audited financial statements of both _ companies,including the respective notes thereto,prepared on the basis of statutory accounting practices in the case of the Insurer and in accordance with French GAAP in the case of CIFG Guaranty, as of December 31, 2004 and 2003 and for each of the two years in the period ended December 31, 2004, which are available on the CIFG Group's website at www.cifg.com. Copies of prior audited annual financial statements of the Insurer prepared in accordance with statutory accounting practices are also available on the website. Copies of all such financial statements may be obtained, without charge, upon request to the Insurer at its address above, Attention: Finance Department. MUNICIPAL BOND RATINGS In connection with the sale of the Certificates, the City has made application to Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") for ratings and the ratings of "Aaa" and "AAA", respectively, have been assigned to the Certificates with the understanding that upon delivery of the Certificates, a municipal bond insurance policy insuring the timely payment of the principal of and interest on the Certificates will be issued by CIFG Assurance North America,Inc. In addition,Moody's and S&P have assigned underlying ratings of "Al" and "A+" respectively on the Certificates. An explanation of the significance of such ratings may be obtained from Moody's and S&P. The ratings reflect only the views of Moody's and S&P, and the City makes no representation as to the appropriateness of such ratings. There is no assurance that such ratings will continue for any period of time or that they will not be revised downward or withdrawn entirely by Moody's and/or S&P, if, in the judgment of Moody's and S&P,circumstances so warrant. Any such downward revision or withdrawal of either or both of the ratings may have an adverse effect on the market price of the Certificates. 5 OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more complete information. The Issuer The City of Pearland,Texas(the "City") is a political subdivision and home rule city of the State of Texas located within Brazoria and Harris Counties, Texas. For additional information regarding the City, see "Appendix A—Economic and Demographic Characteristics." The Certificates $9,700,000 Certificates of Obligation,Series 2006(the "Certificates"), are dated July 1, 2006 and mature March 1, 2008 through March 1, 2029. Interest on the Certificates accrues from July 1, 2006, and is ■. payable initially on March 1, 2007, and on each September 1 and March 1 thereafter until the earlier of maturity or prior redemption. See "THE CERTIFICATES-Description." .1111 Other Characteristics The Certificates are issued in fully registered form in integral multiples of$5,000. The Certificates maturing on and after March 1, 2017 are subject to redemption, at the option of the City, at a price of the par value thereof plus accrued interest on March 1, 2016 or any date thereafter. See"THE CERTIFICATES-Redemption Provisions." Paying Agent/Registrar The initial paying agent/registrar is Wells Fargo Bank,N.A.,Houston, Texas. The City intends to use the book-entry-only system of The Depository Trust Company ("DTC"), but reserves the right on its behalf or on behalf of the DTC to discontinue such system. (See"THE BONDS-Book-Entry-Only System") Source of Payment Principal and interest on the Certificates are payable from the proceeds of an annual ad valorem tax levied upon all taxable property within the City,within the limits prescribed by law and are further payable from a limited junior and subordinate pledge of the Net Revenues (as defined in the Ordinance) of the City's waterworks and sewer system (the "System"), but only to the extent of and in an amount not in excess of $10,000 of the Net Revenues of such System. See "THE CERTIFICATES-Source of Payment." MIS Use of Proceeds Proceeds from the sale of the Certificates will be used for the purchase of land,the construction of storm sewer channels,the construction of a detention storage facility and the construction of a road and bridge. Proceeds from the sale of the Certificates will also be used to pay the costs of issuance of the Certificates. See "THE CERTIFICATES - Use of Proceeds." Municipal Bond Insurance CIFG Assurance North America, Inc. ("CIFG"). See "THE BOND INSURER AND THE FINANCIAL GUARANTY INSURANCE POLICY." Ratings Moody's Investors Service,Inc. (Insured) "Aaa" Standard&Poor's Ratings Group(Insured) "AAA" Moody's Investors Service,Inc.(Underlying) "Al" Standard&Poor's Ratings Group(Underlying) "A+" See"MUNICIPAL BOND RATINGS." 6 S -Selected Financial Information- (Unaudited) — The Certificates 2005 Certified Net Assessed Valuation(100%of estimated market value) $ 3,816,235,030(a)(b) Direct Debt: Outstanding Tax Supported Debt(as of June 1,2006)' $ 176,880,000(c) Plus: The Certificates 9,700,000 Total Tax Supported Debt $ 186,580,000 Estimated Overlapping Debt $ 331,035,353 Direct and Estimated Overlapping Debt ,$ 517.615.353 Debt Service Fund Balance(as of May 30,2006) $ 6,462,445 %of 2005 Per Assessed Capital Valuation (69,808) Debt Ratios: Direct Tax Supported Debt 4.89% $ 2,673 Direct Tax Supported and Estimated Overlapping Debt 13.59% $ 7,415 — 2005 Tax Rate(per$100 of Assessed Valuation) Maintenance and Operation $ 0.34548 - Debt Service 0.32892 Total $ 0.67440 Annual Debt Service Requirements: .r Average(Fiscal Years 2006-2029) $ 13,042,813 Maximum(2012) $ 14,249,104 Tax Collections: Arithmetic Average,Tax Years(2000-2004)-Current Years 92.72% 4 -Current and Prior Years 99.54% U, (a) Provided by the Brazoria Central Appraisal District (the "Appraisal District") and net of exemptions. Includes $472,469,612 in assessed value attributable to Reinvestment Zone Number Two,City of Pearland,Texas (the "TIRZ"). Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Certificates; however, a portion of the such revenues are retained by the City for administrative services related to the TIRZ. See "TAX DATA — Tax Increment Reinvestment Zone" for a description of the agreement between the City and the TIRZ. (b) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was annexed by the City on December 31,2005. (c) All outstanding debt of Brazoria County Municipal Utility District No.5 has been refunded by the City. 1 1 7 I INTRODUCTION This Official Statement and the Appendices hereto provide certain information with respect to the issuance by the City of Pearland, Texas (the "City") in connection with the offering by the City of its $9,700,000 Certificates of Obligation,Series 2006(the"Certificates"). The Certificates are issued pursuant to the Texas Constitution, the general laws of the State of Texas, including particularly Subchapter C of Chapter 271, Texas Local Government Code, as amended, and an Ordinance authorizing issuance of the Certificates(the"Ordinance")adopted by the City Council of the City(the"Council"). There follows in this Official Statement descriptions of the Certificates, the plan of financing, and certain information about the City and its finances. All descriptions of documents contained herein are only summaries and are qualified in their entirety by reference to each such document. Copies of such documents may be obtained from the City upon request. Certain capitalized terms used in this Official Statement have the same meanings assigned to such terms in the Ordinance,except as otherwise indicated herein. THE CERTIFICATES Description The Certificates are dated July 1, 2006 and bear interest from such date at the stated interest rates indicated under "PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES" on the cover page hereof, which interest is payable initially on March 1, 2007, and each September 1 and March 1 thereafter until the earlier of maturity or prior redemption. The Certificates are issued in fully registered form in denominations of$5,000 each or any multiple thereof. Principal of the Certificates is payable at the principal payment office of Wells Fargo Bank, N.A. (the "Paying Agent/Registrar"). Interest on the Certificates will be payable by check,dated as of the interest payment date,and mailed by the Paying Agent/Registrar to registered owners as shown on the records of the Paying .11 Agent/Registrar. The Certificates initially will be registered only to Cede & Co., the nominee of The Depository Trust Company pursuant to the Book-Entry-Only System described below. In the event the Book-Entry-Only-System is discontinued,the Certificates may be transferred and exchanged on the bond register kept by the Paying Agent/Registrar upon surrender and reissuance. The Certificates are exchangeable for an equal principal amount of Certificates of the same maturity in any authorized denomination upon surrender of the Certificates to be exchanged at the principal payment office of the Paying Agent/Registrar. No service charge will be made for any transfer, but the City may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. The record date (the "Record Date")for the interest payable on any interest payment date means the 15th day of the month next preceding such interest payment date. It will be required that all transfers be made within three business days after request and presentation. The City has agreed to replace mutilated, destroyed, lost or stolen Certificates upon surrender of the mutilated Certificates, or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the Paying Agent/Registrar of security or indemnity to keep them harmless. The City may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Redemption Provisions The Certificates maturing on March 1, 2017 and thereafter are subject to optional redemption prior to maturity, in whole or in part,on March 1, 2016, or any date thereafter,at the option of the City at a price equal to the principal amount thereof plus accrued interest to the date of redemption. If less than all of the Certificates are redeemed at any time,the maturities of the Certificates to be redeemed shall be selected by the City. Notice of Redemption Not less than 30 days prior to a redemption date for the Certificates,the City shall cause a notice of redemption to be sent by United States mail,first class,postage prepaid,to the registered owners of the Certificates to be redeemed,in whole or in part at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar. ANY NOTICE SO MAILED SHALL BE CONCLUSIVELY PRESUMED TO HAVE BEEN DULY GIVEN, WHETHER OR NOT THE REGISTERED OWNER RECEIVES SUCH NOTICE. NOTICE HAVING BEEN SO GIVEN, THE CERTIFICATES CALLED FOR REDEMPTION SHALL BECOME DUE AND PAYABLE ON THE SPECIFIED REDEMPTION DATE, NOTWITHSTANDING THAT ANY CERTIFICATE OR PORTION THEREOF HAS NOT BEEN SURRENDERED FOR PAYMENT,INTEREST ON SUCH CERTIFCATE OR PORTION THEREOF SHALL CEASE TO ACCRUE. 8 s Book-Entry-Only System This section describes how ownership of the Certificates is to be transferred and how the principal of, premium, if any, and interest on the Certificates are to be paid to and credited by The Depository Trust Company ("DTC"), New York, New York, while the Certificates are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The City believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof The City cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Certificates, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Certificates), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or(3)DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and -- Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Certificates (the "Certificates"). The Certificates will be issued as fully-registered Certificates in the name of Cede&Co.(DTC's partnership nominee)or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for the Certificates, in the aggregate principal amount of such issue,and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law,a"banking organization"within the meaning of the New York Banking Law,a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a"clearing agency" rcgistered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 55 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation("DTCC"). DTCC,in turn,is owned by a number of Direct Participants of DTC and Members -' of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC),as well as by the New York Stock Exchange,Inc.,the American Stock Exchange LLC,and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. Securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants"). DTC has Standard &Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC's records. The ownership interest of each actual purchaser of each Certificate ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Certificates are to be accomplished by entries made on the hooks of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Certificates,except in the event that use of the book-entry system for the Certificates is discontinued. To facilitate subsequent transfers, all Certificates deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Certificates with DTC and their registration in the name of Cede & Co. or �. such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Certificates; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 9 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them,subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates,such as redemptions,tenders,defaults, and proposed amendments to the Certificate documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Certificates within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede&Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures,DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and principal and interest payments on the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or Agent,on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices,as is the case with Certificates held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest payments to Cede& Co.(or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or Paying Agent. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and reimbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or Paying Agent. Under such circumstances,in the event that a successor depository is not obtained,certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). Discontinuance of the use of the system of book-entry transfers through DTC may require the approval of DTC Participants under DTC's operational arrangements. In that event,certificates will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable,but the City and the Underwriters take no responsibility for the accuracy thereof. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the Certificates are in the Book-Entry-Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Certificates, but (i) all rights of ownership must be exercised through DTC and the Book-Entry-Only System,and, (ii)except as described above, notices that are to be given to registered owners under the Ordinance will be given only to DTC. Successor Paying Agent/Registrar Provision is made in the Ordinance for replacing the Paying Agent/Registrar. If the City replaces the Paying Agent/Registrar, such Paying Agent/Registrar shall, promptly upon the appointment of a successor, deliver the Paying Agent/Registrar's records to the successor paying agent/registrar(the "Successor Paying Agent/Registrar"), and the Successor Paying Agent/Registrar shall act in the same capacity as the previous Paying Agent/Registrar. Any Successor Paying Agent/Registrar selected by the City shall be a commercial bank or trust company organized under the laws of the United States or any state and duly qualified and legally authorized to serve and perform the duties of the Paying Agent/Registrar for the Certificates. 10 UMW Source of Payment The Certificates are payable as to principal and interest from, and secured by, the proceeds of a continuing, direct annual ad valorem tax,levied within the limits prescribed by law,against all taxable property within the City. In the Ordinance the City covenants that while the Certificates are outstanding,it will levy, assess and undertake to collect such tax. The Certificates will be further payable from a limited junior and subordinate pledge of Net Revenues(as — defined in the Ordinance) of the City's waterworks and sewer system (the "System") in an amount not to exceed $10,000. See "TAX DATA - Tax Rate Limitations" and "THE CERTIFICATES - Remedies in the Event of Default." Authorization of the Certificates The Certificates are being issued pursuant to the applicable provisions of the Constitution and laws of the State of Texas,particularly Subchapter C of Chapter 271,Texas Local Government Code,as amended,and the provisions of the Ordinance, which specifically authorizes the sale and issuance of the Certificates. Further reference to the Ordinance is hereby made. No election was required as a prerequisite to the sale and issuance of the Certificates,as a petition signed by 5% of the qualified voters of the City was not filed with the City Secretary protesting the issuance of such Certificates prior to the authorization of their issuance. _. Use of Proceeds Proceeds of the Certificates are being used for the purchase of land, the construction of storm sewer channels, the construction of a detention storage facility and the construction of a road and bridge. Proceeds from the Certificates -m will also be used to pay the costs of issuance on the Certificates. Future Debt The City has$29,711,530 unissued bonds authorized by City voters. The City plans to issue such authorized bonds in late 2007 or 2008. The City may also issue additional certificates of obligation for City projects. Depending on the rate of development within the City, changes in assessed valuation, and the amounts, interest rates, maturities and time of issuance of additional certificates of obligation or bonds, increases in the City's annual ad valorem tax rate may be required to provide for the payment of the principal of and interest on the City's outstanding bonds,the Certificates,and such future certificates of obligation or bonds. Legal Investments in Texas Pursuant to the Texas Public Securities Procedures Act, Chapter 1201, Texas Government Code, as amended, the Certificates, whether rated or unrated,are(a)legal investments for insurance companies,fiduciaries and trustees and (b) legal investments for the sinking funds of political subdivisions or public agencies of the State. Most political subdivisions in the State of Texas are required to adopt investment guidelines under the Public Funds Investment "+ Act,Chapter 2256,Texas Government Code,as amended,and such political subdivisions may impose a requirement consistent with such act that the Certificates have a rating of not less than "A" or its equivalent to be legal investments for such entity's funds. The Certificates are eligible under the Public Funds Collateral Act, Chapter 2257, Texas Government Code, as amended, to secure deposits of public funds of the State or any political subdivision or public agency of the State and are lawful and sufficient security for those deposits to the extent of their market value. Again, political subdivisions in the State of Texas may impose a requirement that the Certificates have a rating of not less than"A"or its equivalent to be eligible to serve as collateral for their funds. The City has not made any investigations of any other laws,rules,regulations or investment criteria that might affect the suitability of the Certificates for any of the above purposes or limit the authority of any of the above entities or persons to purchase or invest in the Certificates. Remedies in the Event of Default The Ordinance requires the City to assess and collect ad valorem taxes each year sufficient to pay principal and interest when due on the Certificates. The Ordinance does not provide any other security for the payment of the Certificates, or any express remedies in the event of default, makes no provision for acceleration of maturity of the Certificates in the event of default, and does not provide for a trustee to protect the rights of the holders of the Certificates. — 11 Although a holder of the Certificates could presumably obtain judgment against the City in the event of default in the payment of principal or interest on the Certificates, such judgment could not be satisfied by execution against any property of the City. A holder of the Certificates could, in the event of default, ask a court for a mandamus or court order compelling the City to levy,assess and collect sufficient ad valorem taxes to pay principal of and interest on the Certificates as it falls due. Such remedy might need to be enforced on a periodic basis. The enforcement of a claim for payment of principal or interest on the Certificates would be subject to judicial discretion,sovereign police powers and the applicable provisions of the federal bankruptcy laws and to any other similar laws affecting the rights of political subdivisions generally. INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY The City invests its investable funds in investments authorized by Texas law in accordance with investment policies approved by the Mayor and Council of the City. Both state law and the City's investment policies are subject to VIM change. Legal Investments Under Texas law, the City is authorized to invest in (1) obligations of the United States or its agencies and instrumentalities, (2)direct obligations of the State of Texas or its agencies and instrumentalities, (3) collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States, the underlying security for which is guaranteed by an agency or instrumentality of the United States, (4) other obligations, the principal of and interest on which are unconditionally guaranteed or insured by,or backed by the full faith and credit of,the State of Texas or the United States or their respective agencies and instrumentalities,(5)obligations of states, agencies,counties, cities,and other political subdivisions of any state rates as to investment quality by a nationally recognized investment rating firm not less than A or its equivalent, (6)certificates of deposit that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clauses or in any other manner and amount provided by law for City deposits, (7)certificates of deposit and share certificates issued by a state or federal credit union domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, or are secured as to principal by obligations described in the clauses (1) through (5) or in any other manner and amount provided by law for City deposits, (8) fully collateralized repurchase agreements that have a defined termination date, are fully secured by obligations described in clause (1), and are placed through a primary government securities dealer or a financial institution doing business in the State of Texas, (9) bankers' acceptances with the remaining term of 270 days or less,if the short-term obligations of the accepting bank or its parent are rated at least A-1 or P-1 or the equivalent by at least one nationally recognized credit rating agency,(10)commercial paper that is rated at least A-1 or P-1 or the equivalent by either (a) two nationally recognized credit rating agencies or (b) one nationally recognized credit rating agency if the paper is fully secured by an irrevocable letter of credit issued by a U.S.or state bank),(11)no-load money market mutual funds regulated by the Securities and Exchange Commission that have a dollar weighted average portfolio maturity of 90 days or less and include in their investment objectives the maintenance of a stable net asset value of $1 for each share, (12) no-load mutual funds registered with the Securities and Exchange Commission that: have an average weighted maturity of less than two years; invests exclusively in obligations described in the preceding clauses;and are continuously rated as to investment quality by at least one nationally recognized investment rating firm of no less than AAA or its equivalent, and (13) bonds issued, assumed, or guaranteed by the State of Israel; and may invest bond proceeds in guaranteed investment 4110 contracts that have a defined termination date and are secured by obligations described in clause (i) above in an amount at least equal to the amount of bond proceeds invested under such a contract. The City may invest in such obligations directly or through government investment pools that invest solely in such obligations provided that the pools are rated no lower than Aaa or AAA or an equivalent by at least one nationally recognized rating service. The City is specifically prohibited from investing in: (1) obligations whose payment represents the coupon payments on the outstanding principal balance of the underlying mortgage-backed security collateral and pays no principal; (2)obligations whose payment represents the principal stream of cash flow from the underlying mortgage-backed security and bears no interest;(3)collateralized mortgage obligations that have a stated final maturity of greater than 10 years; and (4) collateralized mortgage obligations the interest rate of which is determined by an index that adjusts opposite to the changes in the market index. 12 Investment Policies Under Texas law,the City is required to invest its funds under written investment policies that primarily emphasize safety of principal and liquidity; that address investment diversification, yield, maturity, and the quality and capability of investment management; and that includes a list of authorized investments for City funds, maximum allowable stated maturity of any individual investment and the maximum average dollar-weighted maturity allowed ... for pooled fund groups. All City funds must be invested consistent with a formally adopted "Investment Strategy Statement"that specifically addresses each funds' investment. Each Investment Strategy Statement will describe its objectives concerning: (1) suitability of investment type, (2) preservation and safety of principal, (3) liquidity, (4) marketability of each investment,(5)diversification of the portfolio,and(6)yield. Under Texas law, City investments must be made "with judgment and care, under prevailing circumstances, that person or prudence, discretion, and intelligence would exercise in the management of the person's own affairs, not for speculation, but for investment, considering the probable safety of capital and the probable income to be �. derived." At least quarterly, the investment officers of the City shall submit an investment report detailing: (1)the investment position of the City; (2) that all investment officers jointly prepared and signed the report, (3) the beginning market value, any additions and changes to market value and the ending value for each pooled fund group,(4)the book value and market value of each separately listed asset at the beginning and end of the reporting — period, (5) the maturity date of each separately invested asset, (6) the account or fund or pooled fund group for which each individual investment was acquired, and (7)the compliance of the investment portfolio as it related to: (a) adopted investment strategy statements and (b) state law. No person may invest City funds without express written authority from the Mayor and Council of the City. The City's policies requires investments in accordance with applicable state law. The City' Statement of Investment does not exclude any investments allowable under State law described above under"Legal Investments." The City generally invests in obligations of the United States or its Agencies and instrumentalities. Current Investments State law and City ordinances authorize the City to invest in direct obligations of the U.S. Treasury with maturity dates of three years or less,obligations of agencies of the U.S.Government with maturity dates of two years or less, and certain investment pools. The City's investment balances on March 31,2006 were as follows: Face Principal Market Book Amount Invested Value Value Money Market Funds $63,631,736 $63,631,736 ' $63,631,776 $63,631,736 Government Securities 14,384,000 14,077,511 14,148,568 14,156,301 Certificates of Deposit 3,754,007 3,754,007 3,754,007 3,754,007 Total Portfolio $81,769,743 $81,463,254 $81,534,311 $81,542,044 Additional Provisions Under Texas law, the City is additionally required to: (1) annually review its adopted policies and strategies; (2) require any investment officers with person business relationships or relatives with firms seeking to sell securities to the entity to disclose the relationship and file a statement with the Texas Ethics Commission and the Mayor and Council; (3)require the registered principal of firms seeking to sell securities to the City to: (a)receive and review the City's investment policy, (b) acknowledge that reasonable controls and procedures have been implemented to preclude imprudent investment activities, and (c) deliver a written statement attesting to these requirements; (4) _ perform and annual audit of the management controls on investments and adherence to the City's investment policy; (5) provide specific investment training for the Treasurer, Chief Financial Officer and investment officers; (6) restrict reverse repurchase agreements to not more than 90 days and restrict the investment of reverse repurchase agreement funds to no greater than the term of the reverse repurchase agreement; (7) restrict the investment in mutual funds in the aggregate to no more than 80% of the City's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service and further restrict the investment in non-money market mutual funds of any portion of bond proceeds,reserves and funds held for debt service and to not more than 15%of the entity's monthly average fund balance, excluding bond proceeds and reserves and other funds held for debt service;and (8)require local government investment pools to confirm to the new disclosure,rating, net asset value, yield calculation,and advisory board requirements. 13 CITY TAX DEBT Tax Supported Debt Statement The following tables and calculations relate to the Certificates and to all other tax supported debt of the City. The City and various other political subdivisions of government which overlap all or a portion of the City are empowered to incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of property within the City. Bonded Indebtedness Payable from Ad Valorem Taxes 2005 Net Assessed Valuation(100%of estimated market value) $ 3,816,235,030(a)(b) Direct Debt: Outstanding Tax Supported Debt(as of June I,2006) $ 176,880,000(c) Plus: The Certificates 9,700,000 Total Direct Debt $ 1$6,589.,Q0 Debt Service Fund Balance(as of May 30,2006) $ 6,462,445 .61 (a) Provided by the Brazoria Central Appraisal District (the "Appraisal District") and net of exemptions. Includes $472,469,612 in assessed value attributable to Reinvestment Zone Number Two, City of Pearland,Texas (the 'TIRZ"). Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ are deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Certificates; however, a portion of the such revenues are retained by the City for administrative services related to the TIRZ. See "TAX DATA — Tax Increment Reinvestment Zone" for a description of the agreement between the City and the TIRZ. (b) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No.5, which was annexed by the City on December 31,2005. (c) All outstanding debt of Brazoria County Municipal Utility District No.5 has been refunded by the City. sio 14 Tax Supported Debt Service Schedule ... The following sets forth the principal and interest on the City's Outstanding Tax Supported Debt,plus the principal and interest on the Certificates. Fiscal Year Current Plus: The Certificates Total Ending Debt Service Total Principal Debt Service 9-30 Requirements Principal Interest and Interest Requirements 2006 $ 11,199,903 $ 11,199,903 2007 11,865,731 $ 534,360 $ 534,360 12,400,091 2008 11,491,894 $ 25,000 457,257 482,257 11,974,151 2009 13,024,434 25,000 455,726 480,726 13,505,159 s 2010 13,352,021 50,000 453,429 503,429 13.855,450 2011 13,443,592 125,000 448,069 573,069 14,016,661 2012 13,499,510 315.000 434,594 749,594 14,249,104 2013 13,491,847 335,000 414,688 749,688 14,241,535 - 2014 13,493,493 355,000 393,557 748,557 14,242,049 2015 13,492,648 370,000 371,354 741,354 14,234,001 2016 13,489,039 395,000 349,654 744,654 14,233,693 2017 13,499,336 405,000 330,932 735,932 14,235,268 2018 13,522,609 405,000 314,074 719,074 14,241,683 2019 11,562,336 505,000 294,838 799,838 12,362,173 2020 11,623,338 470,000 274,001 744,001 12,367,339 2021 11.619,665 500,000 253,146 753,146 12,372,811 2022 11,616,384 525,000 230,912 755,912 12,372,296 2023 11,615,469 555,000 207,218 762,218 12,377,686 2024 11,611,044 585,000 181,991 766,991 12,378,035 2025 11,597,044 605,000 155,363 760,363 12,357,406 2026 11,591,059 730,000 125,325 855,325 12,446,384 2027 11,591,813 765,000 91,688 856,688 12,448,500 2028 11,597,000 805,000 56,363 861,363 12,458.363 2029 11.528.650 850.000 19.125 869,125 12,457,775 $296,42'15• , QQ.Q44 16.847 664 $16547,664 1311.027,516 Average Annual Requirements(2006-2029) $13,042,813 _ Maximum Annual Requirement(2012) $14,249,104 Principal Payout(All Tax Supported Debt) 13.39% in 5 years 33.74% in 10 years 55.81% in 15 years 81.34% in 20 years imi 1 1 15 w Estimated Overlapping Debt The following table indicates the indebtedness,defined as outstanding obligations payable from ad valorem taxes,of governmental entities overlapping the City and the estimated percentages and amounts of such indebtedness attributable to property within the City. This information is based upon data secured from the individual jurisdictions and/or the Texas Municipal Reports. Such figures do not indicate the tax burden levied by the applicable taxing jurisdictions for operation and maintenance or for other purposes.The City has not independently verified the accuracy or completeness of the information shown below except for amounts related to the City. Debt as of Overlapping Taxing Jurisdiction May 1,2006 Percent Amount Alvin Community College District $ 19,610,000 5.22% $ 1,023,642 Brazoria County 29,535,000 6.97 2,058,590 Brazoria County MUD No. 17 23,745,000 100.00 23,745,000 Brazoria County MUD No. 18 30,925,000 99.86 30,881,705 Brazoria County MUD No. 19 30,380,000 100.00 30,380,000 Brazoria County MUD No.26 40,830,000 100.00 40,830,000 Pearland ISD 279,340,000 72.20 201,683,480 Harris County(a) 1,811,116,590 0.02 362,223 Harris County Department of Education -0- 0.02 -0- Mee Harris County Flood Control District 38,859,985 0.02 7,712 Port of Houston Authority 314,705,000 0.02 62,941 TOTAL ESTIMATED OVERLAPPING $331,035,353 The City(b) 186,580,000 Total Direct and Estimated Overlapping Debt 5517,615 .. (a) Harris County Toll Road Certificates are considered self-supporting and are not included in the amount shown for Harris County. (b) Includes the Certificates. Debt Ratios • Direct and Direct Debt Overlapping Debt Per 2005 Certified Net Assessed Valuation($3,816,235,030) 4.89% 13.59% Per Capita(69,808) $2,673 $7,415 TAX DATA General One of the City's principal sources of operational revenue and its principal source of funds for debt service payments MI is the receipts from ad valorem taxation. See"SELECTED FINANCIAL DATA". The following is a recapitulation of(a) the Texas Property Tax Code, including methodology, limitations, remedies and procedures; (b) historical analysis of collection and trends of tax receipts and provisions for delinquencies; (c) an analysis of the tax base, including relative property composition, principal taxpayers and adequacy of the tax base to service debt - requirements;and(d)taxation that may add to the City's taxpayers'tax costs. Property Tax Code and County-Wide Appraisal District The Texas Property Tax Code (the "Property Tax Code") establishes for each county in Texas a single appraisal mIIP district with responsibility for recording and appraising property for all taxing units within the county, and a single appraisal review board, with responsibility for reviewing and equalizing the values established by the appraisal district. The Property Tax Code requires the appraisal district, by May 15 of each year, or as soon thereafter as practicable,to prepare appraisal records of property as of January 1 of each year based upon market value.The chief appraiser must give written notice before May 15,or as soon thereafter as practicable, to each property owner whose property value is appraised higher than the prior tax year or the value rendered by the property owner or whose property was not on the appraisal roll the preceding year or whose property was reappraised in the current tax year. Notice must also be given if ownership of the property changed during the preceding year. The appraisal review 16 board has the ultimate responsibility for determining the value of all taxable property within the City; however,any property owner who has timely filed notice with the appraisal review board may appeal a final determination by the appraisal review board by filing suit in a Texas district court. Prior to such appeal or any tax delinquency date, however, the property owner must pay the tax due on the value of that portion of the property involved that is not in dispute or the amount of tax imposed in the prior year, whichever is greater, or the amount of tax due under the order from which the appeal is taken. In such event,the value of the property in question will be determined by the court, or by a jury, if requested by any party. In addition taxing units such as the City are entitled to challenge certain matters before the appraisal review board, including the level of appraisals of a certain category of property, the exclusion of property from the appraisal records or the grant in whole or in part of an exemption. A taxing unit - may not,however,challenge the valuation of individual properties. Although the City has the responsibility for establishing tax rates and levying and collecting its taxes each year, under the Property Tax Code the City does not establish appraisal standards or determine the frequency of _ revaluation or reappraisal. The appraisal district is governed by a board of directors elected by the governing bodies of the county and all cities,towns, school districts and, if entitled to vote,the conservation and reclamation districts that participate in the appraisal district. The Property Tax Code requires each appraisal district to implement a plan for periodic reappraisal of property to update appraised values. Such plan must provide for reappraisal of all real ,r property in the appraisal district at least once every three years. It is not known what frequency of reappraisals will be utilized by the Brazoria County Appraisal District or whether reappraisals will be conducted on a zone or county-wide basis. Tax Rate Limitations Article XI, Section 5 of the Texas Constitution, provides for an overall limitation for Home Rule Cities of$2.50 per $100 assessed valuation. The Attorney General of Texas follows a policy, with respect to Home Rule Cities which have such a$2.50 limitation,of approving ad valorem tax bonds only to the extent that all of such city's ad valorem tax debt can be serviced by a debt service tax rate of$1.50 at 90%collection. Property Subject to Taxation by the City Except for certain exemptions provided by Texas law, all real and tangible personal property and certain categories of intangible personal property with a tax situs in the City are subject to taxation by the City; however, no effort is expected to be made by the Brazoria County Appraisal District to include on the tax roll tangible or intangible personal property not devoted to commercial or industrial use. Principal categories of exempt property include: property owned by the State of Texas or its political subdivisions; property used for public purposes; property exempt from ad valorem taxation by federal law; certain household goods, family supplies, and personal effects; farm products owned by the producer; certain property owned by charitable organizations, youth development associations, religious organizations, and qualified schools; designated historical sites; solar and wind-powered energy devices; most individually-owned automobiles; and property of disabled veterans, only to the extent of $3,000 of taxable property. In addition, taxpayers who are over 65 years of age are entitled to apply for an additional exemption from market value of their residential homestead of$25,000. These over 65 exemptions and disabled veterans exemptions amounted to$58,797,330 from the 2005 tax roll.The state constitution permits local governments the option of granting homestead exemptions of up to 20% of market value. The City has not granted such additional homestead exemption for the 2005 tax year. An eligible owner of agricultural and timberland may apply to have such properties which meet certain requirements appraised on the basis of productivity value or market value, whichever is less. The loss of value due to property values based on productivity value on the 2005 tax roll was approximately$65,819,110. The City has authority to enter into tax abatement agreements to encourage economic development. Under such agreements,a property owner agrees to construct certain improvements on its property. The City in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until the expiration of the agreement. Such abatement agreement may last for a period of up to 10 years. The City has $7,902,020 of such property that was subject to abatement January 1,2005. SIM The constitution of the State of Texas authorizes a property tax exemption for certain business personal property. The City Council had the option to take official action to override the exemption and to continue taxing the property exempted by the amendment. On December 18, 1989,the City's City Council took such official action not to tax the property in 1990 and to allow the exemption for 1991 and all future years. This Freeport Goods exemption amounted to$24,467,740 on the 2005 tax roll. 17 Tax Increment Reinvestment Zone Article VI11, Section l-g of the Texas Constitution and the Tax Increment Financing Act, Chapter 311, V.T.C.A. Tax Code (the "TIF Act") authorize municipalities in the State to establish one or more tax increment financing reinvestment zones for development or redevelopment of the territory within the zones. The TIF Act provides that the municipality may appoint a board of directors for a reinvestment zone to develop a project plan and financing plan for the zone and may delegate to the board certain management duties relating to the zone. Project costs, including financing costs, within the zone may be paid from tax increments collected by each of the taxing units in the zone.The amount of a taxing unit's tax increment for a year is the amount of property taxes levied by the unit for that year on the captured appraised value of real property taxable by the unit (the "Captured Appraised Value") and located in the zone. The Captured Appraised Value is the total appraised value of the property for a year, less the tax increment base of the unit. The tax increment base of a taxing unit is the total appraised value of all real property taxable by the unit and located in the zone in the year in which the City created the zone.Participation by a taxing unit in a reinvestment is discretionary with such taxing unit, and it may decide to deposit all or none, or a portion, of its tax increments into the fund and retain for its own purposes the remainder. A taxing unit cannot reduce the amount of its participation once the financing plan has been implemented. The City designated a reinvestment zone and created the Reinvestment Zone Number Two,City of Pearland,Texas (the "TIRZ")in 1998 by Ordinance No. 891 of the City Council of the City.The purpose of the TIRZ is to design, construct and finance or cause to be designed, constructed and financed certain public works and improvements to �• promote and facilitate the development of the vacant, undeveloped property in the TIRZ. Specifically, the TIRZ is constructing public works and infrastructure improvements to assist in the development of the master planned community, Shadow Creek Ranch ("Shadow Creek Ranch"). The City, Alvin Independent School District ("A1SD"), Brazoria County, Texas ("Brazoria County") and Fort Bend County,Texas ("Fort Bend County") have wis agreed to deposit to a tax increment fund established for the TIRZ(the "Tax Increment Fund") annually a certain percentage of tax collections arising from their taxation of the increase, if any, since January 1, 1998, in the total appraised value of all real property located in the TIRZ and taxable by the City, AISD, Brazoria County and Fort Bend County. The T1RZ Board has nine members, four of whom are appointed by the City. One of the City's appointees is nominated by AISD and Brazoria County and Fort Bend County each appoint one member of the TIRZ Board. Finally, the Texas State Senator and Texas State Representative, or their designees, in whose district the TIRZ is located serve as the final two members of the TIRZ Board. The TIRZ encompasses approximately 3,467 acres of land located within the City, including all of the master planned community of Shadow Creek Ranch, which includes approximately 3,300 acres of land. To date all of the development within the TIRZ has occurred within Shadow Creek Ranch. The City has agreed to pay 100% of its collected Tax Increments(the "City Tax Increment") to the Tax Increment Fund. However, pursuant to a development plan and a development agreement (the "Development Agreement")by and between the City and Shadow Creek Ranch Development Company, L.P., the master developer of property within the TIRZ(the "Developer"), the City, the Developer and the TIRZ have agreed that a certain portion of the City Tax Increment shall be paid by the TIRZ to the City as an "Administrative Fee" (the "Administrative Fee")to compensate the City for some of its cost of providing City services to the developed property within the TIRZ. Pursuant to the Development Agreement,the Administrative Fee is as follows: Years 1 through 3 (1999-2001) No Administrative Fee Years 4 through 8(2002-2006) 36 percent of the City Increment Years 9 through 30(2007-2028) 64 percent of the City Increment Provided that, the amount of City Tax Increment deposited and retained annually in the Tax Increment Fund for the applicable year shall in no event be less than: (i)$0.44 per$100.00 of valuation in years four through eight,and(ii) $0.255 per$100.00 of valuation in years nine through thirty. For tax year 2005, the assessed value attributable to the TIRZ is $472,469,612. As described above, tax revenues generated from assessed value attributable to the TIRZ are deposited into the Tax Increment Fund and are not available to make debt service payments on the Certificates. While a portion such revenues are to be retained by the City as Administrative Fees, such Administrative Fees may not be available to make debt service payments on the Certificates. 18 Notice and Hearing Procedures The Property Tax Code establishes procedures for providing notice and the opportunity for a hearing for taxpayers in the event of certain proposed tax increases and provides for taxpayer referenda which could result in the repeal of certain tax increases. The Property Tax Code also establishes a procedure for notice to property owners of reappraisals reflecting increased property values over $1,000, appraisals which are higher than renditions, and appraisals of property not previously on an appraisal roll. Levy and Collection of Taxes The City is responsible for the collection of its taxes, unless it elects to transfer such functions to another governmental entity. The City has elected to have Brazoria County bill and collect taxes on behalf of the City. Before the later of September 30 or the 60th day after the date the certified appraisal roll is received by the City,the rate of taxation is set by the City Council based upon the valuation of property within the City as of the preceding _ January 1 and the amount required to be raised for debt service, maintenance purposes and authorized contractual obligations. The City Council may under certain circumstances be required to advertise and hold a public hearing within the City on a proposed tax rate before the City Council can hold a public meeting to vote on the tax rate. If the tax rate adopted exceeds by more than 8% the rate needed to pay debt service and certain contractual obligations and to produce, when applied to the property which was on the prior years roll, the prior year's total taxes levied for purposes other than debt service and such contractual obligations (the "rollback rate"), such excess portion of the _ levy may, subject to constitutional restrictions on the impairment of existing obligations, be repealed at an election within the City held upon petition of 10%of the City's qualified voters and the tax rate adopted for the current year be reduced to the rollback rate. The City is prohibited from adopting a tax rate that exceeds the lower of the rollback tax rate or the "effective tax rate" until it has held a public hearing on the proposed tax rate and has otherwise complied with the Property Tax Code. Reference is made to the Property Tax Code for definitive requirements for the levy and collection of ad valorem taxes and the calculation of the various defined tax rates. mar Taxes are due on receipt of the tax bill,and become delinquent after January 31 of the following year,or on the first day of the calendar month next following the expiration of twenty-one (21) days after mailing of the tax bills, whichever occurs later. A delinquent tax account incurs an initial penalty of six percent (6%) of the amount of the tax and accrues an additional penalty of one percent (1%) per month up to July 1, at which time the total penalty becomes twelve percent (12%). In addition, delinquent taxes accrue interest at one percent (1%) per month. If the tax is not paid by July 1, an additional penalty of up to twenty percent (20%) may under certain circumstances be imposed by the City.The Property Tax Code also makes provision for the split payment of taxes,discounts for early payments, partial payments of taxes and the postponement of the delinquency date of taxes under certain circumstances. Collection of Delinquent Taxes Taxes levied by the City are a personal obligation of the property owner on January 1 of the year for which the tax is imposed. On January 1 of each year,a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the City, having the power to tax the property.The City's tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien.In the event a taxpayer fails to make timely payment of taxes due the City,the City may file suit to foreclose its lien securing payment of the tax, to enforce personal liability for the tax, or both. Whether a lien of the United —' States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law. In the absence of such federal law, the City's tax lien takes priority over a tax lien of the United States. The ability of the City to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units, the foreclosure sale price attributable to market conditions, the taxpayer's right to redeem the property within two years of foreclosure,or by bankruptcy proceedings which restrain the collection of a taxpayer's debts. IMP 19 Historical Analysis of Tax Collection -Collection Ratios- Tax Rate Fiscal Net Per$100 of %of Collections Year Tax Assessed Assessed Adjusted Current Current and Ending Year Valuation(a) Valuation Tax Levy(a) Year Prior Years 9-30 1995 $ 844,357,847 $0.6950 $ 5,869,525 98.65% 99.72% 1996 . 1996 875,483,990 0.6950 6,343,113 98.31 99.43 1997 1997 1,012,049,410 0.6950 7,062,826 98.50 99.57 1998 1998 1,172,298,277 0.6950 8,147,473 98.10 99.27 1999 1999 1,322,581,461 0.6950 9,174,224 98.35 99.65 2000 2000 1,563,565,809 0.6950 10,864,049 97.66 99.31 2001 2001 1,760,551,863 0.6860 12,890,902 96.79 98.34 2002 2002 2,171,317,975 0.6860 14,869,170 98.02 100.33 2003 2003 2,355,280,316 0.6960 17,987,752 98.03 100.02 2004 2004 3,019,449,422 0.6948 20,979,311 98.08 99.68 2005 2005 3,816,235,030(b) 0.6744 25,726,447 (In Process of Collection) 2006 r (a) Includes assessed value attributable to the TIRZ. (b) Includes assessed value attributable to Brazoria County Municipal Utility District, annexed by the City on December 31,2005. -Tax Rate Distribution- 2005 2004 2003 2002 2001 Maintenance $0.34548 $0.33890 $0.34570 $0.40600 $0.43000 Debt Service 0.32892 0.35590 0.35030 0.28000 0.25600 Total $0.67440 $0.69480 $0.69600 $0.68600 $0.68600 -Analysis linquent Taxes- The following is an analysis,by tax year,of taxes delinquent as of September 30,2005. Uncollected Adjusted Percentage Tax Year As of September 30,2005 Tax Levy(a) of Tax Levy 2004 $797,744 $20,979,391 3.80% 2003 738,970 17,987,752 4.11 2002 693,785 14,869,170 4.67 2001 699,841 12,890,902 5.43 2000 285,091 10,864,049 2.62 1999 479,170 9,174,224 5.22 1998 389,445 8,147,473 4.78 1997 293,915 7,062,826 4.16 .. 1996 258,140 6,343,113 4.07 1995 280,499 5,869,525 4.78 (a) The total tax levy has been adjusted to reflect additions and deletions from the tax roll for prior years. -Delinquent Tax Collection Procedures- ln addition to the legal procedures and penalties described under "Levy and Collection of Taxes", the City has .,. retained a delinquent tax attorney on a contract basis to file suit to collect delinquent taxes due the City. The fees due such attorney for acting as delinquent tax attorney are payable from an additional penalty imposed upon the delinquent taxpayer,not to exceed 20%of the tax due. 20 Analysis of Tax Base -Tax Base Distribution- 2005 Tax Roll 2004 Tax Roll 2003 Tax Roll Type of Property Amount % Amount % Amount % Residential $2,892,460,301 71.6% $2,306,313,150 70.6% $1,788,420,100 70.9% Acreage 171,917,714 4.3 171,709,500 5.3 107,695,780 4.3 Vacant Lots/Tracts 238,624,160 5.9 158,938,710 4.9 84,600,830 3.4 Farm&Ranch 7,986,224 0.2 5,528,720 0.2 4,923,360 0.2 Commercial/Industrial 655,848,240 16.2 545,849,480 16.7 466,128,080 18.5 Utilities 48,658,247 1.2 45,034,700 1.4 43,705,230 1.7 Real Inventory 12,121,454 0.3 14,500,240 0.4 10,239,250 0.4 Other 13,241,531 0.3 18,183,090 0.6 17,013,190 0.7 Gross Assessed Value $4,040,857,870 $3,266,057,590 $2,522,725,820 Less: Exemption (224,622,840) (245,607,617) (167,445,404) — Net Assessed Value $3,8I6,235,030(a)(b)(c) $3,020,449,973(a)(d) $2,355,280,316(a) (a) Value may differ from those shown elsewhere in this Official Statement due to subsequent adjustments to the tax roll. (b) Includes $472,467,612 in assessed value attributable to the TIRZ. Pursuant to an agreement between the City and the TIRZ,tax revenues generated from assessed value attributable to the TIRZ arc deposited in a fund to be used for TIRZ projects and are not available to make debt service payments on the Bonds;however,a portion of — such revenues are retained by the City for administrative services related to the TIRZ. See"TAX DATA—Tax Increment Reinvestment Zone"for a description of the agreement between the City and the TIRZ. (c) Includes$233,127,070 in assessed valuation from Brazoria County Municipal Utility District No. 5, which was annexed by the City on December 31,2005. (d) Includes$219,785,523 in assessed value attributed to the TIRZ. -Principal Taxpayers- — 2005 2004 2003 Taxable Taxable Taxable Assessed Assessed Assessed Principal Taxpayer Type of Property Valuation Valuation Valuation Weatherford U.S.Inc. Oil Field Equipment $ 33,721,540 $ 34,027,450 $ 34,843,830 Centerpoint Energy,Inc. Utility 21,856,040 19,416,250 18,062,650 Wal-Mart Real Estate Shopping Center 18,652,320 12,428,460 12,115,230 Pearland Investments Ltd.Prt. Land Development 18,529,300 25,546,730 (a) — Perry Homes Home Construction 17,768,220 (a) (a) Shadow Creek Ranch Dev.Co. Land Development 14,743,240 13,068,530 (a) Shadow Creek Ranch Development Land Development 12,754,930 (a) (a) Lowe's Home Centers Retail Store 12,683,070 13,731,580 (a) MHI Partnership Ltd. Land Development 12,094,900 8,604,070 (a) HD Development Properties LP Land Development 11,466,010 (a) (a) Landar Mary's Creek Apartments Apartments (a) 10,309,630 11,113,820 Home Depot USA Inc. Retail Store (a) 9,756,700 (a) D R Horton-Emerald Ltd. Home Construction (a) 9,371,630 (a) SBC Telephone Utility (a) (a) 9,439,220 Lennar Homes of Texas Home Construction (a) (a) 8,997,250 West Lake Residential Ltd. Apartments (a) (a) 8,835,990 Aggreko,Inc. Mobile Temperature Control (a) (a) 8,560,750 Whispering Winds Apartments Apartments (a) (a) 7,705,580 Total Ten Principal Taxpayers $174,269,570 $156,261,030 $133,019,740 Percentage Ten Principal Taxpayers Comprise of Tax Roll % 5 4.% 5.65% (a) Not a principal taxpayer in such tax year. 21 r -Tax Adequacy- Average Annual Debt Service Requirements based on Total New Debt Service(2006-2029) $13,042,813 Tax Rate of$0.360 per$100 assessed valuation against rthe 2005 Certified Assessed Valuation,at 95%collection,produces $13,051,524 Maximum Annual Debt Service Requirements based on Total New Debt Service(in the year 2012) $14,249,104 PP Tax Rate of$0.394 per$100 assessed valuation against the 2005 Certified Assessed Valuation,at 95%collection,produces $14,284,168 Estimated Overlapping Taxes Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the property which has been taxed, which lien is on a parity with any tax lien on such property in favor of the City. In addition to ad valorem taxes required to retire the aforementioned direct and estimated overlapping debt, certain taxing jurisdictions including those mentioned in Estimated Overlapping Debt are also authorized by Texas law to assess, levy, and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue purposes. Set forth below is an estimation of ad valorem taxes levied on a $100,000 single-family residence by such jurisdictions, assuming the assessments are made at their claimed basis of assessment (100%). Such residence is further assumed to be located within Brazoria County wherein substantially all of the residential property within the City is located. No recognition is given to local assessments for civic association dues, fire department contributions,or other charges made by other than political subdivisions. 2005 Tax Estimated Taxing Jurisdiction Rate/$100 2005 Tax Bill The City $0.674400 $ 674.40 Brazoria County 0.347987 347.99 Brazoria Drainage District No.4 0.143845 143.85 Pearland ISD 1.792200 1.792.20 Estimated Total 2005 Tax Bill: $2,958,54(a) (a) Ad valorem taxes are levied by separate municipal utility districts ("MUD") on property located within the specific MUD. These taxes are paid in addition to the above noted City taxes. Sales Tax -Authority- The City has adopted the provisions of Article 1066c,Vernon's Texas Civil Statutes, as amended, which grants the City the power to impose and levy a 1% sales tax. The City has also voted an additional 1/2%sales and use tax for economic development under Article 5190.6, Vernon's Texas Civil Statutes, as amended. The City may not and has not pledged the proceeds from the sales and use tax as security for the Certificates. 22 -Collection History- The State Comptroller,after deduction of a 2% service fee,currently remits the City's portion of sales tax collections monthly. By statute the Comptroller is required to remit at least twice annually. The following is an analysis of the collection history of the City's sales and use tax: Ad Valorem Tax Comparisons Fiscal Year Sales and Use Equivalent Tax Rate %of Actual Ended 9-30 Tax Receipts Tax Year Equivalent Tax Levy —" 1994 $1,905,741 (1993) $0.261 36.48 1995 2,166,219 (1994) 0.284 40.74 1996 2,298,546 (1995) 0.272 39.16 1997 2,589,918 (1996) 0.298 40.83 1998 2,962,481 (1997) 0.297 41.94 1999 3,415,183 (1998) 0.291 41.92 — 2000 3,684,676 (1999) 0.279 40.16 2001 4,795,355 (2000) 0.307 44.14 2002 5,025,749 (2001) 0.285 38.99 2003 5,859,053 (2002) 0.270 39.40 2004 6,739,484 (2003) 0.260 37.47 2005 7,785,161 (2004) 0.258 37.09 SELECTED FINANCIAL DATA Historical Operations of the City's General Fund The following is a condensed statement of revenues and expenses of the City's General Fund for the past five fiscal years. The inclusion of the following table is not intended to imply that any revenues of the City,other than receipts from ad valorem taxes as provided in the Ordinance and the limited, subordinate pledge of Net Revenues of the System,are pledged to pay principal and interest on the Certificates. ..., Fiscal Year Ended September 30 2005 2004 2003 2002 2001 REVENUES General Property Taxes(a) $ 9,649,452 $ 8,752,162 $ 8,970,369 $ 8,054,173 $ 6,784,591 Sales Taxes 7,785,161 6,739,484 5,859,053 5,025,749 4,795,353 Franchises 3,097,163 2,883,188 2,533,475 2,453,829 2,303,730 Licenses&Permits 3,863,592 3,427,957 2,682,456 2,256,638 1,896,728 Charges for Services 6,138,610 5,259,748 3,982,070 3,651,825 3,202,767 Fines&Forfeitures 1,883,381 1,561,850 1,377,552 845,322 856,641 Intergovernmental 871,196 716,136 615,436 -0- -0- Other Revenues 1,066,315 855,628 324,501 908,154 863,457 Total Revenues $34,354,870 $30,196,153 $26,344,912 $23,195,690 $20,703,267 EXPENDITURES General Government $ 6,664,735 $ 6,059,595 $ 5,678,275 $ 5,052,056 $ 4,217,744 _ Public Safety 10,816,906 10,142,115 9,637,676 7,411,992 6,692,138 Public Works 10,449,814 8,709,151 8,769,722 7,603,804 5,974,667 Community Services 2,692,450 2,792,376 2,729,859 2,271,052 2,043,620 Capital Outlay 1,019,976 -0- -0- -0- -0- Total $31,643,881 $27,703,237 $26,815,532 $22,338,904 $18,928.169 (a) Includes penalties and interest. —. Source: City's audited financial statements. 23 General Fund and Debt Service Fund Balance for the Past Five Fiscal Years Fiscal Year Ended September 30 2005 2004 2003 2002 2001 General Fund $8,202,771 $8,285,590 $5,361,732 $5,024,946 $6,563,942 Debt Service Fund $3,855,129 $3,007,752 $2,130,321 $2,229,529 $1,544,987 Source: City's audited financial statements. Pension Fund The City participates in the Texas Municipal Retirement System(TMRS),an agency operated by the State of Texas. Employees of the City who participate in TMRS contribute a fixed percentage,currently 7%,of their gross pay and the City matching percent is currently 2 to 1. As employees leave municipal employment other than through retirement, they may withdraw from TMRS those funds they contributed, but forfeit their employer's contributions. Each municipal employer's requirements for current contributions are offset by the amounts of such forfeitures. As of April 7,2006,the City employed 390 full-time employees and 63 part-time and seasonal employees. All full- time employees are covered by TMRS and the City's contribution for this calendar year as of December 31, 2005, amounted to approximately $1,536,669 which includes amortization of prior service cost over 25 years. The City had an unfunded pension benefit obligation in the amount of approximately $4,546,738 as of December 31, 2004. The liability for prior service benefits will be amortized over a period of twenty-five years or less by contributions from the City which are a level percentage of payroll. Financial Statements A copy of the City's Financial Statements for the fiscal year ended September 30, 2005, is attached hereto in the APPENDIX B. Copies of such statements for preceding years are available,for a fee,upon request. ADMINISTRATION OF THE CITY Mayor and City Council Policy-making and supervisory functions are the responsibility of and are vested in the Mayor and City Council for the City, under provisions of the "Charter of the City of Pearland" (the "Charter") approved by the electorate February 6, 1971. The Council is elected at large on the first Saturday in May. The Mayor and five Council members serve three-year staggered terms. The Mayor is entitled to vote only in the event of a tie and has no power to veto Council action. Members of the Council are described below: • Term Council Members Period Served Expires May Occupation Tom Reid 15 Years 2008 Retired Mayor Kevin Cole 2 Years(a) 2007 Insurance Broker Council Member Mayor Pro-Tern Helen Beckman Newly Elected(b) 2009 Retired Council Member Felicia Kyle Newly Elected(b) 2009 Attorney Council Member Richard Tetens 5 Years(c) 2007 Retired Council Member Steve Saboe 1 Year 2008 Management r Council Member (a) Elected May 2004,however Councilman Cole has served a previous term(3 years)on the City Council. (b) Elected May 13,2006. (c) Elected May 2001,however Councilman Tetens has served two previous terms(6 years)on the City Council. 24 Administration Under provisions of the Charter, the City Council enacts local legislation, adopts budgets, determines policies and appoints the City Manager, who is charged with the duties of executing the laws and administering the government of the City. As the chief executive officer and head of the administrative branch of the City government,the City Manager is given the power and duties to: (1) Appoint and remove all department heads and all other employees in the administrative service of the City and may authorize the head of a department to appoint and remove subordinates in his respective department; (2) Prepare the budget annually,submit it to City Council,and be responsible for its administration; (3) Prepare and submit to City Council a complete report on the finances and administrative activities of the City; (4) Keep City Council advised of the financial condition and future needs of the City and make appropriate recommendations;and _ (5) Perform such other necessary duties as prescribed by the Charter or required by City Council. Members of the administrative staff are described below: Name Position Period Served Bill Eisen City Manager 5 Years Nick Finan Assistant City Manager 1 Year Mike Hodge Assistant City Manager 1 Year Claire Manthei Director of Finance 1 Year Daniel Cameron Director of Public Works 13 Years - Young Lorfing City Secretary 9 Years Doug Kneupper City Engineer 3 Years Darrin Coker City Attorney 9 Years Joseph Wertz Director of Projects 4 Years — Christopher Doyle Police Chief 27 Years Consultants The City has retained several consultants to perform professional services in connection with the independent auditing of its books and records and other City activities. Several of these consultants are identified below: Bond Counsel Andrews Kurth LLP Houston,Texas Certified Public Accountants Pattillo,Brown&Hill,P.C. Waco,Texas �* Financial Advisor RBC Capital Markets Houston,Texas LEGAL MATTERS Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings prepared incident to the — authorization and issuance of the Certificates, including a certified copy of the unqualified approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, to the effect that the Certificates, which the Attorney General will have examined, are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The City also will furnish the — approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, to the effect that, based upon an examination of such transcript, the Certificates are valid and binding obligations of the City under the Constitution and laws of the State of Texas. The legal opinion of Bond Counsel will further state that (I) the Certificates are payable, both as to principal and interest, from the levy of ad valorem taxes, within the limits prescribed by law, 25 a a against taxable property within the City and (2) subject to the matters discussed under the caption "TAX EXEMPTION," interest on the Certificates is excludable from gross income for federal income tax purposes. The opinion of Bond Counsel is expected to be reproduced on the back panel of the Certificates over a certification by the City Secretary attesting that such legal opinion is dated as of the date of delivery of and payment for the Certificates and is a true and correct copy of the original opinion. Errors or omissions in the printing of such legal opinion on the Certificates shall not affect the validity of the Certificates nor constitute cause for the failure or refusal by the Underwriter to accept delivery of and pay for the Certificates. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Official Statement, .011 and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the information describing the Certificates in the Official Statement to verify that such description conforms to the provisions of the Ordinance. The legal fee to be paid Bond Counsel for services rendered in connection with the -• issuance of the Certificates is contingent upon the sale and delivery of the Certificates. The legal opinion will be printed on the Certificates. No-Litigation Certificate -10 The City will furnish to the Underwriter a certificate,dated as of the date of delivery of the Certificates,executed by appropriate City officials, to the effect that no litigation of any nature has been filed or is then pending or threatened, either in state or federal courts, contesting or attacking the Certificates; restraining or enjoining the issuance, execution or delivery of the Certificates; affecting the provisions made for the payment of or security for the Certificates; in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the Certificates;or affecting the validity of the Certificates. No Material Adverse Change The obligations of the Underwriter to take and pay for the Certificates,and of the City to deliver the Certificates,are subject to the condition that, up to the time of delivery of and receipt of payment for the Certificates,there shall have been no material adverse change in the condition (financial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX EXEMPTION In the opinion of Andrews Kurth LLP, Houston,Texas, Bond Counsel, interest on the Certificates is (1)excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code"), from gross income of the owners thereof for federal income tax purposes and(2)is not includable in the alternative minimum taxable income of individuals or corporations,except as described below. The foregoing opinions of Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Certificates. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Bond Counsel has assumed continuing compliance by the City with certain covenants of the Ordinance authorizing the issuance of the Certificates(the"Ordinance")and has relied on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Certificate proceeds and any facilities financed therewith, the source of repayment of the Certificates, the investment of Certificate proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Certificate proceeds and certain other amounts be paid periodically to the United States and that the City file an information report with the Internal Revenue Service (the "Service"). If the City should fail to comply with the covenants in the Ordinance, or if its representations relating to the Certificates that are contained in the Ordinance should be determined to be inaccurate or incomplete,interest on the Certificates could become taxable from the date of delivery of the Certificates,regardless of the date on which the event causing such taxability occurs. Interest on all tax-exempt obligations,such as the Certificates,owned by a corporation(other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. 26 Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences UMW resulting from the ownership of,receipt or accrual of interest on or acquisition or disposition of the Certificates. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes,regulations,published rulings and court decisions and the representations and covenants of the City described above. No ruling has been sought from the Service with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Certificates is commenced, under current procedures the Service is likely to treat the City as the "taxpayer," and the owners of the Certificates may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Certificates, the City may have different or conflicting interests from the owners of the Certificates. Public awareness of any future audit of the Certificates could adversely affect the value and liquidity of the Certificates during the pendency of the audit,regardless of its ultimate outcome. Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest,such as interest on the Certificates,received or accrued during the year. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations,such as the !` Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies,certain foreign corporations doing business in the United States,certain S corporations with Subchapter C earnings and profits,individual recipients of Social Security _ or Railroad Retirement benefits,taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. NNW If a tax-exempt obligation,such as the Certificates, was acquired at a"market discount" and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue, the Code provides ordinary income tax treatment of gain recognized upon the disposition of such"market discount bond." A"market discount bond"is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the "revised issue price" (i.e., a market discount). Such treatment applies to"market discount bonds"to the extent the gain from the disposition thereof exceeds the accrued market discount of such bonds unless a statutory de minimis rule applies. The "accrued market discount" is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of the Certificates. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Certificates. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates Some of the Certificates may be offered at initial offering prices which are less than the stated redemption prices at maturity of such Certificates. If the initial offering prices of the Certificates are lower than the stated redemption price payable at maturity, the Certificates of that maturity (the "Discount Certificates") will be considered to have "original issue discount" for federal income tax purposes. An initial owner who purchases a Discount Certificate in the initial public offering of the Certificates at such an initial offering price will acquire such Discount Certificate with original issue discount equal to the difference between (a)the stated redemption price payable at the maturity of such Discount Certificate and (b) the initial offering price to the public of such Discount Certificate. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Certificate and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such NNW Discount Certificate continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Certificates under the caption "TAX EXEMPTION" generally applies to original issue discount deemed to be earned on a Discount Certificate while held by an owner who has purchased such Certificate at the initial offering price in the initial public offering of the Certificates and that discussion should be considered in connection with this portion of the Official Statement. 27 In the event of a redemption, sale,or other taxable disposition of a Discount Certificate prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Certificate in the hands of such owner(increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Certificate continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. 'n, Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest on a Certificate,such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase Discount Certificates must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Certificate may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Certificate. See "TAX EXEMPTION" for a discussion regarding the alternative minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and dots not otherwise affect the rights or obligations of the owner of a Discount Certificate or of the City. The portion of the principal of a Discount Certificate representing original issue discount is payable upon the maturity or earlier redemption of such Certificate to the registered owner of the Discount Certificate at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each .1111 Discount Certificate is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase, ownership,redemption,sale or other disposition of Discount Certificates by an owner that did not purchase such Certificates in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective .. purchasers of Discount Certificates should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Certificates and with respect to the federal,state,local and foreign tax consequences of the purchase,ownership,redemption,sale or other disposition of such Discount Certificates. Premium Certificates Some of the Certificates may be offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Certificates. If any of the Certificates of such maturities are sold to members of the public (which for this purpose excludes bond houses,brokers and similar persons or organizations acting in the capacity of wholesalers or underwriters) at such initial offering prices, each of the Certificates of such maturities ("Premium Certificates") will be considered for federal income tax purposes to have "bond premium" equal to the amount of such excess. The basis for federal income tax purposes of a Premium Certificate in the hands of an initial purchaser 'W who purchases such Certificate in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Certificate by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain(or decrease the amount of any loss)recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Certificate by the initial purchaser. Generally,no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Certificate which is amortizable each year(or shorter period in the event of a sale or disposition of a Premium Certificate)is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Certificate based on the initial purchaser's original basis in such Certificate. The federal income tax consequences of the purchase, ownership,redemption, sale or other disposition by an owner of Certificates that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering prices for the Certificates of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Certificates should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption,sale or other disposition of Premium Certificates. .118 28 CONTINUING DISCLOSURE OF INFORMATION In order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934,as the same may be amended from time to time ("Rule 15c2-12"), the City has entered into a Disclosure Dissemination Agent Agreement ("Disclosure Dissemination Agreement") for the benefit of the Holders of the Bonds with Digital Assurance Corporation, L.L.C. ("DAC"), under which the City has designated DAC as Disclosure Dissemination Agent. The form of Disclosure Dissemination Agreement can be obtained on www.dacbond.com. In the Ordinance,the City has made the following agreement for the benefit of the holders and beneficial owners of the Certificates. The City is required to observe the agreement for so long as it remains obligated to advance funds to pay the Certificates. Under the agreement, the City will be obligated to provide certain updated financial information and operating data annually, and timely notice of specified material events, to certain information vendors. This information will be available to securities brokers and others who subscribe to receive the information from the vendors. Annual Reports The City will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the City of the general type included in this Official Statement under the headings "INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY—Current Investments," "CITY TAX DEBT," _ "TAX DATA" (except under the subheading "Estimated Overlapping Taxes"), "SELECTED FINANCIAL DATA," and in Appendix "B". The City will update and provide this information within six months after the end of each fiscal year ending in or after 2006. The City will provide the updated information to each nationally recognized municipal securities information repository ("NRMSIR") and to the Texas Municipal Advisory Council, the state information depository ("SID") designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission(the"SEC"). The City may provide updated information in full text or may incorporate by reference certain other publicly _ available documents, as permitted by SEC Rule 15c2-12, as amended and in effect from time to time (the "Rule"). The updated information will include audited financial statements, if the City commissions an audit and it is completed by the required time. If audited financial statements are not commissioned or are not available by the required time,the City will provide unaudited financial statements and audited financial statements when and if they become available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix "B" or such other accounting principles as the City may be required to employ from time to time pursuant to state law or regulation. The City's current fiscal year end is September 30. Accordingly, it must provide updated information by March 31 in each year,beginning March 31,2007,unless the City changes its fiscal year. If the City changes its fiscal year,it will notify each NRMSIR and the SID of the change. Material Event Notices The City will also provide timely notices of certain events to certain information vendors. The City will provide notice of any of the following events with respect to the Certificates, if such event is material to a decision to purchase or sell Certificates: (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 Certificates; (7) modifications to rights of holders of the Certificates;(8)calls;(9)defeasances; (10)release, substitution,or sale of property securing repayment of the Certificates; and (11) rating changes. Neither the Certificates nor the Ordinance makes any provision for debt service reserves or liquidity enhancement. In addition,the City will provide timely notice of any failure by the City to provide information, data, or financial statements in accordance with its agreement described above under "Annual Reports." The City will provide each notice described in this paragraph to the SID and to either each NRMSIR or the Municipal Securities Rulemaking Board. Availability of Information From NRMSIRs and SID The City has agreed to provide the foregoing information only to NRMSIRs and the SID. The information will be available to holders of and beneficial owners of the Certificates 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. 29 The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and the SEC staff has determined that it is a qualified SID. The address of the Municipal Advisory Council of Texas is 600 West 8th Street, P.O. Box 2177, Austin,Texas 78768-2177,and its telephone number is(512)476-6947. The MAC has also received SEC approval to operate and has begun to operate,a "central post office" for information filings made by municipal issuers, such as the City. A municipal issuer may submit its information filings with the central post office, which then transmits such information to the NRMSIRs and the appropriate SID for filing.This central post office can be accessed and utilized at www.disclosureUSA.org ("DisclosureUSA"). The City may utilize DisclosureUSA for the filing of information relating to the Certificates. Limitations and Amendments The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its .. financial results of operations,condition,or prospects or agreed to update any information that is provided,except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Certificates at any future date. The City disclaims any contractual or tort liability for damages resulting in whole or in part from any breach, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, of its continuing disclosure agreement or from any statement made pursuant to its agreement. Holders or beneficial owners of Certificates may seek as their sole remedy a writ of mandamus to compel the City to comply with its agreement. No default by the City with respect to its continuing disclosure agreement shall constitute a breach of or default under the Ordinance for purposes of any other provision of the Ordinance. Nothing in this paragraph is intended or shall act to disclaim,waive,or otherwise limit the duties of the City under federal and state securities laws. The City's undertakings and agreements are subject to appropriation of necessary funds and to applicable legal restrictions. 40/ The City may amend its continuing disclosure agreement to adapt to changed circumstances that arise from a change in legal requirements,a change in law, or a change in the identity, nature,status or type of operations of the City if, but only if(i)the agreement,as so amended,would have permitted a purchaser to purchase or sell the Certificates in the offering made hereby in compliance with the Rule,taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the holders of a majority in aggregate amount of the outstanding Certificates consent to such amendment or(b)a person unaffiliated with the City(such as nationally recognized bond counsel)determines that the amendment will not materially impair .�. the interests of the holders and beneficial owners of the Certificates. The City may also amend or repeal the agreement if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, and the City may amend the agreement in its discretion in any other circumstance or manner, but in either case only to the extent that its right to do so would not prevent the Underwriters from purchasing the Certificates in the offering described herein in compliance with the Rule. If the City amends the agreement, it has agreed to include with any financial information or operating data next provided in accordance with its agreement described above under "Annual Reports" an explanation, in narrative form,of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided. Audited Financial Report of the City The City presently requires that an annual audit be performed by an independent public accounting firm in accordance with generally accepted auditing standards for governmental units. The most recent audit,and additional financial information are available for public inspection, or copies may be obtained by written request, to the extent permitted by law, addressed to the City, with such fee, if any, for copies as may from time to time be authorized by the City. Compliance With Prior Undertakings The City has complied in all material respects with its prior continuing disclosure agreements made in accordance with the Rule. 30 GENERAL CONSIDERATIONS Sources and Compilation of Information The information contained in this Official Statement has been obtained primarily from the City and from other sources believed to be reliable. No representation is made as to the accuracy or completeness of the information _ derived from sources other than the City. The summaries of the statutes, orders, ordinances and other related documents are included herein subject to all of the provisions of such documents.These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. The information contained in this Official Statement in the section entitled "APPENDIX B - Audited Financial Statements of the City" has been provided by Patillo, Brown & Hill, P.C., Waco, Texas and has been included herein in reliance upon their authority as an expert in the fields of auditing and accounting. Bond Counsel has reviewed the information herein contained under the captions "THE CERTIFICATES" (except for sections _ captioned "Book-Entry-Only System," "Future Debt" and "Use of Proceeds"), "LEGAL MATTERS - Legal Opinions," "TAX EXEMPTION," "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," and "CONTINUING DISCLOSURE OF INFORMATION (except for the section captioned "Compliance With Prior Undertakings")," solely to determine whether such information fairly and accurately describes the Certificates, the Ordinance, and the law set out therein. Bond Counsel has neither independently verified other factual information contained in this Official Statement nor conducted an investigation of the affairs of the City for the purpose of passing upon the accuracy or completeness of this Official Statement. No person is entitled to rely upon the limited participation of such firms as an assumption of responsibility for,or an expression of opinion of any kind with regard to,the accuracy or completeness of any of the other information contained herein. Neither this Official statement nor any statement that may have been made orally or in writing is to be constructed as or as part of a contract with the original purchasers or subsequent owners of the Certificates. Certification as to Official Statement At the time of payment for and delivery of the Certificates, the City will furnish the Underwriter a certificate, executed by the City Secretary and Mayor, acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement, on the date thereof and on the date of delivery were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading; and (c) insofar as the descriptions and statements, including financial data contained in this Official Statement,of or pertaining to entities other than the City and their activities are concerned,such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect. Updating of Official Statement WIN, The City will keep the Official Statement current by amendment or sticker to reflect material changes in the affairs of the City and, to the extent that information comes to its attention, in the other matters described in the Official Statement,until the delivery of the Certificates to the Underwriter. _ This Official Statement was duly authorized and approved by the City Council of the City of Pearland,Texas as of the date specified on the first page hereof. /s/ Tom Reid Mayor City of Pearland A 1 EST: OORW /s/ Young Lorfing City Secretary City of Pearland 31 a APPENDIX A GENERAL INFORMATION REGARDING THE CITY OF PEARLAND The following information has been derived from various sources,including the U.S.Census data,Texas Workforce Commission, "Sales Management Survey of Buying Power",Claritas, and City of Pearland,Texas officials. While such sources are believed to be reliable,no representation is made as to the accuracy thereof. Residential and Commercial Development Because of the City's proximity to downtown Houston, it has become an area of continuing growth in residential, commercial and some light industrial development. As of March 2006,there are numerous residential subdivisions either developed or under construction within the City with homes ranging in value from $75,000 to $400,000, the .. average being approximately$185,400. -Building Permits- . Residential Commercial Other(a) Total Year 12-31 No. Value No. Value No. Value No. Value 1995 340 34,734,829 13 3,762,900 528 7,799,090 881 46,296,819 1996 478 38,301,224 19 5,189,850 392 85,320,262 889 128,811,066 1997 415 43,712,441 30 10,785,050 402 50,038,171 847 104,535,662 1998 506 60,691,036 23 12,696,415 422 40,739,351 951 114,126,808 1999 536 64,525,679 22 13,847,245 532 48,265,402 1,090 126,638,386 2000 818 202,795,755 17 43,414,385 604 59,823,285 1,439 306,033,425 2001 1,245 212,152,849 20 10,868,583 705 21,129,833 1,970 244,151,265 "' 2002 1,424 257,282,301 20 29,585,122 719 15,782,222 2,163 302,649,645 2003 1,684 312,354,189 49 41,504,192 742 17,717,326 2,475 371,575,707 2004 2,102 384,666,248 43 39,220,592 645 21,702,813 2,790 445,589,653 2005 2,610 479,228,095 51 40,675,200 664 30,299,897 3,325 550,203,192 (a) Includes Apartments and public facilities. Source: City of Pearland Major Employers `- The City has a well-rounded workforce with a significant percentage of workers employed in professional or executive positions or as administrative support for professionals. The industries employing the greatest number of Pearland's residents are manufacturing of durable goods,retail trade and education. Industrial activities within the City include the manufacturing of pipe, concrete building materials, mining equipment, lighting fixtures, large storage tanks and the fabrication and forging of steel. According to the Pearland Chamber of Commerce, the following is a list of the industrial employers located within the City with employment above 100. 100—999 Employees Davis Lynch Randall's Home Depot Shaw Cor Pipe Protection Kemlon Strickland Chevrolet Kroger Super Target Lowe's Tele-Flow,Inc. Pauluhn Electric Manufacturing TurboCare Pearland,City of Weatherford Manufacturing Pro Fax 1000+Employees Pearland ISD Wal-Mart ECONOMIC AND GROWTH INDICATORS U.S.Census of Population City of Pearland •Brazoria County Number %Change Number %Change 1930 --- 23,054 +11.84 1940 --- --- 27,069 +17.42 1950 --- 46,549 +71.96 1960 1,497 --- 76,204 +63.71 1970 6,444 +330.46 108,312 +42.13 1980 13,248 +105.59 169,587 +56.57 1990 18,927 +42.87 191,707 +13.04 2000 37,640 +98.87 241,767 +26.11 2005* 69,808 +85.46 WWI * As of December 2005. Employment Statistics Source: Texas Workforce Commission City of Pearland 2005 2004 2003 2002 2001 2000 1999 1998 1997 Labor Force 27,906 20,398 13,035 12,555 12,074 12,010 11,773 11,905 11,809 Employed 26,809 19,403 12,323 12,004 11,640 11,556 11,290 11,466 11,282 Unemployed 1,097 994 712 551 434 454 483 439 527 Rate 3.9 4.9 5.5 4.4 3.6 3.8 4.1 3.7 4.5 Brazoria County 2005 2004 2003 2002 2001 2000 1999 1998 1997 .. Labor Force 132,814 125,175 116,777 110,179 106,660 106,312 104,330 105,383 105,274 Employed 126,536 115,693 106,393 102,593 100,336 99,685 97,274 98,970 97,580 Unemployed 6,278 9,480 10,384 7,586 6,324 6,627 7,056 6,413 7,694 Rate 4.7 7.7 8.9 6.9 5.9 6.2 6.8 6.1 7.3 Marketing Survey of Buying Power* Houston CMSA Brazoria County Population(000s) Total Population 5,341.3 271.9 18-24 10.0 9.9 ' 25-34 14.8 13.7 35-49 23.1 23.9 50+ 23.6 24.5 Households 1,865.4 93.0 Retail By Store Group Sales(000's) Total Retail Sales $ 81,154,286 $3,203,521 Food&Beverage Stores 9,044,420 369,610 Food&Beverage Stores Estab. 8,160,895 231,535 General Merchandise 11,987,182 641,421 _ Furnit.&Home Furnish.and Electron.&Appin. 5,176,520 73,145 Motor Vehicle&Parts Dealers $ 22,198,875 $ 927,372 Total EBI($000) $107,301,634 $5,067,825 Median Household EBI 42,818 45,928 $20,000-$34,999 20.8 19.1 $35,000-$49,999 18.1 18.6 $50,000 and Over 41.6 45.0 Buying Power Index 1.8831 0.858 * Statistical data from "Sales & Marketing Management-2005 Survey of Buying Power", copyright in 2005 Sales Management Survey of Buying Power. Further reproduction is forbidden. APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY MID C II t . • y 1 •am' •anir-m I� �It- 1- :17 q T err. '7s& y 5Ji CITY OF PEARLAND, TEXAS 1 COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2005 I 1 1 1 1 1 1 F F f CITY OF PEARLAND, TEXAS i COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2005 I I I F Prepared by: Finance Department INTRODUCTORY SECTION 4 Ail:. • • t .LI, : c YS _ _. }�4VYJt { ,tee } � � 141i ! f X �� ,1 am` '" To the Honorable Mayor, Members of City Council, and Citizens of the City of Pearland, Texas State law requires that the City shall have its records and accounts audited annually and shall have an audited financial statement prepared based on the audit. We are pleased to submit to you the Comprehensive Annual Financial Report for the City of Pearland, Texas (the "City") for the fiscal year ended September 30, 2005. This report is published in order to provide the City Council, our Citizens, •• and other interested parties with detailed information concerning the financial conditions and activities of the City. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the financial statements are free of any material misstatements. Pattillo, Brown & Hill, L.L.P., Certified Public Accountants, have issued an unqualified ("clean") opinion on the City of Pearland's financial statements for the year ended September 30, 2005. The independent auditors' report is located at the front of the financial section of this report. Management's discussion and analysis (MD&A) immediately follows the independent auditors' report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. PROFILE OF THE GOVERNMENT The City of Pearland, incorporated in 1959, is located across the northern end of Brazoria County and shares a common border with Houston, Texas to the north. The City of Pearland, encompassing approximately 50 square miles, is the fastest growing city in Brazoria County, increasing from approximately 18,000 residents in 1990 to 70,000 residents estimated as of December 2005. 1 The City of Pearland is a home-rule City operating under a Council-Manager form of government. Policy-making and legislative authority are vested in a governing council (Council) consisting of the mayor and five other members. The Mayor and all Council members are elected at large. The Mayor is allowed to vote only in case of a tie vote. The Mayor and each Council member hold office for a period of three years and until his/her successor is elected and qualified. Council members shall be limited to two full consecutive terms of office and there is no limitation on the office of Mayor. The City Manager is appointed by Council and is responsible for implementation of Council policy, execution of the laws, and all day-to-day operations of the City. A full range of municipal services is provided by the City of Pearland including public safety (police, fire, and emergency medical services); solid waste; water and wastewater utilities; public improvements; repair and maintenance of infrastructure; recreational and community activities; and general administrative services. As an independent political subdivision of the State of Texas, the City is considered a primary government. Pursuant to standards established by the Governmental Accounting Standards Board (GASB), the City also reports for all funds for which the City, as the primary government, is financially accountable. As such, this report includes financial activities of three component units as follows: The Pearland Economic Development Corporation was created by the City in 1995 under the Texas Development Corporation Act of 1979 for the purpose of promoting, assisting, and enhancing economic and related development activities on behalf of the City. The Tax Increment Reinvestment Zone (TIRZ #2) was created in 1998 for the purposes of development and redevelopment in the Zone Area, better known as Shadow Creek Ranch. The City participates in the Zone by contributing tax increments produced in the Zone to the Tax Increment Fund. The Development Authority of Pearland was created in 2004 to provide financing for the development of the Zone. LOCAL ECONOMY 1 Located minutes away from Downtown Houston, Texas, the nation's second largest seaport, the world- renowned Texas Medical Center, and NASA-Johnson Space Center, Pearland is the premier location for residential and commercial growth. With abundant land, business facilities, a sound infrastructure, and a diverse workforce supported by educational programs, Pearland's growth has been consistent and will -� continue to be sustained over time with continued residential and commercial development. The total construction value of all building permits issued during fiscal year 2004-2005 totaled over •� $550 million, the majority of which can be attributable to residential construction. New single-family housing permits totaled 2,610. Residential permitting activity is anticipated to remain at this level for several years as the development of a 3,300-acre master planned community, Shadow Creek Ranch, continues. Homes are priced from $140,000 to $1 million and ultimate development will consist of as many as 7,000 single-family homes, 1,800 assisted living units, and 3,900 multi-family units and offer 700 acres of greenbelts and parks, 300 acres of recreational lakes, and commercial and retail centers. Commercial development tends to follow residential development. As such, the City of Pearland is experiencing and will continue to experience retail and office development. ii The Promenade Shops at Shadow Creek, an 800,000 square foot lifestyle center, is tentatively scheduled to open in the fall of 2007. Bass Pro Shops has committed to anchor the center.The Promenade Shops is part of The Spectrum at Clear Creek, a new 1,000-acre mixed-use business and technology park, which will target emerging companies working in advanced sciences. The development will blend components of industrial flex,office and corporate campus uses with retail,leisure,and other lifestyle components. Nashville based HCA, Inc. is building an 81,500 square foot medical complex, which will include a medical office building, outpatient diagnostics and an emergency center. HCA, Inc. will also begin construction of a hospital at the same site in the summer of 2006. Memorial Hermann Hospital will begin construction of a three-story medical office building on SH 288, north of Broadway in early 2006. The City currently is in negotiations with a developer that will bring to the City a new 700,000 square foot open-air pedestrian regional shopping center. The center, which could open in the fall of 2008, would be located on a 110-acre tract adjacent to the Shadow Creek subdivision. Because of Pearland's proximity to Houston Hobby Airport and land availability, Pearland is quickly becoming home to a growing aviation industry. Two aviation companies located near Houston Hobby have relocated to Pearland, comprising a total of 9,500 square feet. MAJOR INITIATIVES The City of Pearland continues to experience dramatic growth and new opportunities. The City Council, = staff, and community share a vision that combines progress and innovation with prudent controls to shape Pearland's future even as it becomes one of the largest suburbs in the Houston area. Our slogan "Where town and country meet" reinforces the message that Pearland will maintain its small-town feel despite becoming a mid-sized city. The Old Town Site = The historic center of Pearland, the Old Town Site, has received special attention over the last several years, with a focus on careful planning that will result in a substantially revitalized neighborhood. The City rehabilitated the sewer system, added over a half-million dollars worth of sidewalks, and completed a makeover of Zychlinski Old Town Park, complete with walking trails, playground equipment, landscaping, and a basketball court. The City now looks forward to implementation of a "Village District" zoning concept intended to allow for mixed-use properties in the area. Sense of Community The City preserves its small-town feel by providing opportunities for all citizens, new and old, to participate in community activities and events. Each year, a greater number of citizens gather at a wide variety of city-sponsored events, including Winter fest, teen and senior dances, the summer concert series, and the Christmas tree lighting ceremony and parade. Participation at the Knapp Senior Center also continues to grow, sparked by new daily programs, field trips, and transportation. Improvements to the building and parking lot will be completed in the near future. Subsequent to the annexation of Brazoria County Municipal Utility District (MUD)#5, the City has taken control of the Westside Event Center,opening up new possibilities for providing services to citizens on that side of town. iii Community Appearance The City of Pearland continues to pride itself on a clean, attractive appearance in the midst of unprecedented growth. Maintaining close collaboration with the Keep America Beautiful affiliate has resulted in a growing number of successful programs to reduce littering, encourage recycling, and — educate citizens on a variety of environmental issues. Participation at the Recycling Center continues to grow, strengthened by the highly popular Household Hazardous Waste Collection program. City staff is now working with other communities to expand recycling and hazardous waste collection opportunities — on a regional scale. City staff and volunteers have worked together to improve the effectiveness of the volunteer-driven — "Eyes of Pearland" community appearance program. Volunteers supplement the efforts of City code enforcement staff to address structures or fences in ill repair, high weeds, "bandit" signs, and other violations of local ordinances. Citizen Police Academy graduates continue to assist with handicapped- parking violations, while also supporting code enforcement efforts in the removal of "bandit" signs. Combined, these efforts provide a community-driven response to code violations, while allowing City staff to concentrate on other pressing issues. Public Safety Among numerous other reasons, families move to Pearland for a high degree of personal safety and a low crime rate. The City Council continues to emphasize public safety, adding a minimum of six new police officers each year to keep pace with growth. The Police Department has expanded traffic and commercial vehicle enforcement with added motorcycle and DOT-certified officers, while capitalizing on improved computer equipment to improve crime tracking and analysis. Community policing remains a focus, with crime prevention, victim assistance, and youth intervention programs further reinforcing the City's small-town feel. — The City and the Volunteer Fire Department requested a re-evaluation of our fire insurance rating by the Insurance Service Organization (ISO). As a result of this re-evaluation, the City's ISO rating was — reduced from a score of 5 to one of 3. This will result in reduced property insurance premiums for property owners in the City. The City has also formed a committee of the public safety leadership in the City to begin planning for the addition of paid firefighting personnel. This committee, which includes the leadership of the Volunteer Fire Department, is developing a plan to begin combined volunteer-paid personnel operations in October 2007. Community Enrichment Initiatives — The Mayor, City Council, and City staff continue to promote a variety of community-oriented recreational, cultural, and educational activities designed to enhance the quality of life in Pearland. The Parks and Recreation Department constantly seeks new funding avenues for planned improvements including recreational trails and a possible skateboard park. Meanwhile, City funds are being used to build additional soccer fields, a spray park, and added parking capacity. iv To enrich our cultural landscape, the Pearland Arts League, with coordination and support from City Council and staff, has established itself as an effective community organization with a history of successful events. The League is supported by strong, community-backed board leadership, and now looks forward to partnering with the Convention and Visitors Bureau to collaborate on bigger and better events in the future. Lastly, to add to the ever-increasing menu of educational opportunities, the Mayor and staff members have helped cultivate a partnership between Alvin Community College and the University of Houston to offer upper-level classes in Pearland. Furthermore, plans for a University of Houston campus and a San Jacinto Community College campus in Pearland continue to take shape. Growth Management Over the past several years, the City has adopted and updated a number of codes to enhance the value and attractiveness of new development. In order to combine these various codes for easier use by staff and developers, the City Council adopted a Unified Development Code, which officially goes into effect May 1, 2006. City staff is conducting presentations to realtors, developers, and other groups in the a business community to provide outreach and education on the new regulations. The City also directly facilitates a variety of development projects that will help shape the future of our community. Through Strategic Partnership Agreements, the City has a responsible and financially sound plan for the annexation of municipal utility districts (MUD) in our extra-territorial jurisdiction. In December of 2005, the City welcomed approximately 5,000 new residents to the City with the annexation of Brazoria County MUD #5. In December of 2006, the City will welcome another 5,000 new residents with the annexation of Brazoria County MUD#1. With continued residential and commercial growth, the need to build new infrastructure and maintain existing infrastructure will be a priority and implemented through an aggressive capital improvement program. The City has $29.8 million voted but, un-issued bond authorization remaining from its 2001 bond referendum, which is expected to be issued over the next year. The City, through master plans, developer agreements, and studies is working toward a 2007 bond referendum to ensure that the City maintains a quality of life that the citizens have come to expect. Transportation Improvements and Strategic Planning Charged with planning, establishing, and maintaining an effective transportation system in the midst of such dramatic growth, the City of Pearland is involved in numerous activities to face this challenge. Major components of our $92.5 million transportation bond program (passed in 2001) are now complete, with others either in progress or ready to start. The Barry Rose Road and Cullen Boulevard extension projects are finished, and the Yost Road project is nearing completion. The first phase of the $46 million Dixie Farm Road project will start construction this year, resulting in a vastly improved primary connection to IH 45. Projects completed also include the extension of Kirby Drive from Shadow Creek Ranch to Beltway 8 and the construction of McHard Road from SH 35 to Pearland Parkway. v The City is also involved in regional efforts for long-range transportation planning. City staff participates on TxDOT-sponsored study steering committees for improvements to SH 288 and SH 35. The City has also participated with the Houston-Galveston Area Council and the cities of Friendswood and League City in a mobility study for FM 518. The City of Pearland also played a key role in the development and passage of the November 2004 Brazoria County Mobility Bond project. Storm Water Management The City has responded to disasters over the last five years with planning and mitigation efforts that will ensure the best possible management of our floodplain. Over the past two years, the City has adopted revised Drainage Design Criteria as well as a Hazard Mitigation Plan, providing additional mitigation — measures while also maintaining compliance with state and federal requirements. Moreover, in 2005, the City of Pearland was approved by FEMA for inclusion in the Community Rating System as a Class 8 community, earning flood insurance premium discounts of up to 10% for our citizens. The City is — working to improve this rating and increase discounts available to our residents. Water and Sewer Strategic Planning The City continues to make strides in providing adequate water and sewer capacity for the future. Building upon major surface water purchases since 2003, the City has increased both intake and treatment capacity that will result in an additional 10 million gallons per day (MGD) over the next three years. This surface water initiative not only ensures an adequate water supply through 2022, but also alleviates subsidence by reducing our dependence on groundwater. Furthermore,the City has maintained its five wastewater treatment plants within governmental compliance, and is currently planning another major plant expansion. While planning for the future and maintaining our treatment plants, the City is also expanding its water and sewer service area while maintaining the existing infrastructure. Several in-line extension projects are in progress, working to network annexed areas and replace substandard well and septic tank service. Moreover, the City is wrapping up a six-year program to correct sewer inflow and infiltration in older —` sections of the City. AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a .. Certificate of Achievement for the Excellence in Financial Reporting to the City of Pearland, Texas, for its Comprehensive Annual Financial Report for the year ended September 30, 2004. This was the 28th consecutive year that the government has received this prestigious award. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current _ comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements, and we are submitting it to GFOA to determine its eligibility for another certificate. vi In addition, the government also received the GFOA's Distinguished Budget Presentation Award for its annual budget document for fiscal year 2004-2005. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document had to be judged proficient as a policy document, a financial plan, an operations guide, and a communications device. The preparation of this report was accomplished with the dedicated service of the entire staff of the Finance Department. We express our appreciation to all members of the Department who assisted and _ contributed to the preparation of this report. We also thank the Mayor and members of the City Council for their support in planning and conducting the financial operations of the City in a responsible manner. Respectfully submitted, William Eisen,City Manager Claire Manthei, Director of Finance a a a a a a a v i' Certificate of Achievement for Excellence in Financial Reporting Presented to City of Pearland, Texas For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2004 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports(CAFRs)achieve the highest standards in government accounting and financial reporting. 4 E�fk e4.44/ President ao igr(IC‘r 11405- Executive Director viii Organizational Chart CITIZENS OF PEARLAND MAYOR AND CITY COUNCIL MUNICIPAL JUDGES BOARDS& COMMISSIONS CITY ATTORNEY a CITY MANAGER ASSISTANT ASSISTANT CITY MANAGER CITY MANAGER PUBLIC WORKS COMMUNITY DEVELOPMENT ENGINEERING MUNICIPAL COURT PROJECT MANAGEMENT ANIMAL CONTROL PLANNING POLICE PUBLIC AFFAIRS FIRE MARSHAL PARKS& EMERGENCY RECREATION MANAGEMENT DIRECTOR OF FIRE FINANCE EMERGENCY MEDICAL SERVICES - FINANCE PURCHASING I rCITY SECRETARY INFORMATION I GRANTS I TECHNOLOGY HUMAN RESOURCES W & S BILLING & COLLECTIONS a ix CITY OF PEARLAND,TEXAS LIST OF PRINCIPAL OFFICIALS YEAR ENDED SEPTEMBER 30,2005 ELECTED OFFICIALS Tom Reid Mayor Richard Tetens (Position 1) Council Member Woody Owens (Position 2) Council Member Steve Saboe (Position 3) Council Member Larry Marcott(Position 4) Council Member Kevin Cole (Position 5) Council Member,Mayor Pro-Tern APPOINTED OFFICIALS Bill Eisen • City Manager Young Lorfing City Secretary Darrin Coker City Attorney 1 (continued) — x CITY OF PEARLAND,TEXAS LIST OF PRINCIPAL OFFICIALS (Continued) YEAR ENDED SEPTEMBER 30,2005 EXECUTIVE MANAGERS Nicholas Finan Assistant City Manager Mickiel Hodge Assistant City Manager Fredrick Howard Welch Executive Director of P.E.D.C. Claire Manthei Director of Finance Chris Doyle Police Chief Steve Chapman Fire Marshal/Emergency Management Director Rhonda Cyrus Director of Parks and Recreation Daniel Cameron Director of Public Works Joseph Wertz Director of Projects Kola D. Olayiwola Director of Inspection Services Doug Kneupper City Engineer Glenn Chaney Municipal Court Judge Letitia Fannie Municipal Court Judge Roy Simmons Municipal Court Judge Jeff Sundseth Director of EMS Paul Jamison Fire Chief Mary Hickling Director of Human Resources Lata Krishnarao Director of Planning xi filThk-9/11 PATTILLO, BROWN & HILL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS INDEPENDENT AUDITORS' REPORT To the Honorable Mayor and Member of the City of Council City of Pearland,Texas We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Pearland, Texas' management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Pearland, Texas, as of September 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March 10, 2006, on our consideration of the City of Pearland, Texas' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. a 1 401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725•(254)772-4901■FAX:(254)772-4920■www.pbhcpa.com AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583 TEMPLE,TX(254)791-3460■ALBUQUERQUE.NM(505)266-5904 The management's discussion and analysis on pages 3 through 10 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally — accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion — on it. Our audit was conducted for the purpose of forming opinions on the financial statements that — collectively comprise the City of Pearland, Texas' basic financial statements. The introductory section, combining and individual fund financial statements and schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The — combining and individual fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly,we express no opinion on them. ?OA-1LO 4?) March 10,2006 2 i t E 1 t 1 MANAGEMENT'S DISCUSSION AND ANALYSIS 11 r a Management's Discussion and Analysis As management of the City of Pearland, we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages i—vii of this report. FINANCIAL HIGHLIGHTS • The assets of the primary government of the City of Pearland exceeded its liabilities as of September 30, 2005, by $68,951,906 (net assets). Of this amount, $6,337,483 (unrestricted net assets) may be used to meet the City's ongoing obligations to citizens and creditors in accordance with the City's fund designation and fiscal policies. • The City's total net assets increased by$12,323,374. • At the close of the current fiscal year, the City of Pearland's governmental funds reported combined ending fund balances of $58,857,765, an increase of $79,932 in comparison with the prior year. Approximately $44 million of this ending balance can be attributed to work in progress for capital projects, which is expected to decrease the fund balance in the following fiscal year. • As of September 30, 2005, the unreserved, undesignated fund balance for the General Fund was $8,201,447 or 25.9% of total General Fund expenditures. • The City of Pearland's General Obligation and Certificates of Obligation debt increased to $148,445,000, an increase of $32,915,000, net of debt retirement, over the previous year. The key factor was the sale of $37,015,000 in Permanent Improvement and Refunding Bonds. The City of Pearland Economic Development Corporation issued $11,005,000 of Sales Tax Revenue and Refunding Bonds and the Development Authority of Pearland issued $13,995,000 in Tax Increment Contract Revenue bonds. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements — The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. 3 The Statement of Activities presents information showing how the City's net assets changed during the fiscal year. All changes in net assets are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in the future fiscal periods (e.g., uncollected taxes and earned but unused compensated absences). — Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are — intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Pearland include General Government, Public Safety, Public Works and Community Services. The business-type activities of the City include Water and Sewer. _ The government-wide financial statements include not only the City of Pearland, itself (known as the primary government), but also a legally separate Economic Development Corporation, Tax Increment Reinvestment Zone (TIRZ) and the Development Authority of Pearland for which the City of Pearland is financially accountable. Financial information for these component units is reported separately from the financial information presented for the primary government, itself. The government-wide financial statements can be found on pages 12— 14 of this report. Fund Financial Statements — A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All funds of the City can be divided into two categories — governmental funds and proprietary funds. Governmental Funds — Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing .� requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental funds balance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. _ Beginning on page 15 of this report, information is presented separately in the Governmental Fund Balance Sheet and in the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances for the General, Debt Service, Capital Projects and other funds, which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. 4 a The City of Pearland adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with the budget. Proprietary Funds — The City maintains one type of proprietary fund. Enterprise Funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses an Enterprise Fund to account for its Water and Sewer Fund. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The basic proprietary fund financial statements, which begin on page 19 of this report,provide separate information for the Water and Sewer Enterprise Fund since it is considered to be a major fund of the City. Notes to the Financial Statements —The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 22—46 of this report. Other Information — In addition to the basic financial statements and accompanying notes, this report also presents combining fund statements and schedules that further support the information in the financial statements. The combining fund statements and schedules for nonmajor funds are presented immediately following the notes to the financial statements beginning on page 47 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the City of Pearland, assets exceeded liabilities by $68,951,906 as of September 30, 2005. The largest portion of the City's net assets, 71 percent, reflects its investments in capital assets (e.g., land, building, equipment, improvements, construction in progress and infrastructure), less any outstanding debt used to acquire those assets. The City uses these capital assets to provide service to citizens; consequently, these assets are not available for future spending. Although the City's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Since the City does not capitalize all infrastructure assets at this time, the financial statements do not fully reflect the City's total assets but does reflect its total liabilities for the corresponding debt. a a COMPARATIVE SCHEDULE OF NET ASSETS SEPTEMBER 30,2005 AND 2004 • — Governmental Activities Business-type Activities Totals ,, 2005 2004 2005 2004 2005 2004 Current and other asset $ 65,342,583 $ 64,371,013 $ 17,834,831 S 23,448,781 $ 83,177,414 $ 87,819,794 Capital assets 92,505,150 67,143,104 88,846,250 76,429,323 181,351,400 143,572,427 ...— Total assets 157,847,733 131,514,117 106,681,081 99,878,104 264,528,814 231,392,221 Other liabilities 8,853,968 2,750,146 6,662,540 3,207,343 15,516,508 5,957,489 Long-term liabilities 133,262,658 118,165,340 46,797,742 50,640,860 180,060,400 168,806,200 Total liabilities 142,116,626 120,915,486 53,460,282 53,848,203 195,576,908 174,763,689 Net assets: invested in capital assets, net of related debt 3,084,208 ( 2,537,520) 45,641,648 36,022.558 48,725,856 33.485,038 Restricted 6,861,792 6,390,504 7,026,775 5,979,068 13,888,567 12,369.572 Unrestricted 5,785,107 6,745,647 552,376 4,028,275 6,337,483 10,773.922 Total net atoms S, 15,731,107 $ 10,598,631 S 5 3 22�S. 46,029,901 $ 68,951,906 $ 56,628,532� �- A portion of the City's net assets ($13,888,567) represents resources that are subject to external -- restriction on how they may be used. The remaining balance ($6,337,483) of unrestricted net assets may be used to meet the City's ongoing obligations to citizens and creditors. Analysis of the City's Operations — The following tables provide a summary of the City's operations for the year ended September 30, 2005. Governmental activities increased the City of Pearland's net assets by$5,132,476, accounting for approximately 42% of the total growth in net assets. Business-type activities increased the City's net assets by $7,190,898, accounting for approximately 58% of the total growth in net assets. 1 1 I 1 1 1 6 1 COMPARATIVE SCHEDULE OF CHANGES IN NET ASSESTS SEPTEMBER 30, 2005 AND 2004 Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Revenues: Program revenues: Charges for services $ 12,309,406 $ 11,040,246 $ 11,219,499 $ 11.892,876 $ 23,528,905 $ 22,933,122 Operating grants and contributions 1,154,531 855,917 47,293 1,154,531 903,210 Capital grants .. and contributions 1,117,712 2,074,506 8,365,452 6,932,959 9,483,164 9,007,465 General revenues: Ad valorem taxes 19,804,541 17,907,163 19,804,541 17,907,163 Sales taxes 7,785,161 6,739,484 7,785,161 6,739,484 Franchise taxes 3,097,163 2,883,188 3,097.163 2,883,188 ~ Other taxes 241,046 193,464 241,046 193,464 Investment earnings 1,863,323 1,115,100 399,275 417,258 2,262,598 1,532,358 Miscellaneous 827,589 782,165 827,589 782,165 Total revenues 48.200,472 43,591,233 19,984.226 19.290,386 68,184,698 62,881,619 Expenses: General government 8,714,401 7,314,239 8,714,401 7,314,239 Public safety 11,856,643 10,524,915 11,856,643 10,524,915 Public works 12,858,259 9,912.937 12,858,259 9,912,937 Community services 2,939,228 2,700.356 2,939.228 2,700,356 Interest on long-term debt 5,115,039 5,549,292 5,115,039 5,549,292 Water and sewer 13,624,497 15,265,350 13,624,497 15,265,350 Total expenses 41,483,570 36,001,739 13,624,497 15,265,350 55.108,067 51,267,089 Increases in net assets .111 before transfers 6,716,902 7,589,494 6.359,729 4,025,036 13,076,631 11,614530 Transfers 359,482 524,110 ( 359,482) ( 524,110) s Change in net assets 7,076,384 8.113,604 6,000,247 3.500.926 13,076,631 11,614.530 Net assets,beginning 10,598,631 2,583,968 46,029,901 42,528,975 56.628.532 45,112,943 Prior period adjustment _( 1,943.908) ( 98.941) 1,190.651 ( 753,257) ( 98.941) Net assets,ending $ 15.731,107 $ 10,598,631 $ 53,220,799 $ 46,029,901 $ 68,951,906 $ 56,628,532 s ME so a 7 Revenues by Source - Governmental Activities Ad valorem taxes . 41% Investment earnings 6% r Capital grants and Franchise taxes +4., t 696 contributions a43 ; .: T< r,' Y1 t' 1x +• A �, y P ,'`x � f Other taxes Operating grants and �'w.�e 1 ,IZ " '` 1% r4 i Q <,a. contributions ‘,,,,, pp,, y ' +i Investment earnings 2% ii-rit,4-4.3c•FE }i a i r t �.+` Charges for services r' 4''„1 t r r ` — 26% Miscellaneous 2% Expenses and Program Revenues - Governmental Activities 14,000,000 12,000,000 • .+ .40 10,000,000 , •i 3 i{ pp r 8,000,000 0 Expenses r ` ' rt ■Revenues 6,000,000 =' 4! '�F3t't It , 4,000,000 ---- �:': t x,i mg - I , , 1 General Public safety Public works Community Interest on ara` government services long-term debt 8 Governmental Activities—The major increase in revenues comes from the tax category. The property tax base increased by approximately $412 million, due to construction of new residences, businesses, and revaluation of property. The current year tax collection rate was approximately 98% of the levy. Additionally, there was an increase in both license and permit revenues and engineering and inspection revenues due to an increase in both residential and commercial building permits. Fines and forfeitures were up due to increased citations issued, and investment earnings are down due to the continued low interest rates. Charges for services increased due to population growth. Business-type Activities — The City has one enterprise operation, the Water and Sewer Fund. Total charges for services of the Water and Sewer Fund were $11,219,499 for the fiscal year. This is slightly lower than the previous year, however, expenses are significantly lower by $1.6 million due to construction activities. FINANCIAL ANALYSIS OF THE CITY'S FUNDS Governmental Funds — The focus of the City of Pearland's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements, in particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. At the end of the current fiscal year, the City of Pearland's governmental funds reported combined ending fund balances of$58,857,765. Of this total amount, $55 million constitutes an unreserved fund balance and can be used to fund day-to-day operations and capital projects. The remainder of the fund balance, $3.9 million, is reserved to indicate that it is not available for new spending because it has already been committed to pay for encumbrances or debt service or to provide for other items. Refer to page 15 of this report for a more detailed presentation of governmental fund balances. In the General Fund, the City originally budgeted for a decrease in fund balance. The actual increase to fund balance for the General Fund was$4,059,350 over the budgeted amounts. Proprietary Funds — The City's proprietary fund statements, beginning on page 19 of this report, provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the only proprietary fund are $552,376. This fund experienced increases in total net assets during 2005 of $6,000,247. This increase was primarily due to increased contributions from impact fees. General Fund Budgetary Highlights — During the year, revenues exceeded budgetary estimates by $3.4 million and expenditures were less than budgetary estimates by $1.3 million, thus eliminating any need to draw upon existing fund balance. Refer to the General Fund Statement of Revenue, Expenditures and Changes in Fund Balances —Budget and Actual on page 18 of this report for a detailed presentation of the actual General Fund operations compared to both the original and final budget for fiscal year 2005. 9 CAPITAL ASSETS The City of Pearland's investment in capital assets for its governmental and business-type activities as of September 30, 2005, amounts to $181,351,400 (net of accumulated depreciation) as reflected in the following schedule. This investment in capital assets includes land, building, equipment, improvements other than buildings, infrastructure and construction work in progress. This represents a net increase of $37.8 million or 26% over last year. Major capital asset events occurring during the current fiscal year related primarily to three basic categories: water and sewer infrastructure projects, streets and mobility — projects, and drainage improvement projects. CITY OF PEARLAND'S CAPITAL ASSETS AT YEAR-END Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 Land $ 2.717,453 $ 2,509,691 $ 367,962 $ 367,962 $ 3,085,415 $ 2,877,653 Buildings and improvements 12.834,943 12,575,655 22,610,028 21,518,110 35,444,971 34,093,765 — Equipment 9,282,167 8.619,886 8,347,893 7,895,580 17,630,060 16,515,466 infrastructure/ water distribution 61,799,139 42,674,657 57,228,510 60,791,814 119,027,649 103,466,471 Construction in progress 20.698,167 12,946.218 19,424,558 2,166,494 40,122,725 15.112,712 Less:accumulated depreciation ( 14,826,719) ( 12,183,003) ( 19,132,701) ( 16,310,637) ( 33,959,420) ( 28,493,640) Total capital assets $ 92,505,150 $ 67,143,104 $ 88,846,250 $ 76,429,323 $ 181,351,400 $ 143,572,427 Additional information on the City's capital assets can be found in Note 4, pages 35 —36 of this report. LONG-TERM DEBT At the end of the current fiscal year, the City of Pearland had debt totaling $180,925,000, excluding capital leases. Of this amount, $148,445,000 represents debt backed by the full faith and credit of the government and $32,480,000 represents bonds secured solely by water and sewer revenues. CITY OF PEARLAND'S OUTSTANDING DEBT AT YEAR-END Governmental Activities Business-type Activities Totals 2005 2004 2005 2004 2005 2004 NNW General obligation $ 60,175,000 $ 25,345,000 $ $ $ 60,175,000 $ 25,345,000 Revenue bonds payable 32,480,000 33,505,000 32,480,000 33,505,000 Certificates of obligation 72.390,000 90,185,000 15,880,000 16,735,000 88,270,000 106,920,000 $ 132,565,000 $ 115,530,000 $ 48,360,000 $ 50,240,000 $ 180,925,000 $ 165,770,000 10 During the fiscal year, the City issued$37,015,000 in Permanent Improvement and Refunding Bonds. The City's General Obligation, Certificates of Obligation, and Revenue Bond underlying ratings are listed below. Standard Moody's and Poor's Tax Bonds Al A+ W/S Revenue Bonds Baal A All of the City's bond issues have been successful in qualifying for bond insurance resulting in ratings of "Aaa" and "AAA" from Moody's and Standard & Poor's, respectively. Additional information on the City of Pearland's long-term debt can be found on pages 37—42 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES One of the primary factors considered in the 2006 budget development is the overall economy and how it affects Pearland's growth. Pearland continues to be one of the fastest growing cities in the Houston area with such developments as Shadow Creek Ranch, the Lakes at Highland Glen and Southern Trails. New single-family housing starts totaled 2,610 for 2005 and total construction value of all permits for 2005 was $550 million. The continued growth creates the need to expand services and provide infrastructure. The Pearland City Council approved a $38.0 million General Fund budget for the 2005-2006 fiscal year. This is a 16% increase over the adopted 2004-2005 fiscal year budget. This includes approximately $1.0 million to serve the newly annexed area formerly known as Brazoria County MUD 5, which has an estimated population of 5,000. Twenty-five new personnel were added to the General Fund budget. The growth in the budget is driven by increased costs of doing business, as well as, funding for growth and development. The budget incorporates a tax rate reduction of 2.9% to $0.6744 per $100 of valuation. The budget also includes the third installment of the 2001 voter approved bond referendum for mobility projects. After the issuance, there will be a$29.8 million voted, but unissued bonds. The Pearland Economic Development Corporation fiscal year 2006 budget includes bond proceeds from the sale of Sales Tax Bonds totaling $11,005,000 for the Kirby Road Extension and related water, sewer and drainage. REQUESTS FOR INFORMATION The financial report is designed to provide our citizens, customers, investors and creditors with a general overview of the City's finances. if you have questions about this report or need any additional financial information, contact Claire Manthei, Director of Finance, at 3519 Liberty Drive, Pearland, Texas 77581, or call (281)652-1600. For general information, visit the City's website at www.citvofpearland.com. 11 _ BASIC FINANCIAL STATEMENTS CITY OF PEARLAND,TEXAS STATEMENT OF NET ASSETS SEPTEMBER 30,2005 Primary Government Component Units Economic Development • Governmental Business-type Development TIRZ Authority Activities Activities Total Corporation Developments of Pearland ASSETS Cash and investments $ 60,503,560 $ 10,413,796 $ 70,917,356 $ 1,198,360 $ 1,168,096 $ 65,344 +. Receivables,net of allowances for uncollectibles Accounts 913,860 2,245,558 3,159,418 142 Propeny taxes 797,744 797,744 234,287 ... Sales taxes 1,456,049 1,456,049 724,601 Other taxes 664,345 664,345 Intergovernmental 270,306 270,306 Accrued interest 2,387 20,079 22,466 20,097 Prepaid items I,324 1,324 3,450 Inventories 69,549 69,549 Restricted cash and investments 4,527,602 4,527,602 10,035,804 1,630,157 Deferred charges 663,459 627,796 1,291,255 256,439 927.778 Capital assets: ..` Land 2,717,453 367.962 3,085,415 Buildings and improvements 12,834,943 22,610,028 35,444,971 19,501 Machinery and equipment 9,282,167 8,347,893 17,630,060 124,959 Infrastructure 24,631,483 57,228,510 81,859,993 Construction in progress 57,865.823 19,424,558 77,290,381 Less:accumulated depreciation ( 14,826,719) ( 19,132,701) ( 33,959,420) ( 144,460) Total capital assets 92,505,150 88,846,250 181,351,400 �' Total assets 157,847,733 106.681,081 264,528,814 12,238,893 1,402,383 2,623,279 LIABILITIES • Accounts payable 3,987,205 3,094,901 7,082,106 21,076 Accrued liabilities 494.613 157,955 652,568 11,498 .. Unearned revenue 167,061 167,061 179,285 Accrued interest 523,316 117,851 641,167 Customer deposits 1,253,770 1,253,770 Noncurrent liabilities: Due within one year 3,681,773 2,038,063 5,719,836 351,088 815,000 Due in more than one year 133,262,658 46,797,742 180,060,400 10,219,274 13,180,000 Total liabilities 142,116,626 53,460,282 195,576,908 10,602,936 179,285 13,995,000 NET ASSETS Invested in capital assets, net of related debt 3,084,208 45,641,648 48,725,856 Restricted for: • Debt service 3,607,258 275,502 3,882,760 Capital improvements 904,397 6,751,273 7,655,670 Public safety 449,775 449,775 Parks and recreation 992,941 992,941 Economic development 669,937 669,937 Community services 237,484 237,484 Unrestricted 5,785,107 552,376 6,337,483 1,635,957 1,223,098 ( 11,371,721) • Total net assets $ 15,731,107 $ 53,220,799 $ 68.951,906 $ 1,635,957 $ 1,223,098 $ ( 11,371,721) The notes to the financial statements are an integral part of this statement. 12 CITY OF PEARLAND, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30,2005 S Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary Government: Governmental activities: General government S 8,714,401 S 185,235 $ 2.380 $ 799,999 Public safety 11,856,643 3,639,966 673,276 311,921 Public works 12,858,259 7,221,015 5,792 Community services 2,939,228 1,263,190 478,875 Interest on long-term debt 5,115,039 Total governmental activities 41,483.570 12,309,406 1,154,531 1,117,712 Business-type activities: Water and sewer 13.624,497 11,219,499 8,365.452 Total business-type activities 13,624,497 11,219,499 8,365.452 Total primary government S 55.108,067 $ 23,528.905 $ 1,154,531 $ 9,483.164 Component Units: Economic Development Corporation S 2,312,729 S S $ TIRZ Developments 1,888,506 _ Development Authority of Pearland 13,225,937 1,824,418 Total component units S 17,427,172 S S S 1,824,418 General revenues: Taxes: Property,levied for general purposes Property,levied for debt service Sales Franchise Other Investment earnings �^ Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets,beginning Prior period adjustment Net assets,beginning,as restated Net assets,ending The notes to the financial statements are an integral part of this statement. 13 Net(Expenses)Revenues and Changes in Net Assets Primary Government Component Units Economic Development Governmental Business-type Development TIRZ Authority Activities Activities Total Corporation Developments of Pearland $ ( 7,726.787) $ S ( 7,726,787) $ $ $ ( 7,231.480) ( 7,231,480) ( 5,631,452) ( 5,631,452) ( 1,197.163) ( 1,197,163) — ( 5.115,039) ( 5,115,039) ( 26,901,921) ( 26,901,921) 5,960,454 5,960,454 5,960,454 5,960,454 ( 26,901,921) 5,960,454 ( 20,941,467) ( 2,312,729) ( 1,888,506) ( 11,401,519) ( 2,312,729) ( 1,888,506) ( 11,401,519) P 9,678,307 9,678,307 2,531,251 10.126,234 10,126,234 7,785,161 7,785,161 3,891,870 3,097,163 3,097,163 241,046 241,046 r 1,863,323 399,275 2,262,598 303,129 8,390 29,798 827 589 827,589 12,000 359,482 ( 359,482) 33,978,305 39,793 34,018,098 4,206.999 2,539,641 29,798 'xx. 7,076,384 6,000,247 13.076,631 1,894,270 651,135 ( 11,371321) ` 10,598,631 46,029,901 56,628.532 ( 231,831) 571,963 ( 1,943,908) 1,190,651 ( 753.257) ( 26,482) 8,654,723 47,220,552 55,875,275 ( 258,313) 571,963 F $ 15,731,107 $ 53.220,799 $ 68,951,906 $ 1.635,957 $ 1,223,098 $ ( 11,371,721) I- i 14 a CITY OF PEARLAND,TEXAS BALANCE SHEET GOVERNMENTAL FUNDS — SEPTEMBER 30,2005 Total Debt Capital Other Governmental General Service Projects Funds _ Funds ASSETS Cash and investments $ 6,945,697 $ 3.843,924 $ 46,538,692 $ 3,175,247 $ 60.503,560 Receivables,net of allowances for uncolledibles Accounts 802,568 46,605 64,687 913,860 Property taxes 511,094 286.650 797,744 Sales taxes 1,456,049 1,456,049 Other taxes 664,345 664,345 Intergovernmental 216,443 53,863 270.306 a Accrued interest 1,393 994 2,387 Prepaid items 1,324 1.324 Inventories 69,549 69,549 Total assets $ 10,668,462 $ 4,130.574 $ 46.585,297 $ 3,294,791 $ 64.679,124 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 940.728 3,009.966 36,511 3.987,205 Accrued liabilities 464,613 30,000 494,613 Deferred revenue 1,060.350 275.445 3,746 1,339.541 „1i Total liabilities 2.465,691 275,445 3,039,966 40,257 5,821,359 Fund balances: . Reserved for. Inventories 69.549 69,549 Prepaid items 1,324 1,324 Debt service 3,855,129 3,855,129 Unreserved,reported in: General fund 8,201,447 8,201.447 _ Special revenue funds 2,462,352 2.462,352 Capital projects fund 43,545,331 792,182 44,337.513 Total fund balances 8,202,771 3,855,129 43,545.331 3,254,534 58,857,765 Total liabilities and fund balances $ 10.668.462 $ 4.130,574 $ 46,585,297 $ 3.294,791 Amounts reported for governmental activities in the statement of net assets are different because: WY Capital assets used in governmental activities are not financial resources and,therefore,are not reported in the funds. 92.505.150 Other long-term assets are not available to pay for current-period expenditures and,therefore,are deferred in the funds. 1.172,480 ■.IIP Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. ( 136,804,288) Net assets of governmental activities $ 15,731,107 The notes to the financial statements are an integral part of this statement. - 15 CITY OF PEARLAND, TEXAS STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30,2005 Total Debt Capital Other Governmental Funds General Service Projects Funds REVENUES Taxes: Property $ 9,649,452 S 10,095,935 $ $ $ 19,745,387 Sales 7,785,161 7,785,161 Mixed beverage 55,181 55,181 Hotel/motel 469 185,396 185,865 rr Franchise 3,097,163 3,097,163 Permits,licenses and fees 3,863,592 3,863,592 Fines 1,883281 51,586 1,934,967 Charges for services 6,138,610 6,138,610 ow Intergovertunental 871,196 1.111,920 398,388 2,381,504 Other revenue 595,369 8,846 568,098 1,172,313 t Investment earnings B 415,296 57,687 1,335,250 55,090 1,863.323 Total revenues 34,354,870 10.153,622 2,456,016 1,258,558 48,223,066 EXPENDITURES Current: Genera]government 6,664,735 84.839 6,749,574 Public safety 10,816,906 264,555 11,081,461 " Public works 10,449,814 10,449,814 Community services 2,692,450 54,729 2,747,179 Capital outlay 1,019,976 27,531,520 109,355 28,660,851 Debt service: Principal 3,534.534 3,534,534 Interest and fiscal charges 5,027,376 527,689 5,555,065 Intergovernmental 1,083,896 1,083.896 Total expenditures 31,643.881 9,645,806 28,059,209 513,478 69,862,374 EXCESS(DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES 2,710,989 507.816 ( 25,603,193) 745,080 ( 21,639,308) OTHER FINANCING SOURCES(USES) Transfers in 2,063264 339,561 2,384,774 82,000 4,869,599 Transfers out ( 3,003,294) ( 608,559) ( 898,264) ( 4,510,117) Issuance of capital lease 271,193 271,193 Capital-related debt issued 37,015.000 37,015,000 Premium from capital-related debt issued 1,368,186 1,368,186 Payment to escrow agent ( 17,294,621) ( 17,294,621) Total other financing sources and(uses) ( 940,030) 339,561 23,135,973 ( 816,264) 21,719,240 a NET CHANGE IN FUND BALANCES 1,770,959 847,377 ( 2,467,220) ( 71,184) 79,932 FUND BALANCES,BEGINNING AS PREVIOUSLY STATED 8,285,590 3.007,752 46,012,551 3,415,848 60,721,741 PRIOR PERIOD ADJUSTMENT ( 1,853,778) - - ( 90,130) ( 1,943,908) FUND BALANCES,BEGINNING AS RESTATED 6,431,812 3.007,752 46,012,551 3,325,718 58,777,833 FUND BALANCES,ENDING $ 8,202,771 S 3,855.129 $ 43,545,331 $ 3,254,534 $ 58,857,765 The notes to the financial statements are an integral part of this statement. 16 CITY OF PEARLAND, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30,2005 Amounts reported for governmental activities in the Statement of Activities (pages 13 - 14) are different because: Net change in fund balances-total governmental funds(page 16) $ 79,932 Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 25,362,046 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. ( 22,594) The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long- term debt and related items. ( 17,273,098) Some expenses reported in the statement of activities do not require the use of current financial resources and,therefore, are not reported as expenditures in governmental funds. ( 1,069,902) Change in net assets of governmental activities(pages 13 - 14) $ 7,076,384 The notes to the financial statements are an integral part of this statement. 17 CITY OF PEARLAND,TEXAS GENERAL FUND STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30,2005 Variance with - Final Budget- Budgeted Amounts Actual Positive Original Final Amounts (Negative) REVENUES Property taxes and penalties $ 9,767,610 $ 9,767,610 $ 9,649,452 $ ( 118,158) Other taxes 6,931,000 6,931,000 7,840,811 909,811 Franchise fees 3,015,000 3,015,000 3,097,163 82,163 Licenses and permits 3,180,335 3,180,335 3,863,592 683,257 Fines and forfeitures 1,590,200 1,590,200 1,883,381 293,181 Charges for services 5,269,949 5,269,949 6,138,610 868,661 Intergovernmental 879,300 879,300 871,196 ( 8,104) Other income 282,100 288,100 595,369 307,269 Investment earnings 1,000 1,000 415,296 414,296 Total revenues 30,916,494 30,922,494 34,354,870 3,432,376 EXPENDITURES Current: General government 6,380,991 6,720,970 6,664,735 56,235 Public safety 10,706,646 11,031,997 10,816,906 215,091 Public works 9,926,159 10,916,013 10,449,814 466,199 •. Community services 3,801,935 3,123,164 2,692,450 430,714 Capital outlay 1,762,877 1,138,759 1,019,976 118,783 Total expenditures 32,578,608 32,930,903 31,643,881 1,287,022 EXCESS (DEFICIENCY)OF REVENUES OVER(UNDER)EXPENDITURES ( 1,662,114) ( 2,008,409) 2,710,989 4,719,398 OTHER FINANCING SOURCES(USES) Transfers in 1,765,806 1,765,806 2,063,264 297,458 Transfers out ( 459,000) ( 2,045,788) ( 3,003,294) ( 957,506) Total other financing sources(uses) 1,306,806 ( 279,982) ( 940,030) ( 660,048) NET CHANGE IN FUND BALANCES ( 355,308) ( 2,288,391) 1,770,959 4,059,350 FUND BALANCES,BEGINNING AS PREVIOUSLY STATED 8,285,590 8,285,590 8,285,590 PRIOR PERIOD ADJUSTMENT ( 1,853,778) ( 1,853,778) ( 1,853,778) FUND BALANCES,BEGINNING AS RESTATED 6,431,812 6,431,812 6,431,812 FUND BALANCES,ENDING $ 6,076,504 $ 4,143,421 $ 8,202,771 $ 4,059,350 The notes to the financial statements are an integral part of this statement. 18 r CITY OF PEARLAND, TEXAS STATEMENT OF NET ASSETS PROPRIETARY FUND SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer ASSETS Current assets: Cash and investments $ 10,413,796 Accounts receivable,net of allowances Accrued interest 2,245,558 20,079 Restricted cash and investments 4,527,602 Total current assets 17,207,035 Noncurrent assets: Deferred charges 627,796 Capital assets: Land 367,962 Buildings and improvements 22,610,028 Machinery and equipment 8,347,893 Infrastructure 57,228,510 Construction work in progress 19,424,558 Less:accumulated depreciation ( 19,132,701) Total capital assets 88,846,250 r' Total noncurrent assets 89,474,046 Total assets 106,681,081 LIABILITIES Current liabilities: Accounts payable 3,094,901 Accrued liabilities 157,955 Accrued interest 117,851 r Customer deposits Compensated absences 1,253,770 Certificates of obligation 83,063 Revenue bonds 880,000 1,075,000 Total current liabilities 6,662,540 Noncurrent liabilities: Compensated absences 392,742 Certificates of obligation 15,000,000 Revenue bonds 31,405,000 Total noncurrent liabilities 46,797,742 r Total liabilities 53,460,282 NET ASSETS Invested in capital assets,net of related debt 45,641,648 Restricted for: Debt service 275,502 Capital improvements 6,751,273 Unrestricted 552,376 Total net assets $ 53,220,799 The notes to the financial statements are an integral part of this statement. 19 CITY OF PEARLAND, TEXAS STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN FUND NET ASSETS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer OPERATING REVENUES Charges for services $ 10,947,737 Other 271,762 Total operating revenues 11,219,499 OPERATING EXPENSES Production and wastewater 4,507,571 Distribution and collection 1,415,078 Accounting and collections 1,124,626 Other requirements 792,301 Construction and engineering 767,233 Depreciation 2,864 261 Total operating expenses 11,471,070 OPERATING LOSS ( 251,571) NONOPERATING REVENUES(EXPENSES) Earnings on investments 399,275 Interest and fiscal charges ( 2,153,427) Total nonoperating revenues(expenses) ( 1,754,152) LOSS BEFORE CONTRIBUTIONS AND TRANSFERS ( 2,005,723) CAPITAL CONTRIBUTIONS 8,365,452 TRANSFERS IN 536,520 TRANSFERS OUT ( 896,002) CHANGE IN NET ASSETS 6,000,247 TOTAL NET ASSETS,BEGINNING 46,029,901 PRIOR PERIOD ADJUSTMENT 1,190,651 TOTAL NET ASSETS,ENDING $ 53,220,799 The notes to the financial statements are an integral part of this statement. 20 CITY OF PEARLAND, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED SEPTEMBER 30,2005 Business-type Activities Enterprise Fund Water and Sewer CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers S 12.888.744 Cash paid to suppliers for goods and services ( 2,710.758) Cash paid to employees for services ( 4,460,630) Net cash provided by operating activities 5,717,356 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Cash paid to other funds 1,190,651 Transfers from other funds 536,520 Transfers to other funds ( 896,002) Net cash used for noncapital for financing activities 831,169 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal repayments on bonds ( 1,880,000) Cash received from capital contributions 8,365,452 Interest and fiscal charges on debt g ( 2,111,230) Acquisition and construction of capital a«s ( 15,281,188) Net cash used for capital and related financing activities ( 10,906,966) CASH FLOWS FROM INVESTING ACTIVITIES Earnings on investments 273,163 Net cash provided by investing activities 273,163 NET DECREASE IN CASH AND CASH EQUIVALENTS ( 4,085.278) CASH AND CASH EQUIVALENTS,BEGINNING 19,026,676 CASH AND CASH EQUIVALENTS,ENDING S 14,941,398 ONO Cash and investments S 10,413,796 Restricted cash and investments 4,527,602 61111 Cash and cash equivalents,ending S_ 14,941,398 Reconciliation of operating loss to net cash provided by operating activities: Operating loss S ( 251,571) Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 2.864,261 Changes in assets and liabilities: Decrease(increase)in assets: Accounts receivable 1,500,001 Increase(decrease)in liabilities: Accounts payable 1,229,941 trar Accrued liabilities 130,535 Customer deposits 169,244 Compensated absences payable 74,945 Net cash provided by operating activities S 5,717,356 The notes to the financial statements are an integral part of this statement. 21 CITY OF PEARLAND,TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30,2005 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reportini Entity The City of Pearland, Texas, was incorporated in December 1959, and adopted the "Home Rule Charter" February 6, 1971, pursuant to the laws of the State of Texas. The City operates under a "Council-Manager" form of government and provides services authorized by its charter. Presently, these services include police and fire protection, water and sewer services, drainage, sanitation, building and code inspection, planning, zoning, engineering, street repair and maintenance, park maintenance, recreational activities for citizens, and general administrative services. The City is an independent political subdivision of the State of Texas, governed by an elected mayor and five-member Council, and is considered a primary government. The accompanying financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Each discretely presented component unit is reported in a separate column in the government-wide financial statements (see note below for description) to emphasize that it is legally separate from the government. Discretely Presented Component Units—The component units' column in the government- wide financial statements includes the financial data of the City's component units. 1. The Pearland Economic Development Corporation (PEDC) is responsible for economic development within the City's jurisdiction. The PEDC was created in 1995 and is fiscally dependent upon the primary government because, besides appointing the Board, the City Council also must approve the PEDC's budget and any debt issuances. 2. The Tax Increment Reinvestment Zone (TIRZ #2) provides tax assisted property development and/or redevelopment in specific geographic areas in accordance with applicable state laws. TIRZ#2 was created in 1998. Besides appointing Board members, the City Council must also approve the TIRZ's budgets and any debt issuances done on behalf of the TIRZ. 3. The Development Authority of Pearland was created by the City in 2004 by Resolution No. 2004-107 to aid, assist and account on behalf of the City to provide financing for the Reinvestment Zone Number Two. Proceeds from bond sales are to be used to reimburse developers and fund a debt service — reserve. (continued) 22 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenue, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenue includes 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenue. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual Enterprise Funds are reported as separate columns in the fund financial statements. (continued) 23 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus,Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenue is recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as — revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available when it is _ collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenue to be available if collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, sales taxes, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports the following major governmental funds: — The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be — accounted for in another fund. The Debt Service Fund is used to account for the resources accumulated and — payments made for principal and interest on long-term general obligation debt of the governmental funds. The Capital Projects Fund is used to account for the proceeds from the sale of general obligation bonds and certificates of obligation and expenditures of these proceeds for the acquisition of capital assets as designated in each bond issue. (continued) — 24 S 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus,Basis of Accounting and Financial Statement Presentation (Continued) The City reports the following major Enterprise Fund: The Water and Sewer Fund accounts for the activities necessary for the provision of water and wastewater services. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The City also has the option of following subsequent private-sector guidance for their business-type activities and Enterprise Funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance. As a general rule, the effect of interfund activity has been eliminated from the government- wide financial statements. Exceptions to this general rule are charges between the City's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenue reported for the various functions concerned. Amounts reported as program revenues include: 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenue. Likewise, general revenue includes all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's Enterprise Funds and Internal Service Funds are charges to customers for sales and services. Operating expenses for Enterprise Funds and Internal Service Funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first,then unrestricted resources as needed. (continued) 25 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity Cash and Investments — Cash and investments consist of amounts in an interest-bearing time deposit account, petty cash funds, and U. S. Government Securities. Investments are stated at fair value based on — quoted market prices at September 30, 2005. The net increase or decrease in the fair value of investments is recorded as investment earnings. Investments are generally held to maturity. The City pools cash resources of its various funds to facilitate the management of cash. Cash applicable to a particular fund is readily identifiable. The balance in the pooled cash accounts is available to meet current operating requirements. Cash in excess of current requirements is invested in various interest-bearing securities and disclosed as part of the City's investments. The City pools excess cash of the various individual funds to purchase investments. These pooled investments are reported in the combined balance sheet as _ investments in each fund based on each fund's share of the pooled investments. Interest income is allocated to each respective individual fund monthly based on its respective share of pooled investments. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements — outstanding at the end of the fiscal year are referred to as "due to/from other funds" (i.e., the current portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide — financial statements as "internal balances." All trade receivables are shown net of an allowance for uncollectibles. Trade accounts — receivable in excess of 180 days comprise the trade accounts receivable allowance for uncollectibles. Property taxes for each year are required to be levied by October 1 and are due upon receipt of the City's tax bill and become delinquent on February 1 of the following year. On January 1 of each year, a tax lien is attached to the property to secure the payment of all taxes, penalties and interest. The lien exists in the favor of the State and each taxing unit. Appraised values are established by the Central Appraisal District (CAD) of Brazoria County, Texas, through procedures established by the Texas Legislature. The Brazoria — County Tax office bills and collects the City's property taxes. A penalty of 7% is added to delinquent taxes on February 1 and increases 2% each month through September. An additional penalty of 15% or 20% is added in July for attorney costs. There are no discounts allowed in taxes. (continued) 26 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity(Continued) Receivables and Payables The City is permitted, by Article XI, Section 5, of the State of Texas Constitution and the City Charter, to levy property taxes up to $2.50 per $100 of assessed valuation for general governmental services. Within the $2.50 maximum levy, there is no legal limit upon the amount of property taxes, which can be levied for debt service. The property tax rates to finance general governmental services and debt service for the 2004 tax year were $.3389 and $.3559, respectively, per $100 of assessed valuation. The 2004 assessed value and total tax levy as adjusted through September 30, 2005, were $3,019,449,422 and $20,979,391, respectively. The City has enacted an ordinance providing for the exemption of $25,000 of the assessed value of residential homesteads of persons 65 years of age or older from property taxes. This is provided by Section 1-b(a) of Article 8 of the Constitution of Texas. Additionally, the market value of agricultural land is reduced to agricultural value for purposes of the City's tax levy calculation. Inventories Inventory, which consists of gasoline and auto parts for use in the City's vehicles, is stated at cost (first-in, first-out method). Expenditures are recognized as the fuel and auto parts are consumed rather when purchased. Restricted Assets Certain proceeds of the Enterprise Fund and Economic Development Corporation revenue bonds and certain resources set aside for their repayment are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Certain resources are also set aside for repayment of Development Authority bonds and are reported as restricted assets. Capital Assets Capital assets, which include property, plant, equipment and infrastructure, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. The City defines capital assets as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. (continued) 27 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity (Continued) Capital Assets (Continued) — The City has elected to delay implementation of the requirements of GASB Statement No. 34 related to infrastructure (roads, sidewalks, etc.) assets acquired prior to October 1, 2002. The — City has implemented the general provisions of GASB Statement No. 34 and will complete the implementation of the retroactive provisions for infrastructure no later than September 30, 2007. Property, plant, and equipment is depreciated using the straight-line method over the following useful lives: Assets Years Buildings and improvements 20-45 Machinery and equipment 5-15 Infrastructure 40-50 Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation, sick -. and holiday pay benefits. Employees earn vacation leave at the rate of 15 days per year from 1 to 15 years of service, — 20 days per year for service of 16 to 19 years, and 25 days per year for service of 20 years or more. Employees hired after October 1, 2005, earn vacation at a rate of 10 days per year from 1 —6 years of service, 15 days per year for 7 — 15 years of service, and 20 days for over — 16 years of service. Employees are required to take their earned vacation. Employees who are unable to use their vacation, for various reasons, may, with the City Manager's approval, carry over 50 percent of the unused portion of the vacation, or receive compensation for a maximum of 40 hours. City employees receive 11 paid holidays per year. Employees may be paid or may elect to receive compensatory time off for the holiday. Overtime is earned at one and one-half times the regular rate of pay. Employees may be paid or receive compensatory time. The maximum accrual for overtime is 160 hours, except for employees involved in public safety, who can accrue up to 320 hours. All sick leave benefits are accumulated and paid to employees upon separation from the City. MOW Vacation, sick and holiday pay benefits are accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. '- (continued) 28 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Assets, Liabilities and Net Assets or Equity (Continued) Long-term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method which approximates the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs,during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. • Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. As of September 30, 2005, the City has elected to delay implementation of the requirements of GASB 34 related to infrastructure assets acquired prior to October 1, 2002. As a result, net assets invested in capital assets, net of related debt does not consist of infrastructure acquired prior to October 1, 2002, but does consist of the infrastructures related debt. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. - Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. 29 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of Certain Differences Between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Assets The governmental fund balance sheet includes a reconciliation between fund balance — total governmental funds and net assets—governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains, "Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds." The details of this$136,804,288 difference are as follows: Certificates and General Obligation Bonds $ 132,565,000 Deferred charge for issuance cost ( 663,459) Deferred amount for issuance premium 1,458,694 Deferred loss on refunding bonds ( 789,621) �'- Accrued interest payable 523,316 Compensated absences 3,314,699 Capital lease obligation 395,659ree Net adjustment to reduce fund balance-total governmental funds to arrive at net assets- governmental activities $ 136,804,288 Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Chances in Fund Balances and the Government-wide Statement of Activities The governmental fund statement of revenue, expenditures and changes in fund balances includes a reconciliation between net changes in fund balances — total governmental fund and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains, "Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense." The details of +a this $25,362,046 difference are as follows: Capital outlay $ 28,005,762 -. Depreciation expense ( 2,643,716) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ 25,362,046 (continued) 30 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (Continued) Explanation of Certain Differences Between the Governmental Fund Statement of Revenue, Expenditures and Changes in Fund Balances and the Government-wide Statement of Activities (Continued) Another element of that reconciliation states, "Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds." The details of this $(22,594) difference are as follows: Property taxes $ 59,154 Court fines ( 81,748) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 22,594) Another element of that reconciliation states, "The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. The details of this $(17,273,098) difference are as follows: Debt issued or incurred: Issuance of general obligation bonds $ ( 37,015,000) Bond issuance cost 548,191 Premium on issuance of bonds ( 1,368,186) Capital lease financing ( 271,193) Amortization of bond issue costs 3,935 Payment to escrow agent 17,294,621 Principal repayments: General obligation debt 3,534,534 Net adjustment to reduce net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 17,273,098) Another element of that reconciliation states, "Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds." The details of this $(1,069,902) difference are as follows: Compensated absences $ ( 957,802) Interest expense ( 112,100) Net adjustment to increase net changes in fund balances- total governmental funds to arrive at changes in net assets of governmental activities $ ( 1,069,902) S 31 a 3. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information Annual appropriated budgets are adopted on a basis consistent with generally accepted accounting principles for the General Fund and Debt Service Fund. The City adopts project- length budgets for the Capital Projects and Special Revenue Funds. All annual appropriations lapse at fiscal year-end. — The City Manager, between 60 and 90 days prior to the beginning of each fiscal year, submits to Council a proposed budget. The Council shall review the proposed budget and revise as deemed — appropriate prior to circulation for public hearing. After the public hearing, the Council may adopt the budget with or without amendment. In amending the budget, Council may add or increase programs or amounts and may delete or decrease any amount, except expenditures required by law or for debt or for estimated cash deficits, provided no amendments to the budget shall increase the authorized expenditures to an amount greater than the total of estimated income plus funds available from prior years. The Council shall adopt the budget no later than 15 days prior to the beginning of the fiscal year. _ Adoption of the budget shall constitute appropriation of the amounts specified therein as expenditures and shall constitute a levy of the property tax therein proposed. Every appropriation lapses at the close of the fiscal year to the extent it has not been expended. — Any encumbered appropriation lapses at year-end, but is generally reappropriated as part of the subsequent year's budget. Expenditures may not legally exceed appropriations at the fund level. At any time during the fiscal year, the City Manager may request Council to transfer by ordinance any unencumbered appropriation balance between funds. No significant supplemental appropriations were necessary during the year. 4. DETAILED NOTES ON ALL FUNDS Cash and Investments — The City's cash and investments are classified as cash and cash equivalents, investments, and restricted cash and investments. The cash and cash equivalents include cash on hand, deposits with financial institutions and other investments which have maturities at purchase date of less than three months. The restricted cash includes cash on deposit with financial institutions. (continued) 32 4. DETAILED NOTES ON ALL FUNDS (Continued) Cash and Investments (Continued) The Council has adopted a written investment policy regarding the investment of its funds as defined by the Public Funds Investment Act (Chapter 2256 Texas Government Code). The investments of the City are in compliance with the Council's investment policies. It is the City's policy to restrict its investments to direct obligations of the U. S. Government, commercial paper, fully collateralized certificates of deposit and other interest-bearing time and demand deposits, and other instruments and investments in public funds investment pools. State law provides that collateral pledged as security for bank deposits must have a market value of not less than the uninsured amount of the deposits and must consist of 1) obligations of the United States of its agencies and instrumentalities; 2) direct obligations of the State of Texas or its agencies; 3) other obligations, the principal and interest on which are unconditionally guaranteed or insured by the State of Texas; and/or 4) obligations of states, agencies, counties, cities, and other political subdivisions of any state having been rated as to investment quality by a nationally recognized investment rating firm and having received a rating of not less than A or its equivalent. The deposit and investment policies for the Pearland Economic Development Corporation, TIRZ Developments, and Development Authority of Pearland are substantially the same as the City. Deposits and Investments As of September 30, 2005, the City had the following investments: Weighted Average Investment Type Fair Value Maturity(Days) Primary government: Fannie Mae Discount Note $ 1,152,974 17 Freddie Mac Discount Note 1,851,659 91 Total portfolio $ 3,004,633 Portfolio weighted average maturity(days) 63 Interest Rate Risk. In accordance with its investment policy, the City manages its exposure to declines in fair market values by limiting the weighted average maturity of its investment portfolios to a maximum of 365 days. (continued) 33 4. DETAILED NOTES ON ALL FUNDS (Continued) Deposits and Investments (Continued) Custodial Credit Risk. In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned to it. State statutes require that all deposits in financial institutions be fully collateralized by U. S. Government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a fair value of not less than the principal amount of deposits. As of September 30, 2005, $64,957,376 of the City's $65,257,376 deposit balance was collateralized with securities held by the pledging financial institution. The remaining balance, $300,000 was covered by FDIC insurance. As of the same date, $13,808,363 of the component units' deposit balance was collateralized with securities held by the pledging financial institution and by FDIC. Credit Risk. It is the City's policy to limit its investments to investment types with an investment quality rating not less than A or its equivalent by a nationally recognized statistical rating organization. The City's investments as of September 30, 2005, were rated as follows: Investment Type Rating Rating Agency U.S.Agency Securities: Fannie Mae Discount Note AAA Moody's Investor Service Freddie Mac Discount Note Aaa Moody's Investor Service Receivables — Receivables as of year-end for the City's individual major funds, nonmajor funds in the aggregate, and discretely presented component units in the aggregate including the applicable allowances for uncollectible accounts, are as follows: Debt Capital Nonmajor Water Component General Service Protects Governmental and Sewer Units Total Receivables: Accounts $ 868,158 $ $ 46,605 $ 64,687 $ 2,714,763 $ 142 $ 3,694,355 Property taxes 511,094 286,650 234,287 1,032,031 Sales taxes 1,456,049 724,601 2,180,650 Other taxes 664,345 664.345 Intergovernmental 216,443 53,863 270,306 Accrued interest 1,393 994 20,079 20,097 42,563 �„ Gross receivables 3,717,482 286,650 46,605 119,544 2,734,842 979,127 7,884,250 Less:allowance for uncollectibles 65,590 469,205 534,795 Net total _ receivables $ 3,651,892 $ 286,650 $ 46,605 $ 119,544 $ 2,265,637 $ 979,127 $ 7,349,455 Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: (continued) — 34 4. DETAILED NOTES ON ALL FUNDS (Continued) Receivables (Continued) Unavailable Unearned General fund: Delinquent property taxes receivable $ 500,028 $ Municipal court 393,261 Other 167,061 Debt service fund: Delinquent property taxes receivable 275,445 Nonmajor governmental: Municipal court 3,746 Governmental Funds $ 1,172,480 $ 167,061 Capital Assets Capital asset activity for the year ended September 30, 2005, was as follows: Primary Government Decreases NIB Beginning and Ending Balance Increases Reclassifications Balance Governmental activities: Capital assets,not being depreciated: Land $ 2,509,691 $ 207,762 $ $ 2,717,453 Construction in progress 12,946,218 26,335,777 ( 18,583,828) 20,698,167 Total capital assets not being depreciated 15,455,909 26,543,539 ( 18,583,828) 23,415,620 Capital assets,being depreciated: Buildings 10,357,504 104,827 10,462,331 Improvements other than buildings 2,218,151 154,461 2,372,612 Machinery and equipment 8,619,886 662,281 9,282,167 Infrastructure 42,674,657 540,654 18,583,828 61,799,139 Total capital assets being depreciated 63,870,198 1,462,223 18,583,828 83,916,249 Less accumulated depreciation: Buildings 3,589,225 227,342 3,816,567 Improvements other than buildings 1,357,101 90,268 1,447,369 Machinery and equipment 5,714,914 1,259,239 6,974,153 Infrastructure 1,521,763 1,066,867 2,588,630 Total accumulated depreciation 12,183,003 2,643,716 14,826,719 Total capital assets,being depreciated,net 51,687,195 ( 1,181,493) 18,583,828 69,089,530 Governmental activities capital assets,net $ 67,143,104 $ 25,362,046 $ $ 92,505,150 (continued) 35 4. DETAILED NOTES ON ALL FUNDS (Continued) Capital Assets(Continued) Decreases Beginning and Ending — Balance Increases Reclassifications Balance Business-type activities: Capital assets,not being depreciated: Land $ 367,962 $ $ S 367,962 Construction in progress 2,166,494 17,258,064 19,424,558 Total assets not being depreciated 2,534,456 17,258,064 19,792,520 Capital assets,being depreciated: Buildings and improvements 21,518,110 1,091,918 22,610,028 Machinery and equipment 7,895,580 452,313 8,347,893 Water and sewer system 60,791,814 3,063.383 6,626,687 57,228,510 Total capital assets,being depreciated 90,205,504 4,607,614 6,626,687 88,186,431 Less accumulated depreciation: Buildings and improvements 8,198,116 695,693 8,893,809 Machinery and equipment 4,083,651 695,658 4,779,309 Water and sewer system 4,028.870 1,430,713 5,459,583 Total accumulated depreciation 16,310,637 2,822,064 19,132,701 Total capital assets being depreciated,net 73,894,867 1,785,550 6,626,687 69,053,730 Business-type activities capital assets,net $ 76,429,323 $ 19,043,614 $ 6,626,687 $ 88,846,250 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: — General government $ 581,618 Public safety 475,869 Public works 1,454,043 Community services 132,186 Total depreciation expense-governmental activities $ 2,643,716 Business-type activities: — Water and sewer $ 2,822,064 Total depreciation expense-business-type activities $ 2,822,064 Interfund Transfers Transfers In Debt Capital Nonmajor Water General Service Projects Governmental and Sewer Total Transfers Out: General $ - $ - $ 2,384,774 $ 82,000 $ 536,520 $ 3,003,294 ww Capital projects 404.000 204,559 - - - 608.559 Nonmajor governmental 898,264 - - - - 898.264 Water and sewer 761,000 135,002 - - - 896,002 Total Transfers $ 2,063,264 $ 339,561 $ 2,384,774 $ 82,000 $ 536,520 $ 5,406,119 (continued) — 36 4. DETAILED NOTES ON ALL FUNDS (Continued) Interfund Transfers (Continued) Transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the Debt Service Fund as debt service payments become due, and(3) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Lone-term Debt General Obligation Bonds and Certificates of Obligation The City issues general obligation bonds and certificates of obligation to provide funds for the acquisition and construction of major capital facilities. General obligation bonds and certificates of obligation have been issued for both governmental and business-type activities. The original amount of general obligation bonds and certificates of obligation issued in prior years was $153,795,000. During the year, general obligation bonds and certificates of obligation totaling $37,015,000 were issued to fund general obligation projects and refund certain debt issues. General obligation bonds and certificates of obligation are direct obligations and pledge the full faith and credit of the government. These bonds generally are issued as 20-year serial bonds with equal amounts of principal maturing each year. General obligation bonds and certificates of obligation currently outstanding are as follows: Purpose Interest Rates Amount Governmental activities 3.00-7.25% $ 107,550,000 Governmental activities-refunding 3.25-5.5% 25,015,000 Business-type activities 2.6-6.5% 15,880,000 $ 148,445,000 Annual debt service requirements to maturity for general obligation bonds and certificates of obligation are as follows: Year Ending Governmental Activities Business-type Activities September 30, Principal Interest Principal Interest 2006 $ 2,850,000 $ 6,279,799 $ 880,000 $ 548,674 2007 2,525,000 5,936,666 915,000 521,072 2008 2,650,000 5,822,694 945,000 492,006 2009 4,340,000 5,663,043 980,000 461,197 2010 4,885,000 5,445,556 1,015,000 428,271 2011-2015 27,045,000 23,764,608 5,645,000 1,570,214 2016-2020 29,330,000 17,396,188 5,500,000 347,768 2021-2025 32,735,000 10,351,167 2026-2030 26,205,000 2,268,629 Total $ 132,565,000 $ 82,928,350 $ 15,880,000 $ 4,369,202 (continued) 37 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt (Continued) The various bond obligations contain certain financial limitations and restrictions. The _ ordinances authorizing the issuance of general obligation bonds created an interest and sinking fund (general debt service fund). The ordinances require the City to ascertain a rate and amount of tax which will be sufficient to pay interest as it comes due and provide a reserve fund which is _. adequate to meet principal as it matures. The City is in compliance with all such significant financial restrictions. Revenue Bonds The City also issues bonds where the City pledges income derived from the acquired or constructed assets to pay debt service. The original amount of revenue bonds issued in prior years was $36,370,000 Revenue bonds outstanding at year-end are as follows: Purpose Interest Rates Amount Water and sewer improvements 4.00-6.00% $ 32,480,000 Revenue bond debt service requirements to maturity are as follows: Year Ending Business-type Activities September 30, Principal Interest 2006 $ 1,075,000 $ 1,459,365 2007 1,125,000 1,411,888 2008 1,180,000 1,361,558 2009 1,235,000 1,308,250 2010 1,295,000 1,251,918 2011-2015 7,485,000 5,254,083 2016-2020 9,380,000 3,431,769 2021-2025 9,705,000 1,222,249 Total $ 32,480,000 $ 16,701,080 Obligations Under Capital Leases During the current year, the City entered into a capital lease agreement in order to purchase —` equipment and vehicles for various departments. The assets acquired through these lease agreements are as follows: Governmental Activities Asset: Equipment and vehicles $ 455,193 Less:accumulated depreciation 26,284 Total $ 428,909 (continued) 38 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt(Continued) Obligations Under Capital Leases (Continued) Year Ending Lease September 30, Obligation 2006 $ 159,629 2007 159,629 2008 95,069 Total 414,327 Less interest portion ( 18,668) Obligations under capital leases $ 395,659 ,. The primary government's long-term liability activity for the year ended September 30, 2005, was as follows: Beginning Ending Due Within ' Balance Additions Reductions Balance One Year Governmental activities Bonds payable: General obligation $ 25,345,000 $ 37,015,000 $ 2,185,000 $ 60,175,000 $ 2.295,000 Certificates of obligation 90,185,000 17,795,000 72,390,000 555,000 Deferred amount for issuance premium 94,443 1,368,186 3,935 1,458,694 60,943 Deferred loss on refunding ( 789,621) ( 789,621) ( 39.481) Total bonds payable 115.624.443 37,593,565 19,983,935 133,234,073 2.871,462 Capital lease 184,000 271,193 59,534 395,659 147,371 Compensated absences 2,356.897 1,234,722 276,920 3,314.699 662,940 Governmental activity long-term liabilities 118,165,340 39,099,480 20,320,389 136,944,431 3,681,773 Business-type activities Bonds payable: Certificates of obligation 16,735.000 855,000 15,880,000 880,000 Revenue 33,505,000 1,025,000 32,480,000 1,075,000 Total bonds payable 50,240,000 1,880,000 48,360,000 1,955,000 r Compensated absences 400.860 82,447 67,991 415,316 83,063 Business-type activity long-term liabilities $ 50,640,860 $ 82,447 $ 1,947,991 $ 48,775,316 $ 2,038,063 The governmental activities compensated absences are generally liquidated by the General Fund. (continued) 39 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt(Continued) Advance Refunding The City issued $16,510,000 of general obligation refunding bonds to provide resources to purchase U. S. Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of $17,294,621 of general obligation bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the governmental activities column of the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $789,621. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to increase total debt service payments over the next 12 years by $1,031,367 and resulted in an economic gain of$871,970. Federal Tax Compliance(Arbitrage)for Long-term Debt • In accordance with provisions of Section 148 of the Internal Revenue Code of 1986, as amended, (the "Code") the City's long-term debt obligations must meet certain minimum criteria to be considered and continue to be considered "tax-exempt." This "tax-exempt" status means that interest income earned by purchasers of the City's long-term debt instruments is not subject to federal income taxes. Related Treasury Regulations promulgated under Section 148 of the Code generally provide that the determination of whether these obligations are tax-exempt is made as of the date such obligations are issued based on a reasonable expectation regarding the use of the proceeds of the bonds issued. Long-term debt that does not meet and continue to meet the minimum criteria of Section 148 of the Code and the related Treasury Regulations described above are considered"arbitrage bonds" and are not considered "tax-exempt" as described above. Rebate Obligations will become arbitrage bonds (as described above) if certain arbitrage profits are not paid to the federal government as rebate under Section 148(f) of the Code. The City's obligations to calculate and make rebate payments (if any) will continue as long as there are gross proceeds allocable to outstanding debt issues. The City has performed calculations required under Section 148(f) of the Code and a liability in the amount of$53,317 was reported in the Water and Sewer Fund. (continued) 40 4. DETAILED NOTES ON ALL FUNDS (Continued) Long-term Debt (Continued) Unexpended Debt Issuance Proceeds (Yield Restriction Requirements) Section 148 of the Code also provides that in order for debt not to be considered arbitrage bonds (as described above), proceeds of such debt must be invested at a yield that is not materially higher than the yield on the debt issued starting on the third anniversary of the issue date of such debt. Accordingly, any unexpended proceeds of debt issued by the City that remain unexpended more • than three years after such debt was issued should be yield restricted. The yield restriction may be accomplished by making yield reduction payments pursuant to Treasury Regulation Section 1.148- 5(c). The City is currently pursuing compliance with these yield restriction requirements and does not anticipate associated significant noncompliance issues. The City is continuing to proceed with reasonable diligence to expend any remaining unexpended debt issuance proceeds on qualifying projects. Component Units The terms of Sales Tax and Tax Increment Revenue Bonds are as follows: Purpose Interest Rates Amount Sales Tax Revenue-Economic Development 2.5%-5% $ 10,590,000 Tax Increment Revenue-Development Authority 3.25%-5.5% 13,995,000 The Pearland Economic Development Corporation issued $4,365,000 of sales tax revenue refunding bonds to provide resources to purchase U. S. Government State and Local Government Series securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of$4,349,474 of sales tax revenue bonds. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the statement of net assets. The reacquisition price exceeded the net carrying amount of the old debt by $189,626. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to increase total debt service payments over the next 10 years by$1,135,935 and resulted in an economic gain of$790,921. (continued) 41 w 4. DETAILED NOTES ON ALL FUNDS(Continued) Lone-term Debt(Continued) Component Units (Continued) - Long-term activity for the year ended September 30,2005, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Economic Development Corporation: Sales Tax Revenue Bonds S 4,165,000 $ 11,005,000 S 4,580,000 $ 10,590,000 $ 345,000 Deferred amount for issuance premium 155,448 155,448 7,772 Deferred loss on refunding ( 189,626) ( 189,626) ( 9,481) Compensated absences 14,540 28,191 28,191 14,540 7,797 Total long-term liabilities $ 4,179,540 S 10,999,013 S 4,608,191 $ 10,570,362 $ 351.088 Development Authority of Pearland: Tax Increment Revenue Bonds S $ 13,995,000 S $ 13,995,000 S 815,000 �- Total long-term liabilities S $ 13,995,000 $ $ 13,995,000 $ 815 000 Annual debt service requirements to maturity for sales tax revenue bonds are as follows: Year Ending September 30, Principal Interest _ 2006 $ 345,000 $ 420,900 2007 350,000 412,275 2008 360,000 402,650 r 2009 375,000 391,850 2010 385,000 380,600 2011-2015 2,140,000 1,693,590 2016-2020 2,645,000 1,190,740 - 2021-2025 3,255,000 575,689 2026 735,000 31,238 Total $ 10,590,000 $ 5,499,532 _ Annual debt service requirements to maturity for tax increment revenue bonds are as follows: Year Ending September 30, Principal Interest 2006 $ 815,000 $ 668,858 _ 2007 840,000 642,370 2008 360,000 614,020 2009 375,000 601,060 2010 390,000 586,435 2011-2015 2,215,000 2,663,241 2016-2020 2,790,000 2,085,615 2021-2025 3,570,000 1,307,981 2026-2028 2,640,000 292,489 - Total $ 13,995.000 $ 9,462,069 (continued) 42 4. DETAILED NOTES ON ALL FUNDS (Continued) Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the government expects such amounts, if any, to be immaterial. The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the City's counsel, the resolution of these matters will not have a material adverse effect on the financial condition of the City. Pension Plans—Primary Government Plan Description The City provides pension benefits for all of its full-time employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of 801 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits, with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%, or 200%) of the employee's accumulated contributions. In addition, the City can grant, as often as annually, another type of monetary credit referred to as an updated service credit which is a theoretical amount which, when added to the employee's accumulated contributions and the monetary credits for service since the plan began, would be the total monetary credits and employee contributions, accumulated with interest, if the current employee contribution rate and City matching percent had always been in existence; and if the employee's salary had always been the average of his salary in the last three years that are one year before the effective date. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions, with interest, and the employer-financed monetary credits, with interest, were used to purchase an annuity. Members can retire at age 60 and above with 5 or more years of service or with 20 years of service regardless of age. A member is vested after 5 years. The plan provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. (continued) 43 4. DETAILED NOTES ON ALL FUNDS (Continued) Pension Plans—Primary Government (Continued) Contributions The contribution rate for the employees is 7% and the City matching ratio is currently 2 to 1, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually determines the City contribution rate. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the currently accruing monetary credits due to the City matching percent, which the obligation of the City as of an employee's retirement date, not at the time the employee's contributions are made. The normal cost contribution rate is the actuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his/her retirement becomes effective. The prior service contribution rate amortizes the unfunded (overfunded) actuarial liability(asset)over the remainder of the plan's 25-year amortization period. When the City periodically adopts updated service credits and increases its annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. The unit credit actuarial cost method is used for determining the City contribution rate. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance to budget for it, there is a one-year delay between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect (i.e., December 31, 2004, valuation is effective for rates beginning January 2006). —" Schedule of Actuarial Liabilities and Funding Progress For the Years Ended September 30,2002,2003 and 2004 Actual Valuation Date 12/31/02 12/31/03 12/31/04 Actuarial value of assets $ 16,390,251 $ 18,772,272 S 21,971,144 Actuarial accrued liability 19,963,606 23.190,084 26,517.882 Percent funded 82.1% 80.9% 82.9% Unfunded(overfunded)actuarial accrued liability(UAAL) 3,573,355 4,417,812 4.546,738 Annual covered payroll 11,151,256 12,731,012 13,703,115 UAAL as a percentage of covered payroll 32.0% 34.7% 33.2% Net pension obligation(NPO at the beginning of period Annual Pension Cost: Annual required contribution(ARC) 1,228,907 1.371,452 1,480,301 Contributions made 1,228,907 1,371.452 1,480,301 Increase in NPO NPO at the end of the period S - .r (continued) 44 4. DETAILED NOTES ON ALL FUNDS (Continued) Pension Plans—Primary Government(Continued) Contributions (Continued) Actuarial Assumptions Actuarial Cost Method - Unit Credit Amortization Method - Level Percent of Payroll Remaining Amortization Period - 25 Years-Open Period Asset Valuation Method - Amortized Cost(to accurately reflect the requirements of GASB Statement No.25, paragraphs 36e and 138) Investment Rate of Return - 7% Projected Salary Increases - None Includes Inflation at - None Cost-of-living Adjustments - None The City is one of 801 municipalities having its benefit plan administered by TMRS. Each of the 794 municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2004, valuations are contained in the 2004 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P. O. Box 149153, Austin, Texas 78714-9153. Risk Management The City is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City's risk management program mainly encompasses obtaining property and liability insurance through Texas Municipal League (TML-IRP), an Intergovernmental Risk-Pool and through commercial insurance carriers. The City purchases commercial general insurance through the Texas Municipal League, an unincorporated association of political subdivisions of the State of Texas. This policy encompasses general liability, incidental, medical malpractice, automobile liability, law enforcement liability, errors and omissions liability, property, automobile vehicle liability, and damages with limits of liability for each occurrence. The City has not had any significant reduction in insurance coverage, and the amounts of insurance settlements have not exceeded insurance coverage for any of the last three years. The participation of the City in the TML-IRP is limited to payment of premiums. At year-end, the City did not have any significant claims pending. (continued) 45 4. DETAILED NOTES ON ALL FUNDS (Continued) Risk Management(Continued) Workers' Compensation The City is a member of the Texas Municipal League (TML) Workers' Compensation Intergovernmental Risk Pool,an unincorporated association of political subdivisions of the State of -- Texas. The fund contracts with a third-party administrator for administration, investigation, and adjustment services in the handling of claims. Premiums are based on the estimated City payroll by risk factor and rates. The premiums are adjusted by the City's experience modifier. All loss contingencies, including claims incurred, but not reported, if any, are recorded and accounted for by the TML Pool. The City's liability is limited to the payment of premiums as assessed by TML. Prior Period Adjustment As of September 30, 2004, the City (overstated) understated certain assets between funds. Beginning fund equity was restated in each of the following funds to correct this error in the prior year. Amount of Fund Restatement General $ ( 1,853,778) Nonmajor governmental ( 90,130) Water and sewer 1,190,651 Economic Development Corporation ( 26,482) Subsequent Events Debt Issuance On October 1, 2005, the Development Authority of Pearland, a discretely presented component unit, issued Tax Increment Revenue Bonds, Series 2005, in the amount of $9,775,000. These bonds were used to reimburse developers for certain project costs including infrastructure and related improvements made by such developers within Reinvestment Zone Number Two. Annexation On December 31, 2005, the City annexed approximately 582 acres of land consisting of all of Brazoria County Municipal Utility District No. 5 and adjacent portions of County Road 403 and FM 865, Brazoria County into the City. Upon the dissolution of the District, the City assumes all property and assets owned by the District, as well as all debts, liabilities and obligations of the District, and must provide all City services to the annexed areas. Capital assets and long-term debt acquired were approximately $11.7 million and $8.3 million, respectively. 46 APPENDIX C FORM OF BOND COUNSEL OPINION AN D R E W S Andrews&Kurth L.L.P. ATTORNEYS K U RT H 600 Travis,Suite 4200 LIP Houston,Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskuith.com July 13,2006 .411 WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City"), in connection with an issue of certificates of obligation(the"Certificates")described as follows: CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006, dated July 1, 2006, in the aggregate principal amount of $9,700,000, .16 maturing on March 1 in each year from 2008 through 2029, inclusive. The Certificates are issuable in fully registered form only, in denominations of$5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with - respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R-1 of this issue. WE HAVE NOT BEEN REQUESTED to examine,and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION,it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency,reorganization, HOU:2570376.I Austin Dallas Houston London Los Angeles New York The Woodlands Washington,DC July 13, 2006 Page 2 moratorium or other similar laws affecting the rights of creditors of political — subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; and (2) The Certificates are payable, both as to principal and interest, from, and secured by, the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law, against taxable property within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The Certificates are further secured by a limited and subordinate pledge of the net revenues of the waterworks and sanitary sewer system of the City. The revenues to be derived from the operation of the City's water and sewer system after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, to the extent that ad valorem taxes may ever be insufficient or unavailable for said purpose; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. — ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is — excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certificates in gross income of the owners thereof for federal income tax purposes. HOU:2570376.1 July 13, 2006 Page 3 INTEREST ON all tax-exempt obligations, including the Certificates, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Certificates are directed to the discussion entitled "TAX EXEMPTION"set forth in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. 7867/7866 F p P HOU:2570376.1 PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of June 12, 2006 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the CITY OF PEARLAND, TEXAS (the "Issuer"), and WELLS FARGO BANK,N.A., HOUSTON, TEXAS, as paying agent/registrar(together with any successor in such capacity, the "Bank"). WITNESSETH: WHEREAS, the Issuer has duly authorized and provided for the issuance of its City of Pearland, Texas Certificates of Obligation, Series 2006 (the "Certificates") in the aggregate principal amount of$9,700,000 to be issued as fully registered certificates; WHEREAS, all things necessary to make the Certificates the valid obligations of the Issuer, in accordance with their terms, will be done upon the issuance and delivery thereof; WHEREAS, the Issuer and the Bank wish to provide the terms under which the Bank will act as Paying Agent to pay the principal of, redemption premium, if any, and interest on the Certificates, in accordance with the terms thereof, and under which the Bank will act as Registrar for the Certificates; and WHEREAS, the Issuer and the Bank have duly authorized the execution and delivery of this Agreement; and all things necessary to make this Agreement the valid agreement of the parties, in accordance with its terms, have been done. NOW, THEREFORE, it is mutually agreed as follows: ARTICLE ONE APPOINTMENT OF BANK AS PAYING AGENT AND REGISTRAR Section 1.01. Appointment. The Issuer hereby appoints the Bank to act as Paying Agent with respect to the Certificates, to pay to the Registered Owners of the Certificates, in accordance with the terms and provisions of this Agreement and the ordinance authorizing the issuance of the Certificates (the "Ordinance"), the principal of, redemption premium, if any, and interest on all or any of the Certificates. The Issuer hereby appoints the Bank as Registrar with respect to the Certificates. The Bank hereby accepts its appointment, and agrees to act as Paying Agent and Registrar with respect to the Certificates. HOU:2585239.1 r r. Section 1.02. Compensation. rIn consideration of the deposits of funds required to be made with the Bank by the Issuer pursuant to the provisions of the Ordinance, the Bank shall be paid the fees set forth in the Bank's fee schedule attached as Exhibit A hereto and agrees to abide by and accept the terms hereof and of the Ordinance relating to the duties of the Paying Agent/Registrar. ARTICLE TWO DEFINITIONS Section 2.01. Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: "Bank" means Wells Fargo Bank, N.A., Houston, Texas, a commercial bank which is a national bank duly organized and existing under the laws of the United States of America. "Certificate" or "Certificates" means any one or all of the "City of Pearland, Texas Certificates of Obligation, Series 2006" authorized by the Ordinance. "Issuer"means the City of Pearland, Texas. "Ordinance" means the ordinance of the Issuer approved by its City Council on June 12, 2006, pursuant to which the Certificates are issued. "Paying Agent"means the Bank when it is performing the function of paying agent. "Person" means any individual, corporation, partnership,joint venture, associations,joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government or any entity whatsoever. "Registrar"means the Bank when it is performing the function of registrar. "Registered Owner" means the Person in whose name any Certificate is registered in the r books of registration maintained by the Bank under this Agreement. All other capitalized terms shall have the meanings assigned to them in the Ordinance. 2 HOU:2585239.I 1 ARTICLE THREE DUTIES OF THE BANK Section 3.01. Initial Delivery of the Certificates. The Certificates will be initiallyregistered and delivered bythe Bank to the � purchaser designated by the Issuer as set forth in the Ordinance. If such purchaser delivers a written request to the Bank not later than five business days prior to the date of initial delivery, the Bank will, on the date of initial delivery, exchange the Certificates initially delivered for Certificates of authorized denominations, registered in accordance with the instructions in such request and the Ordinance. Section 3.02. Duties of Paying Agent. As Paying Agent, the Bank shall, provided adequate funds have been provided to it for such purpose by or on behalf of the Issuer, timely pay on behalf of the Issuer the principal of and interest on each Certificate in accordance with the provisions of the Ordinance. If the issue is to be Depository Trust Company (DTC) eligible, the Paying Agent will comply with all eligibility requirements as outlined and agreed upon in the eligibility questionnaire. Section 3.03. Duties of Registrar. The Bank shall provide for the proper registration of the Certificates and the timely exchange, replacement and registration of transfer of the Certificates in accordance with the provisions of the Ordinance. Any changes to Registered Owners for such exchange, replacement and registration shall be made by the Bank only in accordance with the Ordinance. The Bank will maintain the books of registration in accordance with the Bank's general practices and procedures in effect from time to time; provided, however, that the Bank agrees to maintain books of registration for the Certificates at the City Secretary's office in City of Pearland, Texas, which books of registration may be a copy of the register which shall be kept current by the Bank. Section 3.04. Unauthenticated Certificates. The Issuer shall provide an adequate inventory of unauthenticated Certificates to facilitate transfers. The Bank covenants that it will maintain such unauthenticated Certificates in safekeeping and will use reasonable care in maintaining such Certificates in safekeeping, which shall be not less than the care it maintains for debt securities of other government entities or corporations for which it serves as registrar, or which it maintains for its own bonds. r r ' 3 HOU:2585239.1 Section 3.05. Reports. PP Upon request of the Issuer, the Bank will provide the Issuer reports which will describe in reasonable detail all transactions pertaining to the Certificates and the books of registration for the period of time specified by the Issuer. The Issuer may also inspect and make copies of the information in the books of registration and such other documents related to the Certificates and in the Bank's possession at any time the Bank is customarily open for business, provided that r reasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of IP• a subpoena, court order or other lawful request, the Bank will notify the Issuer immediately so that the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.06. Canceled Certificates. All Certificates surrendered for payment, redemption, transfer, exchange or replacement, PP if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Certificates r" previously authenticated and delivered which the Issuer may have acquired in any manner whatsoever, and all Certificates so delivered shall be promptly canceled by the Bank. All canceled Certificates held by the Bank shall be destroyed and evidence of such destruction shall be furnished to the Issuer. Section 3.07. Reliance on Documents, Etc. PP (a) The Bank may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, on certificates or opinions furnished to the Bank by the Issuer. (b) The Bank shall not be liable to the Issuer for actions taken under this Agreement as long as it acts in good faith and exercises due diligence, reasonableness and care, as prescribed by law, with regard to its duties hereunder. (c) This Agreement is not intended to require the Bank to expend its own funds for performance of any of its duties hereunder. (d) The Bank may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys. Section 3.08. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered r Owners of the Certificates. 4 HOU:2585239.1 The Bank shall be under no obligation to pay interest on any money received by it hereunder. All money deposited with the Bank hereunder shall be secured in the manner and to the fullest extent required by law for the security of funds of the Issuer. Any money deposited with the Bank for the payment of the principal of or interest on any Certificates and remaining unclaimed by the Registered Owner after the expiration of three years from the date such funds have become due and payable shall be reported and disposed of by the Bank in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. To the extent such provisions of the Property Code do not apply to the funds, such funds shall be paid by the Bank to the Issuer upon receipt of a written request therefor from the Issuer. The Bank shall have no liability to the Registered Owners of the Certificates by virtue of actions taken in compliance with the foregoing provision. ARTICLE FOUR MISCELLANEOUS PROVISIONS Section 4.01. May Own Certificates. The Bank, in its individual or any other capacity, may become the owner or pledgee of Certificates with the same rights it would have if it were not the Paying Agent and Registrar for the Certificates. Section 4.02. Amendment. This Agreement may be amended only by an agreement in writing signed by both of the parties hereof. Section 4.03. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other. Section 4.04. Notices. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted hereby to be given or furnished to the Issuer or the Bank shall be mailed or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. 5 HOU:2585239.1 Section 4.05. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.06. Successors and Assigns. All covenants and agreements herein by the Issuer and the Bank shall bind their successors and assigns, whether so expressed or not. This Agreement shall not be assigned by the Bank without the prior written consent of the Issuer. a Section 4.07. Severability. If any provision of this Agreement shall be invalid or unenforceable, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. Section 4.08. Benefits of Agreement. Nothing herein, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. Section 4.09. Ordinance Governs Conflicts. This Agreement and the Ordinance constitute the entire agreement between the parties hereto relative to the Bank acting as Paying Agent and Registrar and if any conflict exists between this Agreement and the Ordinance, the Ordinance shall govern. The Bank agrees to be bound by the terms of the Ordinance with respect to the Certificates. Section 4.10. Term and Termination. This Agreement shall be effective from and after its date and may be terminated for any reason by the Issuer or the Bank at any time upon 60 days' written notice; provided, however, that no such termination shall be effective until a successor has been appointed and has accepted the duties of the Bank hereunder. In the event of early termination, regardless of circumstances, the Bank shall deliver to the Issuer or its designee all funds, Certificates and all books and records pertaining to the Bank's role as Paying Agent and Registrar with respect to the Certificates, including, but not limited to, the books of registration. Section 4.11. Governing Law. This Agreement shall be construed in accordance with and shall be governed by the laws of the State of Texas. 6 HOU:2585239.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF PEARLAND, TEXAS By: C� Tom Reid, Mayor ADDRESS: 3519 Liberty Drive Pearland, Texas 77581 ATTEST: ng Lo g, ity cret (S, 111111f1j���, �,.`��acQ..•«•••.,�,„ �� , WELLS FARGO BANK, N.A. .�� tip" : ••''� \pi — By: '..,• ...••' Title: /,o'6 -Inns 11100. ATTN: Corporate Trust Department ATTEST: I By: Title: (SEAL) I p PI i 7 HOU:2585239.1 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF PEARLAND, TEXAS By: Tom Reid, Mayor ADDRESS: 3519 Liberty Drive Pearland, Texas 77581 ATTEST: Young Lorfing, City Secretary (SEAL) WELLS FA 0 B K, N.A. .vtaLiN By: Title: dice President ATTN: Corporate Trust Department ATTEST: By: � Titl \ GO o ..SEAL: /wiii i110•`�� 7 HOU:2585239.I EXHIBIT A City of Pearland,Texas Certificates of Obligation, Series 2006 Fee Schedule I r r r r r r r r r I I HOU:2585239.1 Gregory M. Hasty Wells Fargo Bank WELLS Corporate Trust Services FARGO 1445 Ross Avenue, 2nd Floor Dallas, Texas 75202 Tel: (214) 740-1548 Fax: (214)777-4086 SCHEDULE OF FEES $9,700,000 City of Pearland, Texas Certificates of Obligation, Series 2006 To act as PAYING AGENT & REGISTRAR Acceptance Fee: $0.00 Initial Fees as they relate to Wells Fargo Bank acting in the capacity of Paying Agent/Registrar- includes creation and examination of the Paying Agent/Registrar Agreement; acceptance of the appointment; setting up of Paying Agent/Registrar records and accounting records; and coordination of closing. Acceptance Fee payable at time of Paying Agent/Registrar Agreement execution. Annual Administration Fee: (OPTION 1) $500.00 Or OPTION 2 Custodial Investment Account: FEE-$0.00 Annual Fee will be waived if proceeds aggregating $1,000,000 are continually invested in a qualified money market fund for which we receive a fee for services provided to that fund. For Ordinary Paying Agent/Registrar administration services, for either of the options above. Includes -• daily routine account management; investment transactions; cash transaction processing in accordance with the agreement; and mailing of trust account statements to all applicable parties. Float credit received by the bank for receiving funds that remain uninvested are deemed part of the Paying Agent's compensation. The Annual Administration fees are payable in advance, with the first installment due at closing. Out of Pocket Expenses: We only charge for out of pocket expenses in response to specific tasks assigned by the client. Therefore, we cannot anticipate what specific out of pocket items will be needed or what corresponding expenses will be incurred. Possible expenses would be, but are not limited to, express mail and messenger charges, travel expenses to attend closing or other meetings. There are no charges for indirect out of pocket expenses. This fee schedule is based upon the assumptions listed above which pertain to the responsibilities and risks involved in Wells Fargo undertaking the role of Paying Agent/Registrar. These assumptions are based on information provided to us as of the date of this fee schedule. Our fee schedule is subject to review and acceptance of the final documents. Should any of the assumptions, duties or responsibilities change, we reserve the right to affirm, modify or rescind our fee schedule. Submitted by: Gregory M. Hasty—June 23, 2006 Vice President/Business Development Wells Fargo Bank (214)740-1548 Pipeline ID#42417 r GENERAL CERTIFICATE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the hereby do"City"), make and execute this certificate for the benefit of the Attorney General of the State of Texas and all other persons interested in the City's $9,700,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006, dated July 1, 2006 (the"Certificates"), now in the process of issuance, as follows: (1) The City is a duly incorporated Home Rule City, havingmore than 5 00 0 inhabitants, operating and existing under the Constitution and laws of the State of Texas and the duly adopted Home Rule Charter of the City, which Charter has not been changed since the approval by the Attorney General of the State of Texas of the City of Pearland, Texas Permanent Improvement and Refunding Bonds, Series 2006, dated June 1, 2006, which were the last obligations issued by or on behalf of the City. (2) The Certificates are being issued to provide funds to pay contractual obligations to be incurred for (i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 288, including the construction of an approximately 200-acre foot storm water detention storage facility, the construction of storm sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv) professional services rendered in connection with the above listed projects. (3) The currently effective ad valorem tax appraisal roll of the City (the "Tax Roll") is the Tax Roll prepared and approved during the calendar year 2005, being the most recently approved Tax Roll of the City; the taxable property in the City has been appraised, assessed and valued as required and provided by the Texas Constitution and Property Tax Code (collectively, "Texas law"); the Tax Roll for the year has been submitted to the City Council of the City as required by Texas law, and has been approved and recorded by the City Council; and according r to the Tax Roll for the year, the net aggregate taxable value of taxable property in the City (after deducting the amount of all applicable exemptions required or authorized under Texas law), upon which the annual ad valorem tax of the City has been or will be imposed or levied, is $3,816,235,030. F r HOU:2585257.1 F 4 From May15, 2006 to Ma y 22, 2006, the following individuals were the duly elected and qualified Mayor, and City Council of the City holding the offices opposite their names: Tom Reid Mayor Kevin Cole Mayor Pro Tem Helen Beckman Council Member Felicia Kyle Council Member Richard Tetens Council Member Steve Saboe Council Member (5) From May 22, 2006 to the date hereof,the following individuals were the duly elected and qualified Mayor, and City Council of the City holding the offices opposite their names: rTom Reid Mayor Richard Tetens Mayor Pro-Tern Helen Beckman Councilme tuber Steve Saboe Councilmember Felicia Kyle Councilmember Kevin Cole Councilmember (6) From May 22, 2006, to the date hereof, Young Lorfing has been the duly appointed and qualified City Secretary of the City. (7) The Certificates were sold at a price equal to $9,700,970.00 (representing the par amount of the Certificates plus a net premium of$970.00) plus accrued interest to the date of delivery by means of a competitive sale to A.G. Edwards & Sons, Inc. A copy of the Winning Bid is attached as Exhibit A. (8) Except as described in the Official Statement, neither the revenues nor the properties of the System are in any way pledged or hypothecated other than the pledge of the Net Revenues of the System to the Bonds now in the process of issuance,the City's Water and Sewer System Revenue and Refunding Bonds, Series 2006, Certificates of Obligation, Series 2003, Water and Sewer System Revenue Bonds, Series 2003, the City's Certificates of Obligation, Series 2001, the City's Water and Sewer System Revenue Bonds, Series 2001, the City's Water and Sewer System Adjustable Rate Revenue Bonds, Series 1999, the City's Certificates of Obligation, Series 1998A, the City's Certificates of Obligation, Series 1997A,the City's Certificates of Obligation, Series 1997, the City's Water and Sewer System Revenue Refunding Bonds, Series 1996A and the City's Combination Tax and Revenue Certificates of Obligation, Series 1995. (9) Attached to this certificate as Exhibit B is a true, full and correct debt service schedule for the Certificates. Attached as Exhibit C is a true, full and correct debt service schedule for all of the City's outstanding tax supported debt, including the Certificates. The principal amount of the City's total outstanding tax supported debt, is $186,580,000. 2 HOU:2585257.1 r (9) The following is a true, full and current schedule of System revenues, remainingafter the payment of all operation and maintenance expenses thereof ("Net Revenues"), for fiscal year ended September 30,2005,was $3,638,349, and for the previous three fiscal years: Fiscal Year Ended September 30, 2002 2003 2004 $7,700,176 $7,622,912 $4,536,439 r (10) Attached to this certificate as Exhibit D is a true, full and current resolution establishing the utility rates of the System that are currently in effect. (11) The City is not in default as to any covenant, condition or obligation on any prior bonds or other obligations payable from the Net Revenues of the System. [Signature Page Follows] r r r F r r r F r r r 3 HOU:2585257.1 SIGNED AND SEALED this June 'Z, 2006. CITY OF PEARLAND, TEXAS • Secret Mayor 11. $4,00•••••%.• AS '!�� •~•••NMI p I r i r I I I „, I too HOU:2585257.1 Exhibit \�inning$id I I I I I I I I I I I I I I I '+ vlou 25%52".1 -- ---- -- -- r.ew i i.. 0-4�`f OFFICIAL BID FORM S June 12,2006 •tik. 1.';' Mayor and City Council 1` City of Pearland i • <:, 3519 Liberty Drive ' > Pearland,Texas 77581 :... .•i Gentlemen; ' *r+' -1; i s Subject to the terms of your Official Notice of Sale and Official Statement, dated May 30, 2006, which are ;•;:4?-�; incorporated herein by reference, we hereby submit the following bid for the $9,700,000 CITY OF GARLAND, t ' TEXAS, CERTIFICATES OF OBLIGATION, SERIES 2006, dated July 1,2006. This offer is being made for all said Certificates and for not less than all. For said legally issued Certificates of Obligation, we will pay you the par value thereof, plus accrued interest from i..^:� • their date to the date of delivery to us, plus a cash premium of$ 910. =' for the Certificates maturing and ......,.R• bearing interest per annum as follows: - .. Maturity Principal Interest Maturity Principal Interest . 3_; : . Date Amount Rate Date Amount Rate ' ;1: March 1,2008(a) $ 25,000 to• j1'r % March 1,2019(a)(b) $505,000 Li.2 SO q f : March I,2009(a) 25,000 to•12S March 1,2020(aXb) 470,000 L1.300 March 1,2010(a) 50,000 to• t1S March 1,2021(aXb) 500,000 14. 30 C) - March 1,2011(a) 125,000 to• t25" March 1,2022(aXb) 525,000 N.3 S i` `.T March 1,2012(a) 315,000 t. •t 2-S March 1,2023(a)(b) 555,000 44. 4400 5 >:::: March I,2013(a) 335,000 [4i_ March 1,2024(a)(b) 585,000 'i• 4-1 S O ,r. March 1,2014(a) 355,000 (,• tU..S March 1,2025(a)(b) 605,000 4.Co 6 March 1,2015(a) 370,000 to.t Z S March 1,2026(a)(b) 730,000 44• T o u I t,4w. March 1,2016(a) 395,000 •2S O March 1,2027(a)(b) 765,000 4.S Ut) : x t. , '. . March 1,2017(aXb) 405,000 14• t2 r Matt h 1,2028(a)(b) 805,000 ;4.r O u •' `Y'? .; March 1,2018(aXb) 405,000 'i•1 OO March 1,2029(aXb) 850,000 1l•'sa O e <F..,,,,..' n;: t. • •. (a) At the option of the Purchaser, any or all of such serial maturities may be designated as term certificates - subject to mandatory sinking fund redemption as follows;provided that the mandatory sinking fund amount in each year shall equal the amounts shown above as maturing in such year. ar;•y Term Bonds Years of First Maturity Date Mandatory Principal Amount Interest s 1' (March 1) Redemption of Term Bonds Rate $ `D — % tl A„ •r' A % % % .' •y: (b) Subject to optional redemption and payment, at the option of the City, in whole or, from time to time, in • i'.rr part, on March 1, 2016, or on any date thereafter at a price equal to the principal amount thereof, plus .• . - accrued interest to the date fixed for redemption. 1., •I JUN-12-2006 12:06 AG EDWARDS r e Interest cost, in accordance with the above bid,is: • ` Total Interest Cost from July 1,2006... $ (o,a`f 1,(O GO, s, 4 • Less: Premium. • S_ q C• C,, ; NET INTEREST COST S (78'i to,(9i o. 2 ,.-. • `3 NET EFFECTIVE INTEREST RATE 4.51 0 o y ki % � 4 MAMAS � p�� �� .: The Initial Certificates shall be registered in the name of ;�4161 of upon payment for •r. .� the Certificates, be cancelled by the Paying Agent/Registrar.The Certificates will then be registered in the name of '" Cede&Co.(DTC's partnership nominee),under the Book-Entry-Only System. Cashiers Cheek of the ►C erf Bank, Tl ))7)1(..) ,Texas,in the amount of$194,000 which • -I represents our Good Faith Deposit(is attached hereto)or(has been made available to you prior to the opening of this Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official .'r Statement" • ,� We agree to accept delivery of the Certificates utilizing the Book-Entry-Only System through DTC and make •,t.'; : °. payment for the Initial Certificates in immediately available funds in the Corporate Trust Office,Wells Fargo Bank, ^' 'i N.A.,Houston,Texas,not later than 10:00 AM, CST,on July 13,2006, or thereafter on the date the Certificates are • "• • tendered for delivery,pursuant to the terms set forth in the Notice of•Sale and Bidding Instructions. It will be the obligation of the purchaser of the Certificates to complete the DTC Eligibility Questionnaire. ' • ' . •i. .s The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Certificates, a - certificate relating to the "issue price" of the Certificates in the form and to the effect attached to or accompanying the Official Notice of Sale,with such changes thereto as may be acceptable to the City and its Bond Counsel. Respectfully submitted, 7 G A 4 JlliVAApAI m oOHa, we. '' B y/TM *Z a 44(3144),4 , Authorized Represented ""`. ACCEPTED this 12th day of June,2006,the City Council,City of Pearland,Texas. r2 f Oliiiilliiii, .' .f1;'' '• %%‘‘ ?,.P1/4RLAiV.0**0 c-- -.- 0-7-t.0 -?" , '••• 35: .• S.. '% Mayor t�.t z 0, : 4 ; -I-. 1;,....,:i •:::0 : -"Akii. :V : cr)E-: • . ' 0,,,,, F -...-, 1.. p kk i ::: If „„. City or your information you will find attached a list of the group of purchasers associated with us in this proposal) a • y. '...,��� 3 Exhibit B Debt Service Schedule for the Certificates Fiscal Year Ending Total Principal 9-30 Principal Interest and Interest 2006 '- 2007 $ 534,360 $ 534,360 2008 $ 25,000 457,257 482,257 2009 25,000 455,726 480,726 2010 50,000 453,429 503,429 2011 125,000 448,069 573,069 2012 315,000 434,594 749,594 2013 335,000 414,688 749,688 2014 355,000 393,557 748,557 .. 2015 370,000 371,354 741,354 2016 395,000 349,654 744,654 2017 405,000 330,932 735,932 2018 405,000 314,074 719,074 ,y 2019 505,000 294,838 799,838 2020 470,000 274,001 744,001 2021 500,000 253,146 753,146 2022 525,000 230,912 755,912 2023 555,000 207,218 762,218 2024 585,000 181,991 766,991 2025 605,000 155,363 760,363 2026 730,000 125,325 855,325 2027 765,000 91,688 856,688 2028 805,000 56,363 861,363 2029 850.000 19.125 869.125 $9.700.000 16847.664 $16 45 7.664 r r HOU:2585257.1 r r Exhibit C Debt Service Schedule for All of the City's Outstanding Tax Supported Debt F Fiscal Year Total Ending Debt Service 9-30 Requirements 2006 $ 11,199,903 2007 12,400,091 2008 11,974,151 2009 13,505,159 2010 13,855,450 2011 14,016,661 2012 14,249,104 11" 2013 14,241,535 2014 14,242,049 2015 14,234,001 2016 14,233,693 2017 14,235,268 14,241,683 2018 2019 12,362,173 2020 12,367,339 we, 2021 12,372,811 2022 12,372,296 2023 12,377,686 2024 12,378,035 2025 12,357,406 2026 12,446,384 2027 12,448,500 2028 12,458,363 2029 12,457,775 $313.027.516 r r I r I r I Exhibit D Resolution Establishing Utility Rates of the System I 1 I 1 I 1 I I I I I I I I HOU:2585257.I i O‘ iv E94 _ PEARLANDj TEX A S sr. 89 CERTIFICATION THE STATE OF TEXAS § COUNTIES OF BRAZORIA, HARRIS & FORT BEND. § I, Young Lorfing, City Secretary of the City of Pearland, Texas, hereby certify that the attached constitutes a true and correct copy of Ordinance No. 870-3; duly passed and approved on its Second and Final Reading by the City Council on the 9th day October, 2000. Witness my hand and seal of the City of Pearland, Texas, this 251h day of May, 2006, at Pearland, Texas. ung in , R `01111111till/ Ity Se retary cfc - /if a i 4 -y\9 • \ p • i `s ......- „„h,,,,/111 3519 LIBERTY DRIVE • PEARLAND,TEXAS 77581-5416 • 281-652-1600 • www.ci.pearland.tx.us Printed on R•ryd•C Paper ORDINANCE NO. 870-3 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, DETERMINING CHARGES FOR WATER AND SEWER SERVICES FURNISHED BY THE CITY,. AS PROVIDED IN CHAPTER 30, ARTICLE II, SECTION 30-38 OF THE CODE OF ORDINANCES; REPEALING PREVIOUS WATER AND SEWER SERVICE RATE SCHEDULES; PROVIDING A PENALTY FOR VIOLATION; CONTAINING A SAVINGS CLAUSE AND A SEVERABILITY CLAUSE; PROVIDING FOR CODIFICATION, PUBLICATION, AND AN EFFECTIVE DATE. WHEREAS, Chapter 30, Article II, Section 30-38 of the Code of Ordinances of the City of Pearland, Texas provides that the rates and charges for the consumption of utility services furnished by the City shall be determined by the City Council from time to time, and the same shall be on file in the office of the City Secretary; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That Section 30-38, Determination of Charges, of Article ii, Rates and Charges, of Chapter 30, Utilities, of the City of Pearland Code of Ordinances, is hereby amended to read as follows: "Section 1 . Definitions. Residential Unit - Any structure or part thereof used to fulfill the housing requirements of one or more persons living together as a single family. Commercial Unit - Any other structure or part thereof used to fulfill the housing requirements of not more than one business establishment or of not more than one establishment of any other kind, but a business unit shall not include any kind of multi- family establishment. 1 • ORDINANCE NO. 870-3 Multi-Unit Residence or Business - A building consisting of two or more residential or commercial units. User - Any person, firm or corporation connected to the City water system for the purpose of receiving water service. Section 2. Water Rates. All property upon which any building has been or may hereafter be erected having a connection with any mains or pipes presently existing or which may be hereafter constructed and used in connection with the City water system shall pay the following rates each month for water service furnished by the City: Residential Unit or Commercial Unit Consisting of a Single Unit: Up to and including first 2000 gallons $10.89 minimum All over 2000 gallons $2.02 per 1000 gallons Multi-Unit Residence or Business: • Up to and including first 2000 gallons $9.90 minimum per unit All over 2000 gallons $1 .82 per 1000 gallon usage The rate of $10.89 shall be the minimum monthly rate for all water users including the users for less than a monthly period. If the user's water meter becomes inoperative and fails to register, the user will be charged at the average monthly consumption as shown by the meter when in order. 111 All water that passes through the meter shall be charged for, whether used or not. r 2 • ORDINANCE NO. 870-3 Section 3. Sewer Rates. The following rates or charges for the use and service of the sewage system of the City of Pearland are determined as follows: 1. Commercial and Industrial Users Having City Water Service: The monthly sewer service charge for all Commercial and Industrial Users having City Water Service will be $11 .39 minimum for 2000 gallons of water usage or less and $1 .46 per 1000 gallons for water usage over 2000 gallons. 2. Commercial and Industrial Users Not Having City Water Service: The monthly sewer service charge for all Commercial and Industrial Users having sewer service but not having City Water Service will be as follows: (a) For customers with a metered well, $1 .46 per 1000 gallons of comparable bill for City Water Service. The City will install, at the customer's expense, a water meter in the private water supply and read the meter monthly to determine the amount of water consumption. $11 .39 Monthly Minimum charge. (b) For customers without a metered well, the monthly sewer charge shall be based on a water consumption of 10,000 gallons. 3. Commercial and Industrial Users Who Have Waste Water Discharge Split Between the Sanitary Sewer and Other Methods of Discharge: In the event only a portion of the user's waste water is discharged into the Sanitary Sewer, the City Council, upon the user's request, shall estimate what portion of the water usage is discharged into the Sanitary Sewer and his monthly sewer charge will be figured accordingly. $11 .39 Monthly Minimum Charge. 4. Commercial and Industrial Users Who Use the Water That is a Part of Their Product or Production Process and That is Not Discharged into the Sanitary Sewer System: If water is a part of a Commercial or Industrial use's product or is used in his production process in such a manner that there is no discharge into the Sewer System, tben, upon the user's request, the City Council will establish the 3 • ORDINANCE NO. 870-3 amount of water used for such purpose and his monthly sewer charge will be figured accordingly. $11 .3.9 Monthly Minimum Charge. 5. Residential Users Having City Water and Sewer Service: The monthly sewer service charge for all users having City Water will be $11 .39 minimum for 2000 gallons of water usage or less and $1 .46 per 1000 gallons for water usage over 2000 gallons. 6. Residential Users Having City Sewer Service but not having City Water Service: The monthly sewer service charge for all Residential Users having sewer service but not having City Water Service will be as follows: (a) For customers with a metered well, $1 .46 per 1000 gallons of comparable bill for City Water Service. The City will install, at the customer's expense, a water meter in the private water supply and read the meter monthly to determine the amount of water consumption. $11 .39 Monthly Minimum charge. (b) For customers without a metered well, the monthly sewer charge shall be based on a water consumption of 10,000 gallons. 7. Multi-Unit Building, Residence or Business: Each unit of a multi-unit, residence or business which is separately metered will be charged a monthly sewer service charge at the rate of $11 .39 for 2000 gallons of water usage or less and $1 .46 per 1000 gallons for water usage over 2000 gallons. 8. Multi-Unit Building With Common Water Meter for All Units: A multi-unit residence or business in which the units are served through a common water meter will be billed at the rate of $11 .39 minimum for 2000 gallons of water usage or less and $1 .46 per 1000 gallons of water usage over 2000 gallons. (Multi-unit being defined as being a building, residence or business consisting of two or more units)." 4 • ORDINANCE NO. 870-3 Section 2. Repealer. All previously adopted water and sewer rate schedules in conflict herewith shall be and are hereby repealed but only to the extent of.such conflict. Section 3. Penalty. Any person who shall violate the provisions of this section shall be deemed guilty of a misdemeanor and shall, upon conviction by a court of competent jurisdiction, be punished by a fine in any sum not exceeding Two Hundred Dollars ($200.00). Section 4. Savings. All rights and remedies which have accrued in favor of the City under this Chapter and amendments thereto shall be and are preserved for the benefit of the City. Section 5. Severability. If any section, subsection, sentence, clause, phrase or portion of this Ordinance is for any reason held invalid, unconstitutional or otherwise unenforceable by any court of competent jurisdiction, such portion shall be deemed a separate, distinct, and independent provision and such holding shall not affect the validity of the remaining portions thereof. Section 6. Codification. It is the intent of the City Council of the City of Pearland, Texas, that the provisions of this Ordinance shall be codified in the City's official Code of Ordinances as provided hereinabove. 5 • ORDINANCE NO. 870-3 Section 7. Publication. The City Secretary shall cause this Ordinance, or its caption and penalty, to be.published in the official newspaper of the City of Pearland, upon passage of such Ordinance. Section 8. Effective Date. This Ordinance shall become effective at the time of the November 2000 billing. ' PASSED and APPROVED ON FIRST READING this the 9' day of October, A. D., 2000. TOM REID MAYOR ATTEST: UNG ITY S RETARY PASSED and APPROVED on Second and Final Reading this the 23'd day of October , A. D., 2000. TOM REID MAYOR lir F . ORDINANCE NO. 870-3 ATTEST: • VOTING RECORD (SECOND AND FINAL READING Y NG L OCTOBER 23, 2000) IT SE TAR Voting •Aye"- Councilmembers Beckman,Owens Seeger, and Marcott. Voting "No" - None. APPROVED AS TO FORM: Motion passes 4 to 0,with Councilmember Wilkins absent. PUBLICATION DATE: OCTOBER 25, 2000 EFFECTIVE DATE: NOVEMBER 4, 2000 cDARRIN M. COKER PUBLISHED AS REQUIRED BY SECTION 3.10 OF CITY ATTORNEY THE CHARTER OF THE CITY OF PEARLAND, TEXAS 7 r r SIGNATURE IDENTIFICATION AND rNO-LITIGATION CERTIFICATE rTHE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the "City"), certify that we officially signed, by our manual or facsimile signatures, on behalf of the City, the following described certificates of obligation,to wit: rCITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006,dated July 1,2006,and aggregating$9,700,000(the"Certificates"). That the Certificates have been duly and officially executed by the undersigned with their manual or facsimile signatures in the same manner appearing hereon, and the undersigned hereby r adopt and ratify their respective signatures in the manner appearing on each of the Certificates, whether in manual or facsimile form,as the case may be,as their own signatures. That on the date of such signing and on the date hereof, we were and are the duly chosen, qualified and acting officers authorized to execute the Certificates, and holding the official titles set forth below opposite such signatures. We further certify that no litigation is pending or, to our knowledge, threatened in any court in any way affecting the existence or boundaries of the City or the titles of its officers to their respective positions or their authority to act on the City's behalf or to restrain or enjoin the issuance or delivery of the Certificates, or the levy, collection or application of the ad valorem taxes or revenues pledged or to be pledged to pay the principal of and interest on the Certificates, or the pledge thereof, or in any way contesting or affecting the validity of the Certificates, the ordinance dated June 12, 2006, authorizing the issuance, sale and delivery of the Certificates (the "Ordinance"), or contesting the powers of the City or the authorization of the Certificates or the r Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement. We further certify that the seal that has been impressed, or placed in facsimile, upon each of the Certificates is the legally adopted, proper and only official seal of the City, such official seal being impressed upon this certificate. We further certify that no petition or other request has been filed with or presented to any official of the City requesting that any of the proceedings authorizing the Certificates be submitted to a referendum or other election. We further certify that Bill Eisen is the City Manager of the City and his signature set forth below is genuine. rHOU:2585256.1 r We further certify that the information and data contained in the General Certificate dated June 12,2006 remain true and correct as of this date. r WITNESS OUR HANDS AND THE SEAL OF THE CITY this , 2006. SIGNATURES TITLE OF OFFICE r Mayor, City of Pearland,Texas City Secretary, City of Pearland, Texas City Manager, City of Pearland, Texas `,``tomuull,, I 4 : #44411101100- Before me, on this day personally appeared the foregoing individuals,known to me to be the persons whose names were subscribed in my presence to the foregoing instrument. Given under my hand and seal of office this /3 1-4 d&y of S(,4/1 P o)b D(o . A N N B %,, Notary Public 0... % !`n-�' Typed or Printed Name: ' OF hJoriS Ann �G1i 1r •' k:11:10.••* ��� My Commission Expires: allmnimilloto oa- 0 (Notary Seal) r rHOU:2585256.1 111 1 • . 1 UI UI . . • 111 1 1 1 111 1111 r FEDERAL TAX CERTIFICATE CITY OF PEARLAND,TEXAS CERTIFICATES OF OBLIGATION,SERIES 2006 I, the undersigned officer of the City of Pearland of Brazoria and Hams Counties, Texas, a political subdivision of the State of Texas (together with any successor to its duties and functions, the "City") make this certification for the benefit of all persons interested in the exclusion from gross income and certain other treatment for federal income tax purposes of the interest to be paid on the City's Certificates of Obligation, Series 2006 (the"Certificates") in the aggregate principal amount of$9,700,000, which are being issued and delivered simultaneously with the delivery of this certificate(the"Certificate"). I do hereby certify as follows: 1. General. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature. In such capacity, I am charged, along with others, with responsibility for issuing the Certificates. I am familiar with the facts, estimates and expectations certified herein, and I am duly authorized to execute and deliver this Certificate. I am familiar with the provisions of the Ordinance adopted on June 12, 2006, authorizing the issuance of the Certificates (the "Ordinance"), and particularly the provisions thereof relating to the treatment of the Certificates and the interest thereon for federal income tax purposes. I am aware of the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), including Sections 103 and 141 through 150 thereof, and the Treasury Regulations (the "Regulations") promulgated under the Code. This Certificate is being executed and delivered pursuant to the relevant provisions of the Code and Sections 1.141-1 through 1.141-15, 1.148-0 through 1.148-11, 1.149(d), 1.149(g)-1, 1.150-1 and 1.150-2 of the Regulations. Certain terms used herein have the same meanings as given to those terms in the Code and the Regulations. Capitalized terms used in this Certificate (unless otherwise indicated herein) shall have the meanings ascribed to them in the Ordinance. 2. Reasonable Expectations. As an officer of the City responsible for issuing the Certificates,the undersigned hereby certifies,in good faith,that the City's expectations, as of the Issue Date (as defined herein), regarding the amount and use of the gross proceeds of the Certificates and other matters relevant to the treatment of interest on the Certificates for federal income tax purposes are accurately and completely stated herein,that all of such expectations are reasonable and are based on the facts and estimates stated in this Certificate, that all of the facts rand estimates stated in this Certificate are accurate. The undersigned has relied on certain representations made by A.G. Edwards & Sons, Inc., the initial purchaser with respect to the Certificates (the "Initial Purchaser") in the Certificate Regarding Issue Price, attached hereto as rExhibit A and certain representations of RBC Capital Markets, the financial advisor to the City (the "Financial Advisor"), in the Certificate of Financial Advisor, attached hereto as Exhibit B. The undersigned is aware of no other facts, estimates or circumstances which would indicate that any of the expectations stated herein are not reasonable. 3. Description of Governmental Purposes. The City is issuing the Certificates rpursuant to the Ordinance to provide funds, which will be used to pay contractual obligations to be incurred for: • HOU:2169480.1 (a) (i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 288, including the construction of an approximately 200-acre foot storm water detention storage facility, the construction of storm sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv) professional services rendered in connection with the above listed projects (collectively, the "Project"); and (b) to pay the costs issuing the Certificates. 4. Proceeds of the Certificates. The sales proceeds from the sale of the Certificates is $9,814,036.90, which represents the aggregate principal amount of the Certificates of $9,700,000.00, plus net original issue premium of$114,036.90. 5. Use of Proceeds of the Certificates. The sales proceeds from the sale of the Certificates will be expended and applied by the City as follows: (a) Proceeds of the Certificates in the amount of$9,600,000.00 will be used by the City to pay costs of the Project. (b) Proceeds of the Certificates in the amount of approximately $100,970.00 will be used by the City to pay costs of issuance of the Certificates. (c) Proceeds of the Certificates in the amount of $93,266.90 represents the underwriter's compensation and will be retained by the Initial Purchaser from the sales proceeds as a cost to the City of issuing the Certificates. (d) Proceeds of the Certificates in the amount of$19,800.00 will be disbursed on the date hereof to pay the insurance premium for the Certificates. 6. Pre-Issuance Accrued Interest In addition to the sale proceeds described in paragraph 5, the City will receive, upon the issuance of the Certificates, the amount of $15,267.42 representing interest on the Certificates accruing during the period from July 1, 2006, to the date hereof. Such amount will be deposited in the City's Certificates of Obligation, Series 2006 Debt Service Fund (the "Debt Service Fund") and, along with all investment earnings therefrom, will be disbursed to pay interest on the Certificates on March 1, 2007, the first interest payment date on the Certificates. Because the amount of $15,267.42 represents accrued interest on the Certificates for a period of less than one year and will be used to pay interest on the Certificates within one year from the Issue Date, such amount constitutes pre- issuance accrued interest on the Certificates and, as such, is not considered proceeds. 7. Investment Proceeds. The City has estimated the total amount of investment proceeds to be received with respect to the Certificates. Earnings on the investment of proceeds of the Certificates described in paragraph 5(a) will be used in addition to the amounts described -2- HOU:2169480.1 r in paragraph 5(a) to pay costs associated with the Project. The total cost of the Projectis expected to equal or exceed the sum of the amount described in paragraph 5(a) and the rinvestment earnings thereon which are to be used to pay costs of the Project. Earnings on the investment of proceeds of the Certificates described in paragraph 5(b) will be used in addition to the amounts described in paragraph 5(b)to pay the costs of issuance of the Certificates. The City will have no investment earnings on the amount described in paragraph 5(c) as such amount will be retained by the Initial Purchaser as a cost to the City of issuing the Certificates. Earnings, if any, on the investment of proceeds of the Certificates described in paragraph 5(d) will be used rfor the purposes described in paragraph 5(d). 8. Replacement Proceeds. There are no amounts on hand, and there are no amounts expected to be received, other than amounts identified herein as proceeds of the Certificates and amounts to be held in the Debt Service Fund for the payment of debt service on the Certificates (as discussed in paragraphs 6 and 12) which have or will have at any time a sufficiently direct nexus to the Certificates or to any governmental purpose of the Certificates to conclude that such amounts would have been used for that governmental purpose if the proceeds of the Certificates were not used or to be used for that governmental purpose. More specifically(a) Sinking Funds and Pledged Funds. Other than the Debt Service Fund and the amounts and investments on deposit therein from time to time, there are not now and will not be at any time while the Certificates are outstanding-- (i) any debt service fund, reserve fund, replacement fund, any similar fund, or any amount or investment reasonably expected to be used, directly or indirectly (such as, by the generation of income to be used), to pay principal or interest on the Certificates; and (ii) any fund, amount, or investment that is directly or indirectly rpledged to pay principal or interest on the Certificates. A pledge includes, but is not limited to, any arrangement, regardless of its form, which provides reasonable assurance that the amount will be available to pay principal or interest, even if the City encounters financial difficulty. A pledge to a guarantor or an agreement to maintain an amount at a particular level or balance for the direct or indirect rbenefit of bondholder or a guarantor would constitute a pledge for this purpose. (b) No Other Replacement Proceeds. There will be no other replacement proceeds allocable to the Certificates. Based on the reasonable expectations of the City ras of the date hereof, the term of the Certificates is not longer than, and the City will not allow the Certificates to remain outstanding longer than, is reasonably necessary for the governmental purposes for which the Certificates are being issued. The weighted average maturity of the Certificates does not exceed 120 percent of the reasonably expected economic life of the capital projects being financed by the Certificates, determined in the same manner as provided under Section 147(b) of the Code. In addition, none of the proceeds of the Certificates will be used to finance working capital expenditures. r -3- HOU:2169480.I 9. No Overissuance Based on the expectations set forth in the preceding paragraphs, the amount of the proceeds from the issuance of the Certificates, plus all investment proceeds to be received with respect to the Certificates, does not exceed by any amount, the amount required for the governmental purposes for which the Certificates are being issued, as described in paragraph 3 above. 10. Temporary Period Requirements for the Certificates. (a) Pre-Issuance Accrued Interest. The amount described in paragraph 6 represents pre-issuance accrued interest on the Certificates for a period not in excess of one year and will be expended within one year; therefore, such amount may be invested at an unrestricted yield. (b) Expenditure Test. The City expects at least 85 percent of the net sale proceeds of the Certificates will have been expended prior to July 13, 2009 for costs of the Project. All net sale proceeds of the Certificates not expended prior to July 13, 2009 will be invested on and after such date until final expenditure at a yield (as defined in paragraph 14) which is not materially higher than the yield on the Certificates, except as set forth in paragraph 17 below. (c) Time Test. The City has incurred or will incur within six months of the date hereof a substantial binding obligation to a third party pursuant to which the City is obligated to expend at least five percent of the net sale proceeds of the Certificates on the Project. (d) Due Diligence. The City expects that the Project will proceed with due diligence to completion and that the net sale proceeds of the Certificates will be expended on the Project with reasonable dispatch. (e) Investment Proceeds. The City expects that all amounts derived from the investment of monies received from the sale of the Certificates and from the reinvestment of such investment proceeds will be expended within three years from the date hereof or within one year after receipt of such investment income, whichever is later. All investment proceeds of the Certificates not expended prior to such date will be invested on and after such date until final expenditure at a yield which is not materially higher than the yield on the Certificates, except as provided in paragraph 17 below. The term "net sale proceeds" shall mean any amount actually or constructively received from the sale of the Certificates, including amounts constituting the underwriter's discount or compensation and accrued interest, other than pre-issuance accrued interest, less amounts invested as part of a reasonably required reserve or replacement fund or as part of a minor portion for the Certificates. 11. Flow of Funds. Under the Certificates, the City is obligated to levy, assess and collect an ad valorem tax on property located in the City in an amount sufficient to pay debt service on the Certificates. All taxes levied, assessed and collected by the City for and on account of the Certificates will be deposited into the Debt Service Fund (as defined above). .. -4- HOU:2169480.1 I 12. Debt Service Fund. The City created pursuant to the Ordinance the Debt Service Fund (as defined above) to be used primarily to achieve a proper matching of revenues and debt service on the Certificates within each bond year. The City expects that the taxes levied, assessed and collected each year, and amounts received from investment of moneys held in the Debt Service Fund, will be sufficient to pay debt service each year on the Certificates. The City will adjust the annual tax rates as necessary, taking into account other moneys available or to be available for the payment of debt service on the Certificates. The portion of the Debt Service Fund which will be depleted by the payment of debt service on the Certificates at least once each rbond year, except for a reasonable carryover amount not to exceed the greater of(a) one year's earnings on the Debt Service Fund for the immediately preceding bond year or(b) one-twelfth of the principal and interest payments on the issue for the immediately preceding bond year, will rconstitute a bona fide Debt Service Fund and will be treated as a separate fund (the "Bona Fide Portion") for purposes of this Certificate. Amounts, other than proceeds of the Certificates, remaining in the Debt Service Fund, after the annual payment of all principal of and interest and premium, if any, on the Certificates, other than the reasonable carryover amount described in the preceding sentence will be treated for purposes of this Certificate as a separate fund (the "Reserve Portion"). The City reasonably expects that the sum of any amounts in the Debt Service Fund which (i) are allocable to such Reserve Portion or (ii) are allocable to the Bona Fide Portion, but are not spent for the payment of debt service on the Certificates within 13 months after the date of receipt of such amount, will not exceed the least of(x) 10 percent of the Issue Price (as defined in paragraph 13), (y)the maximum annual principal and interest requirements on the Certificates, or (z) 125 percent of the average annual principal and interest requirement on the Certificates, at any time so long as the Certificates are outstanding. To the extent any such accumulations exceed such amount, the excess amount will be invested at a yield not in excess of the yield on the Certificates, except as set forth in paragraph 17 below. r13. Issue Price. The term "Issue Price," with respect to the entire issue of Certificates, means the aggregate of the initial offering prices for all of the Certificates, plus pre- issuance accrued interest as of date of issue on the entire issue of Certificates (unless as otherwise indicated herein). For substantially identical Certificates, the Issue Price is the first price at which a substantial amount (i.e., at least ten percent) was sold to the public (excluding ' bond houses, brokers or similar persons or organizations acting in the capacity of underwriters and wholesalers). Based on the foregoing and on the Certificate Regarding Issue Price, attached as Exhibit A and incorporated herein by reference, the Issue Price of the Certificates, without taking into account any costs of issuance or pre-issuance accrued interest, is $9,814,036.90. 14. Yield on the Certificates. For purposes of this Certificate, the term "yield" shall have the meaning ascribed to it in Section 148(h) of the Code and the Regulations in effect thereunder and, when used with respect to the Certificates, shall mean that interest rate which when used as a discount factor to compute the present value as of the Issue Date of all scheduled payments of principal of and interest on the Certificates produces an amount equal to (i)the Issue Price of the Certificates, plus (ii)pre-issuance accrued interest on the Certificates as of the Issue Date. Yield on the Certificates shall not take into account or reflect any underwriter's discount or cost of issuance of the Certificates. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. r -5- HOU:2169480.1 The yield with respect to the Certificates subject to optional redemption is computed by treating each Certificate as retired at the stated redemption price on the final maturity date because (i) the City has no present intention to redeem prior to maturity the Certificates which are subject to optional redemption, (ii)no Certificate is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (iii)no Certificate is subject to optional redemption within five years of the Issue Date, (iv) no Certificate subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Certificate by more than one-fourth of one percent rmultiplied by the product of the stated redemption price at maturity of such Certificate and the number of complete years to the first optional redemption date for such Certificate; and (v)no Certificate subject to optional redemption bears interest at a rate that increases during the term of the Certificate. The insurance premium (the "Insurance Premium") paid to insure the Certificates, constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of $19,800.00 will be treated as additional interest on the Certificates for the purpose of calculating the yield on the Certificates. The Insurance Premium represents a fee for a qualified guarantee based on the representations set forth below and included in the Certificate of Financial Advisor, Exhibit B hereto. (a) Interest Savings. The present value of the interest savings expected to be realized as a result of such guarantee exceeds the present value of the Insurance Premium discounted at a rate equal to the yield on the Certificates which results assuming recovery rof the Insurance Premium. (b) Guarantee In Substance. The guarantee imposes secondary liability on CIFG Assurance North America, Inc. ("CIFG") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Certificates. CIFG is not a co- obligor and does not expect to make any payments other than payments for which it will rbe reimbursed immediately. CIFG and related parties thereto will not use more than ten percent of the gross proceeds of the Certificates that are guaranteed by CIFG. (c) Reasonable Charges. The Insurance Premium does not exceed a reasonable arms-length charge for the transfer of credit risk. The Insurance Premium is separately stated from all other fees and payments payable by the City to CIFG for any other direct or indirect services other than transfer of the credit risk. The Insurance Premium does not include payment for the cost of underwriting or remarketing the Certificates or for the cost of casualty insurance for property financed or refinanced by the Certificates. The Insurance Premium is not refundable upon redemption of the Certificates prior to maturity. The yield on the Certificates, calculated in the manner set forth above, is 4.502639 percent. r15. Other Issues. There are no obligations issued by the City or any related party of the City which (a) are sold at the same time as the Certificates (within 15 days), (b) are -6- HOU:2169480.1 I reasonably expected to be paid from the same source of funds as the Certificates and (c)have been or will be sold pursuant to the same plan of financing as the Certificates. 16. No Other Sinking Funds. Other than the Debt Service Fund, there are no other funds or accounts comprised of investment property established by and on behalf of the City (a) ' which are expected to be used, or expected to generate earnings to be used, to pay debt service on the Certificates, or which are reserved or pledged as collateral for payment of debt service on the Certificates and (b) for which there is reasonable assurance that amounts therein will be available to pay debt service on the Certificates if the City encounters financial difficulties. Use of amounts in the Debt Service Fund is described above. There is no other fund established, or to be created or established, which would be treated as a sinking fund with respect to the Certificates. 17. Minor Portion. The City expects that the gross proceeds of the Certificates, including all proceeds received with respect to the Certificates and all investment proceeds received on such amounts, and all other amounts pledged or anticipated to be used to pay principal of and interest on the Certificates, other than amounts representing a portion of the Bona Fide Portion of the Debt Service Fund, will be expended in accordance with paragraphs 5 and 10 above. To the extent that such amounts remain unexpended or are otherwise on hand following the periods set forth in paragraph 10 above exceeds the amount specified in this paragraph 17, the City will invest such amounts, other than a minor portion in an amount not exceeding the lesser of 5 percent of the sale proceeds of the Certificates or $100,000 in the aggregate, at a yield not materially higher than the yield on the Certificates. 18. Compliance with Rebate Requirements The City has covenanted in the Ordinance that, unless the Certificates meet an exception to the rebate requirement, it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment of the gross proceeds of the Certificates, within the meaning of Section 148(f) of the Code, be rebated to the federal government. Specifically, the City will (i) maintain separate records regarding the amount and timing of disbursements of proceeds of the Certificates (ii) maintain records regarding the investment of the gross proceeds of the Certificates as may be required to calculate the amount earned on the investment of the gross proceeds of the Certificates which are part of a reasonably required reserve or replacement fund separately from records of amounts in other funds or accounts maintained for the Certificates amounts on deposit in the funds and accounts of the City allocable to other bond issues of the City or moneys which do not represent gross proceeds of any obligation of the City (iii) calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of any obligation of the City, (iv) calculate at such times as required by applicable Regulations, the rebatable amount earned from the investment of the gross proceeds of the Certificates which are part of a reasonably required reserve or replacement fund, and (v) pay, not less often than every fifth anniversary date of the delivery of the Certificates or on such other dates as permitted or required by applicable Regulations, all amounts required to be rebated and all penalties required to be paid to the federal government. The City acknowledges that the ' purposes of compliance with Section 148 of the Code, gross proceeds of the Certificates must be accounted for on the basis of a reasonable, consistently applied method of accounting, not employed in whole or in part as an artifice or device. The City will employ accountants or other persons with expertise in performing the rebate calculations as is necessary to insure compliance -7- HOU:2169480.1 r with the Code. The City will employ legal counsel as is necessary to resolve the interpretive issues involved in complying with the rebate requirements of the Code. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Certificates. In the event that the City fails to comply with the rebate requirements of the Code, the City agrees to take all steps available under the Code to bring the Certificates into compliance with the Code; such steps include paying any penalty, interest or other amounts which will allow the City to return to compliance with the rebate requirements of the Code. If the City is required to pay rebate or other amounts, such as penalties and interest, to the United States with respect to the Certificates pursuant to Section 148(f) of the Code in order to prevent the Certificates from constituting arbitrage bonds or being otherwise classified or treated such that interest on the Certificates would not be excludable from the gross income of the holders thereof for federal income tax purposes,the City will timely make such payments from available funds of the City and the City reasonably expects that it will have the ability to make such payments from available funds of the City in the event such payments become necessary. The undersigned reasonably expects that the City will fulfill its covenants and representations in this regard. The City hereby makes the following elections with respect to the proceeds of the Certificates: DO NOT ELECT ELECT N/A I I ® 1. To use actual facts to apply the provisions of paragraphs (e) through (m) of section 1.148-7 of the Regulations. I I 2. To exclude earnings on a reasonably required reserve or replacement fund from the definition of "available Constructions Proceeds" for purposes of the spending requirements. Section 1.148-7(i)(2) of the Regulations. ® ❑ 3. To treat the portion of the Certificate that is not a refunding issue as two, and only two, separate issues, one of which (a) meets the definition of a construction issue and (b) is reasonably expected as of the date hereof to finance all of the construction r expenditures to be financed by the Certificates. Section 1.148-7(j)(1) of the Regulations. r r HOU:2169480.1 r ❑ ® 0 4. To pay a penalty (the "1-1/2" penalty) to the United States in lieu of the obligation to pay arbitrage rebate on available Construction Proceeds in the event that the Certificates fail to satisfy any of the semiannual spending requirements for the two-year rebate exception. Section 1.148-7(k)(1) of the Regulations. 19. Not a Refunding. No portion of the proceeds of the Certificates are expected to be used to pay any interest on or principal of any issue of governmental obligations other than the Certificates. 20. Not a Reimbursement. Except for certain preliminary expenditures, if any (as defined in Section 1.150-2(0(2) of the Regulations) not exceeding 20 percent of the Issue Price of the Certificates, none of the proceeds of the Certificates will be allocated to, or otherwise used,to reimburse any expenditure paid, either actually or constructively,by the City prior to the Issue Date. 21. Not a Hedge Bond. Not more than 50 percent of the proceeds of the Certificates will be invested in non-purpose investments (as defined in Section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expects that at least 85 percent of the spendable proceeds of the Certificates will be used to carry out the governmental purposes of the Certificates within the three-year period beginning on the date the Certificates were issued. 22. No Change In Use. The City does not expect to dispose of any portion of the Project related to the Certificates, or to change the use of the proceeds of the Certificates while any of the Certificates are outstanding. 23. No Abusive Arbitrage Device. The Certificates are not and will not be a part of an issue in which an abusive arbitrage device (as defined in Section 1.148-10(a) of the Regulations) is used. Without limiting the foregoing, the Certificates are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (ii)increasing the burden on the market for tax-exempt obligations. In this regard, the City issued the Certificates for the primary purpose of accomplishing the bona fide governmental purposes set forth in paragraph 3 of this Certificate. Based on all the facts and circumstances, the City has not issued the Certificates in an amount higher than is reasonably necessary to accomplish the governmental purposes of the Certificates, the City has not issued the Certificates earlier than is reasonably necessary to accomplish the governmental purposes of the Certificates rand the City is not allowing the Certificates to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Certificates. The City would have issued the Certificates regardless of any arbitrage benefit, which it may realize in connection with the Certificates. In fact, the City reasonably expects that even if the Certificates were not tax-exempt obligations and if market rates of interest on taxable and tax-exempt obligations were equal to each other and to the rates at which the Certificates are in fact now being issued, the -9- HOU:2169480.1 City would have issued the Certificates, notwithstanding the loss of any opportunity to borrow at lower tax-exempt rates and invest at higher taxable rates. (a) No Impermissible Sinking Fund. No portion of the Certificates has a maturity determined primarily for the purpose of creating a sinking fund with respect to the Certificates the yield on which will be blended with the yield on the investment of other proceeds of the Certificates to reduce the negative arbitrage related to such investment. (b) No Working Capital. Except for an amount that does not exceed 5 percent of the Sale Proceeds of the Certificates (and that is directly related to capital expenditures financed by the Certificates), the City will only expend proceeds of the Certificates for (i) costs that would be chargeable to the capital accounts of the Project if the City's income were subject to federal income taxation and (ii) interest on the Certificates in an amount that does not cause the aggregate amount of interest paid on all of the Certificates to exceed that amount of interest on the Certificates that is attributable to the period that commences on the date hereof and ends on the later of(A) the date that is three years from the issue date of the Certificates or (B) the date that is one year after the date on which the Project is placed in service. (c) No Sale of a Conduit Loan. No portion of the gross proceeds of the Certificates has been or will be used to acquire, finance or refinance a conduit loan. 24. Allocations and Accounting. The proceeds of the Certificates will be allocated to expenditures not later than 18 months after the later of the date the expenditure is made or the date the Project is placed in service, but in no event later than the date that is 60 days after the fifth anniversary of the date hereof or the retirement of the last Certificates, if earlier. The allocation of proceeds will be made by employing the direct-tracing method of accounting, unless the City elects otherwise. 25. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the proceeds of the Certificates will not be used in a manner that would cause any of the Certificates to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 26. No Private Use, Payments or Loan Financing. (a) General. The City reasonably expects, as of the date hereof, that no action or event during the entire stated term of the Certificates will cause either the "private business tests" or the "private loan financing test," as such terms are defined in the Regulations, to be met. (i) No portion of the proceeds of the Certificates will be used in a trade or business of a nongovernmental person. For purposes of determining use, the City will apply rules set forth in applicable Regulations and Revenue Procedures promulgated by the Internal Revenue Service, including, among others, the following rules: (A) any activity carried on by a person other than a ,. -1 0- HOU:2169480.1 natural person or a state or local governmental unit will be treated as a trade or business of a nongovernmental person; (B) the use of all or any portion of the proceeds of the Certificates is treated as the direct use of proceeds; (C) a nongovernmental person will be treated as a private business user of proceeds of the Certificates as a result of ownership, actual or beneficial use of the proceeds pursuant to a lease, or a management or incentive payment contract, or certain other arrangements such as a take-or-pay or other output-type contract; and (D) the private business use test is met if a nongovernmental person has special legal entitlements to use directly or indirectly the proceeds of the Certificates. (ii) The City has not taken and will not take any deliberate action that would cause or permit the use of any portion of the proceeds of the Certificates to change such that such portion will be deemed to be used in the trade or business of a nongovernmental person for so long as any of the Certificates remain outstanding (or until an opinion of nationally recognized bond counsel is received to the effect that such change in use will not adversely affect the excludability from gross income for federal income tax purposes of interest payable on the Certificates). For this purpose any action within the control of the City is treated as a deliberate action. A deliberate action occurs on the date the City enters into a binding contract with a nongovernmental person for use of the proceeds of the Certificates that is not subject to any material contingencies. (iii) No portion of the proceeds of the Certificates will be directly or indirectly used to make or finance a loan to any person other than a state or local governmental unit. (b) Dispositions of Personal Property in the Ordinary Course. Dispositions of personal property financed with any portion of the proceeds of the Certificates will occur in the ordinary course of an established governmental program and will satisfy the following requirements: (i) The weighted average maturity of the portion of the Certificates financing personal property is not greater than 120 percent of the reasonably expected actual use of such personal property for governmental purposes; (ii) The reasonably expected fair market value of such personal property on the date of disposition will be not greater than 25 percent of its cost; (iii) Such personal property will no longer be suitable for its governmental purposes on the date of disposition; and (iv) The City is required to deposit amounts received from such disposition in a commingled fund with substantial tax or other governmental revenues and the City reasonably expects to spend such amounts on governmental programs within 6 months from the date of commingling. 27. Weighted Average Maturity. As calculated by the Financial Adviser in the manner described below and set forth in the Certificate of Financial Advisor, Exhibit B hereto, -11- HOU:2169480.1 a. the weighted average maturity of the Certificates is 15.181 years which is the sum of the products of the Issue Price of each group of identical Certificates and the number of years to . maturity (determined separately for each group of identical Certificates and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Certificates. a [SIGNATURE PAGE FOLLOWS] a a a a a a Pa to s• pa ro • we -12- HOU:2169480.1 07/10/2006 09:48 2816521738 PEARLAND PURCHASING PAGE 03/03 WITNESS MY HAND,this 13t1i day of July,2006. CITY OF PEARLAND, TEXAS By; l' h..t,.l1 MC-Xak o4___ Claire Manthei Director of Finance EXHIBIT A—Certificate Regarding Issue Price EXHIBIT B-- Certificate of Financial Advisor a a a a -13- HOU 21694 RO.I a r rEXHIBIT A CERTIFICATE REGARDING ISSUE PRICE r r r r r r r r t r r r_ r r r r A_1 HOU:2169480.1 JUN-1L-L0bb 1d;Lib HU EUWHt<ll5 1-',013 M'f, CERTIFICATE REGARDING ISSUE PRICE .:,t'� f. , The undersigned hereby certifies with respect to the sale of $9,700,000 City of Pearland, Texas (the "Issuer"), A; :,`aix. Certificates of Obligation,Series 2006(the"Certificates"): 1. The undersigned is a duly authorized representative of the underwriter or of the manager of the ^ .. f syndicate of underwriters (the "Underwriters") which has purchased the Certificates at competitive sale. In this • i "f capacity,the undersigned is familiar with the facts stated herein, , a 9 •}} `k_x. ya 2. The term"Initial Offering Prices"means the respective initial offering prices for the Certificates of each maturity (expressed as a dollar amount or percentage of principal amount and exclusive of accrued interest)as :,'A ; set forth in the following table: ` •t% -- .:;..7.isl !,}1 Principal Initial Principal Initial ••f'1... 'a Amount Year of Offering Amount Year of Offering .. i Maturing Maturity Price Maturing Maturity Price ' 1''z $ 25,000 March 1,2008 3.(,SD% $505,000 March 1,2019 9.37 0% • ''i. >'`•. .,, 25,000 March 1,2009 'S•1 O y% 470,000 March 1,2020 y.,12 D% •.. , 50,000 March 1,2010 1.1 SO% 500,000 March 1,2021 -l•`I I.J% . . :•: 125,000 March 1,2011 1.1 g 6% 525,000 March 1,2022 '-l•$&)% 315,000 March 1,2012 1.P.)'1 r% 555,000 March 1,2023 '-4.S`10% 335,000 March 1,2013 3.436% 585,000 March 1,2024 4. S76% 355,000 March 1,2014 -0 3 0% 605,000 March 1,2025 I1•S9 0% >'' 370,000 March 1,2015 11.0130% 730,000 March 1,2026 `�y . % -• : ';:'� ` 395,000 March 1,2016 H. 110 % 765,000 March 1,2027 1-1.4,`10% �: `'rD 405,000 March 1,2017 4.2v0% 805,000 March 1,2028 11.0.0 % 405,000 March 1,2018 LI.360% 850,000 March 1,2029 '4.4,0 J% z. :. y,�. 3. The Underwriters purchased the Certificates for contemporaneous sale to the Public and not for ' .i•I.a investment for their own account. Each of the Certificates has actually been offered to the Public at its respective „r•x;', initial offering price set forth above in a bona fide public offering of all the Bonds and, as of the Issue Date, a substantial amount of the Certificates (at least ten percent) of each maturity has been sold to the Public in arm's . , 0. length transactions for cash prices (with no other consideration being included). The initial offering prices do not :: exceed the respective fair market value of each such maturity of the Certificates as of the Sale Date and are based on actual facts and reasonable expectations in existence on the Sale Date. 4, The term "Sale Date" means the first day on which there was a binding contract In writing for the " sale of the Certificates by the Issuer to the Underwriters on specific terms that were not later modified or adjusted in i�<<# any material respect. In the case of the Certificates,the Sale Date is June 12,2006. y..., 5. The term "Issue Date" means the first day on which there is physical delivery of the written ''r evidence of the Certificates in exchange for the purchase price (but not earlier than the day interest on the ' .. Certificates begins to accrue for federal income tax purposes). In the case of the Certificates, the Issue Date is July . 13,2006. r, 3:,A'i A 6. The term "Public" shall not include bond houses, brokers, and similar persons or organizations k ""'>-'i acting in the capacity of wholesalers or underwriters. : `.Y: 44 a`::;". 7. The accrued interest on the Certificates as of the Issue Date is$ 1 c,2l07' . The aggregate of ; the respective Initial Offering Prices of all of the Certificates, exclusive of accrued interest and without adjustment ,•• for any costs of issuance,is$ Q,0 l 4 i 0 3•. .9 o n%:,_,; 4461, •IY`t A JUIY—IC—CUU0 1G•U0 MU MDWHKUS r 4 40; 8. The Underwriter [has) [has not] purchased bond insurance or Another form of credit enhancement ("Guarantee") from securing the payment of the principal of,or interest on, any of the Certificates, With respect'to :{*wr r•the Guarantee, ; el FG paSuranwrkk ` :;':a a. The provider of the Guarantee is (the"Guarantor"). • b. The fee or premium paid to the Guarantor for the Guarantee is S 11.°JQO. (the ..;' , 11 re.i' g..i Premium"), The Premium is set forth in the Guarantor's commitment,does not exceed a reasonable charge ,-,. for the transfer of the credit risk provided by the Guarantee, and does not include any direct or indirect ,;;<,, ',,, payment or compensation(such as rating agency fees)for any service other than the transfer of such credit :'r,, risk. The Guarantor has not provided any service other than the Guarantee,except for any such service for which the Guarantor has charged a reasonable arm's length price which will be in addition to, and stated I. separately from,the Premium. No portion of the Premium is refundable upon the redemption or defeasance . of any of the Certificates, c. As a result of the Guarantee, the interest rates on,the Certificates, are less than those ':I•"' ' "., • which would have been necessa ry in order to sell the Certificates at the respective Initial Offering Prices :?: without the Guarantee. As of the Issue Date, the present value of such interest savings expected to result from the Guarantee is greater than the present value of the Premium, using the yield on the Certificates (computed for this purpose by treating the Premium as additional interest on the Certificates)as the discount rate. We understand that the Issuer will rely on the above in making certain representations to Andrews Kurth U.P. • • t; ' aF Houston, Texas, Bond Counsel, and in complying with the conditions of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations in effect thereunder, necessary for interest on the Certificates to be and `' ': remain excludable from gross income for federal income tax purposes. EXECUTED and DELIVERED this)UNY- `2- ,2006. `' A GL- A A 2ON84 INC . i );`,'r -(N of Underwri ) "'t- .2 Title: rr c. .1 Kh.x. A A f gA rr'C ksa a,Yv .r F.14 i{{i' — s. . t' TOTAL P.07 EXHIBIT B CERTIFICATE OF FINANCIAL ADVISOR The undersigned hereby certifies with respect to the sale of$9,700,000 City of Pearland, Texas Certificates of Obligation, Series 2006(the"Certificates"), as follows: 1. The undersigned is a duly authorized representative of RBC Capital Markets, the financial advisor (the "Financial Advisor") to City of Pearland, Texas (the "City") in connection with the sale and delivery of the Certificates. In this capacity, the undersigned is familiar with the facts stated herein. 2. The term "yield" shall have the meaning ascribed to it in Section 148(h) of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. In the case of the Certificates, the term "yield" means that interest rate which when used as a discount factor in computing the present value as of the date hereof of all scheduled payments of principal of and interest on the Certificates produces an amount equal to the Issue Price of the Certificates, plus pre-issuance accrued interest. No underwriters' discount, issuance costs, or costs of carrying or repaying the Certificates has been taken into account for purposes of computing the yield on the Certificates. For purposes hereof, yield shall be calculated on the basis of a 360-day year with interest compounded semi-annually. The yield with respect to the Certificates subject to optional redemption is computed by treating each Certificate as retired at the stated redemption price on the final maturity date because (i) the City has no present intention to redeem prior to maturity the Certificates which are subject to optional redemption, (ii) no Certificate is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (iii) no Certificate is subject to optional redemption within five years of the Issue Date, (iv) no Certificate subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Certificate by more than one-fourth of one percent • multiplied by the product of the stated redemption price at maturity of such Certificate and the number of complete years to the first optional redemption date for such Certificate; and (v) no Certificate subject to optional redemption bears interest at a rate that increases during the term of the Certificate. The insurance premium (the "Insurance Premium") paid to insure the Certificates, constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of $19,800.00 will be treated as additional interest on the Certificates for the purpose of calculating the yield on the Certificates. The Insurance Premium represents a fee for a qualified guarantee based on the representations set forth below: (a) Interest Savings. The present value of the interest savings expected to be realized as a result of such guarantee exceeds the present value of the Insurance Premium discounted at a rate equal to the yield on the Certificates which results assuming recovery of the Insurance Premium. r r B-1 HOU:2169480.1 F (b) Guarantee In Substance. The guarantee imposes secondary liability on CIFG Assurance North America, Inc. ("CIFG") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Certificates. CIFG is not a co- obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. CIFG and related parties thereto will not use more than ten percent of the gross proceeds of the Certificates that are guaranteed by CIFG. (c) Reasonable Charges. The Insurance Premium does not exceed a reasonable arms-length charge for the transfer of credit risk. The Insurance Premium is separately stated from all other fees and payments payable by the City to CIFG for any other direct or indirect services other than transfer of the credit risk. The Insurance Premium does not include payment for the cost of underwriting or remarketing the Certificates or for the cost of casualty insurance for property financed or refinanced by the Certificates. The Insurance Premium is not refundable upon redemption of the Certificates prior to maturity. The yield on the Certificates, calculated in the manner set forth above, is 4.502639 percent. 3. The weighted average maturity of the Certificates is 15.181 years which is the sum of the products of the Issue Price of each group of identical Certificates and the number of years to maturity (determined separately for each group of identical Certificates and taking into account mandatory redemptions), divided by the aggregate sale proceeds of the Certificates. 4. With respect to the issuance of the Certificates, the representations set forth in paragraph 23 of the Federal Tax Certificate are, to the best of our knowledge, true, correct and complete. The Financial Advisor hereby authorizes the City to rely on the statements made herein in connection with making the representations set forth in the Federal Tax Certificate to which this Certificate is attached and in connection with compliance by the City with the provisions of the Code regarding the exclusion from gross income of the interest on the Certificates. Further, we hereby authorize Andrews Kurth LLP, Bond Counsel to the City to rely on the statements made herein in connection with its opinion that interest on the Certificates is excludable from gross income for federal income tax purposes. ' [SIGNATURE PAGE FOLLOWS] J V r B-2 HOU:2I 69480.1 a a a EXECUTED and DELIVERED as of and on the l 3th day of July,2006. -• RBC CAPITAL MARKETS By: J1 Frank Ildebrando Senior Vice President a a a a a •Y B-3 HOU:2169480.1 .t. 07/10/2006 09:48 2816521738 PEARLAND PURCHASING PAGE 02/03 rcxm 8038-G Information Return for Tax-Exempt Governmental Obligations AM I► Under Internal Revenue Code section 149(e) Ow No.1545-0720 (Rev.November 20001 ► See separate Instructions. peemKemal Re °r the ery ce Caution:if the Issue price is under$100,000, use Form 8038-GC, Internal Revenue Service Part I Reporting Authority _If Amended Return, check here II- ❑ '. 1 Issuer's name 2 Issuer's employer identification number City of Pearland,Texas 74 i 6028909 3 Number and street(or P.O.box If mail is not delivered to street address) Room/suite 4 Report number 3519 Liberty Drive 3 2006-3 5 City,town,or post office, state,and ZIP code s Date of Issue Pearland,Texas 77581 _ 07/13/2006 7 Name of issue a CUSIP number City of Pearland,Texas Certificates of Obligation,Series 2006 704862 YA3 m. 9 Name and title of officer or legal representative whom the 1135 may call for more information 10 Telephone number of officer or legal representative Kathryn V.Garner,Bond Counsel ( 713 )220-3948 Part II Tape of Issue (check applicable box(es) and enter the issue price) See instructions and attach schedule 11 ❑ EdUcation 11 12 ❑ Health and hospital 12 13 ❑ Transportation 13 14 ❑ Public safety 14 -... 15 ❑ Environment (including sewage bonds) 15 16 ❑ Housing 16 17 0 Utilities 17 18 0 Other, Describe ► Roads,drainage,public buildings and parks. 18 9,814,036,90 19 If obligations are TANs or RANs, check box ► ❑ if obligations are BANS,check box ► ❑ 20 If obligations are in the form of a lease or installment sale, check box ► ❑ / Part HI Description of Obligations. Complete for the entire issue for which this form Is being filed. tel Final maturity date (b)Issue price (c)Stated rcdemp[Idn (d)Weighted (e)Ylrkl price,at maturity average maturity 21 03/01/2029 $ 9,814,036.90 $ 9,700,000.00 15.181 years 4.502639 Part IV Uses of Proceeds of Bond Issue (including underwriters'discount 22 Proceeds used for accrued Interest 22 15,267.42 eei 23 Issue price of entire Issue (enter amount from line 21, column (b)) 23 9,814,036.90- v// 24 Proceeds used for bond issuance costs(including underwriters'discount) 24 194,236.90 f� 25 Proceeds used for credit enhancement 25 19,800.00 26 Proceeds allocated to reasonably required reserve or replacement fund - 26 0.00 27 Proceeds used to currently refund prior issues 27 , 0.00 28 Proceeds used to advance refund prior issues 28 0.00_ 29 Total(add lines 24 through 28) 29 214,036.90_ 30 Nonrefunding proceeds of the issue (subtract line 29 from line 23 and enter amount here). . , 30 9,600,000.00 Part V Description of Refunded Bonds (Complete this part only for refunding bonds.) 31 Enter the remaining weighted average maturity of the bonds to be currently refunded , ► years 32 Enter the remaining weighted average maturity of the bonds to he advance refunded . ► years 33 Enter the last date on which the refunded bonds will be called ► iiier 34 Enter the dates)the refunded bonds were issued ► Miscellaneous 35 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) . , , 35 36a Enter the amount of gross proceeds invested or to be Invested in a guaranteed Investment contract(see instructions) �33j666�a b Enter the final maturity date of the guaranteed investment contract lie 214 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units 37a b If this Issue is a loan made from the proceeds of another tax-exempt issue, check box ► ❑ and enter the name of the issuer► - and the date of the issue ► 38 If the issuer has designated the issue under section 265(b)(3)(B)(i)(III) (small issuer exception), check box . . , ► ❑ 39 if the Issuer has elected to pay a penalty in lieu of arbitrage rebate, check box ► ❑ 40 If the issuer has identified a hedge. check box ► ❑ Under penalties or perjury.I doclare that I have examined this return and accompanying senedUlas and statements,and to the nest of my knowledge .. and belief,they ore true,correct,and complete. Sign Here ,i(`Lc.1Clf�l Claire Man[hci.Director of rm Fincc ir Signature of issuer's authorized representative laic 'Typo or print name end title.. For Paperwork Reduction Act Notice, see page 2 of the Instructions. Cat.NO.63773S Form 8038-G Rev. 11.(000) r OFFICIAL STATEMENT CERTIFICATE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § I, the undersigned Mayor of the City of Pearland, Texas (the "City"), acting solely in my r official capacity, do hereby certify on behalf of the City that: f 1. I have reviewed the Official Statement of the City dated June 12, 2006 (the "Official Statement"), relating to the $9,700,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006. 2. To the best of my knowledge and belief, as of the date hereof, the descriptions and statements of or pertaining to the City contained in the Official Statement, on the date thereof, on the date of sale of the Certificates, and on the date hereof, are true and correct in all material respects. 3. To the best of my knowledge and belief, as of the date of the Official Statement and the date hereof, insofar as it relates to the City and its affairs, including its financial affairs, the Official Statement did not and does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading. 4. To the best of my knowledge and belief, the descriptions and statements of or pertaining to entities other than the City and such entities' activities, including financial data, have been obtained from sources which are believed to be reliable and there is no reason to believe that such descriptions and statements are untrue in any material respect. 5. There has been no material adverse change in the financial condition of the City since September 30, 2005, the date of the last audited financial statements of the City appearing in the Official Statement. [Signature Page Follows] r r r rHOU:2586121.1 r r EXECUTED this dayof 2006, the date of payment for and delivery of the Bonds. r r , ?"} i 2,,,, Tom Reid rMayor, City of Pearland, Texas r r r r r r IF t r r r V r r 2 HOU:2586121.1 111 CERTIFICATE OF BOND INSURER AS TO OFFICIAL STATEMENT CIFG Assurance North America, Inc. ("CIFG"), by its undersigned duly authorized officer, hereby certifies as follows in connection with the Official Statement dated June 12, 2006 (the "Official Statement") relating to the $9,700,000 City of Pearland, Texas Certificates of Obligation, Series 2006, with respect to which CIFG is issuing its bond insurance policy and endorsements thereto (the"Policy") effective as of the date hereof: 1. The statements contained in the Official Statement under the heading "THE BOND INSURER AND THE FINANCIAL GUARANTY INSURANCE POLICY," insofar as such statements constitute summaries of the matters referred to therein, accurately reflect and fairly present the information purported to be shown and, insofar as such statements describe CIFG, fairly and accurately describe CIFG. 2. The form of Policy contained in the Official Statement under the heading "APPENDIX D— Specimen of Financial Guaranty Insurance Policy" is a true and complete copy of the form of Policy. T CIFG makes no certifications or representations whatsoever as to any statements or information in the Official Statement other than the specific statements and information expressly referred to in paragraphs 1 and 2 above. rIN WITNESS WHEREOF, CIFG has caused this Certificate to be executed as of the date set forth below by the duly authorized officer of CIFG whose name and title appear ' below. 111 Date: July 13, 2006 CIFG ASSURANC TH AMERICA, INC. r ' r By: Robert . Drillings Manag' g Director and Assistant Secretary r r r r AN D R E W S Andrews&Kurth L.L.P. ATTORNEYS K U R T H LLP 600 Travis,Suite 4200 Houston,Texas 77002 713.220.4200 Phone 713.220.4285 Fax andrewskurth.com July 13, 2006 WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City"), in connection with an issue of certificates of obligation (the "Certificates") described as follows: CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006, dated July 1, 2006, in the aggregate principal amount of $9,700,000, maturing on March 1 in each year from 2008 through 2029, inclusive. The Certificates are issuable in fully registered form only, in denominations of$5,000 or integral multiples thereof, bear interest and may be transferred and exchanged as set out in the Certificates and in the ordinance (the "Ordinance") adopted by the City Council of the City authorizing their issuance. WE HAVE ACTED as Bond Counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Certificates under the Constitution and laws of the State of Texas and with respect to the exclusion of interest on the Certificates from gross income under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income tax law; and a transcript of certain certified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance. The transcript contains certified copies of certain proceedings of the City; certain certifications and representations and other material facts within the knowledge and control of the City, upon which we rely; and certain other customary documents and instruments authorizing and relating to the issuance of the Certificates. We have also examined executed Certificate No. R-1 of this issue. WE HAVE NOT BEEN REQUESTED to examine, and have not investigated or verified, any original proceedings, records, data or other material, but have relied upon the transcript of certified proceedings. We have not assumed any responsibility with respect to the financial condition or capabilities of the City or the disclosure thereof in connection with the sale of the Certificates. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Certificates has been limited as described therein. BASED ON SUCH EXAMINATION, it is our opinion as follows: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Certificates in full compliance with the Constitution and laws of the State of Texas presently in effect; the Certificates constitute valid and legally binding obligations of the City enforceable in accordance with the terms and conditions thereof, except to the extent that the rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, HOU:2570376.1 Austin Dallas Houston London Los Angeles New York The Woodlands Washington,DC July 13, 2006 Page 2 moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; and (2) The Certificates are payable, both as to principal and interest, from, and secured by, the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law, against taxable property within the City, which taxes have been pledged irrevocably to pay the principal of and interest on ' the Certificates; and (3) The Certificates are further secured by a limited and subordinate pledge of the net revenues of the waterworks and sanitary sewer system of the ` City. The revenues to be derived from the operation of the City's water and sewer system after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, to the extent that ad valorem taxes may ever be insufficient or unavailable for said purpose; provided, however, that such pledge is junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City designates as having a pledge senior to the pledge of Net ' Revenues to the payment of the Certificates. The City has reserved the right to issue, for any lawful purpose at any time, in one or ' more installments, bonds, certificates of obligation and other obligations of any kind secured by a pledge of the Net Revenues that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. rALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Certificates is fexcludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Certificates in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted in the Ordinance to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Certificates in gross income for federal income tax purposes to be retroactive to the date of issuance of the Certificates. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the f Certificates in gross income of the owners thereof for federal income tax purposes. r HOU:2570376.I r July 13, 2006 Page 3 INTEREST ON all tax-exempt obligations, including the Certificates, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation's adjusted current earnings for purposes of calculating such corporation's alternative minimum taxable income. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Certificates are directed to the discussion entitled"TAX EXEMPTION" set forth in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences under present law, or future legislation, resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certificates should be aware that the ownership of tax-exempt obligations, such as the Certificates, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad r Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations and individuals otherwise qualified for the earned income tax credit. For the foregoing reasons, prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. 7867/7866 I I I r r rHOU:2570376.1 r + ATTORNEY GENERAL OF TEXAS GREG ABBOTT r • July 11, 2006 r rTHIS IS TO CERTIFY that the City of Pearland, Texas (the "Issuer"), has submitted to me City of Pearland,Texas Certificates of Obligation, Series 2006(the "Certificates") in the aggregate principal amount of$9,700,000 for approval. The Certificates are dated July 1, 2006, numbered R-1 through R-22, and were authorized by an Ordinance of the Issuer passed on June 12, 2006. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. As to questions of fact material to my opinion, I have relied upon representations of the Issuer contained in the certified proceedings and other certifications of public officials furnished to me without undertaking to verify the same by independent investigation. I express no opinion relating to any official statement or any other offering material relating to the Certificates. Based on my examination,I am of the opinion,as of the date hereof and under existing law, ras follows (capitalized terms, except as herein defined, have the meanings given to them in the Ordinance): (1) The Certificates have been issued in accordance with law and are valid and binding obligations of the Issuer. (2) The Certificates are payable from the proceeds of an annual ad valorem tax levied, within the limits prescribed by law,against all taxable property in the Issuer and are r further payable from a pledge of the Net Revenues in an amount not to exceed $10,000, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the Issuer,whether authorized heretofore or hereafter,which the Issuer designates as having a pledge senior the pledge of the Net Revenues to the payment of the Certificates. r r POST OFFICE Box 12548, AUSTIN, TEXAS 78711-2548 TEL:(512)463-21O0 WWW.OAG.STATE.TS.US Am Egaa!Emproymee,°pparlan,ey Employer Premed an Recycled Paper of Obligation, Series 2006 - $9,700,000 City of Pearland, Texas Certificates g , - Page 2 - Therefore,the Certificates are approved. t ey Ge r of the State of Texas No.44987 Book No.2006C MAA Nom IND a OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Mora , 11 Bond Clerk n Assistant Bond Clerk in the office of the Comptroller of the a State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 11th day of July, 2006, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Pearland, Texas Certificate of Obligation, Series 2006, numbered R-1/R-2 d ted July 1, 2006 a d that in signing the certificate of registration I used the following signature IN WITNES H REOF I have execute h. c rtificate this t e 11th day of July, 2006. I, Carole Keeton Strayhorn, Comptroller of Public Accounts of the State of Texas, certify that the person who has signed the above certificate was duly designated and appointed by me under authority vested in me by Chapter 403, Subchapter H, Government Code, with authority to sign my a name to all certificates of registration, and/or cancellation of bonds required by law to be registered and/or cancelled by me, and was acting as such on the date first mentioned in this certificate, and that the bonds/certificates described in this certificate have been duly registered in the office of the Comptroller, under Registration Number 71592. GIVEN under my hand and seal of office at Austin, Texas, this the 11th day of July, 2006. a &- -1146 CAROLE KEETON STRAYHORN a Comptroller of Public Accounts of the State of Texas r OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, CAROLE KEETON STRAYHORN, Comptroller of Public Accounts of the State of Texas, do hereby certify that the attachment is a true and correct copy of the opinion of the Attorney General approving the: FCity of Pearland, Texas Certificate of Obligation, Series 2006 numbered R-1/R-22, of the denomination of $ various, dated July 1 , 2006, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered electronically in the office of the Comptroller, on the 11th day of July, 2006, under Registration Number 71592. Given under my hand and seal of office, at Austin, Texas, the 11th day of July, 2006. CAROLE KEETON STRAYHORN Comptroller of Public Accounts of the State of Texas a w r r r CIFG IXIS FINANCIAL GUARANTY F July 13, 2006 City of Pearland, Texas A.G. Edwards & Sons, Inc., as underwriter of the within-mentioned Bonds 11/1 Ladies and Gentlemen: I am General Counsel, Global Infrastructure and Public Finance of CIFG Assurance North America, Inc., a New York stock insurance company ("CIFG"), and have acted as such in connection with the issuance by CIFG of a certain Bond Insurance Policy, number CIFG NA- 1017 and endorsements thereto, effective as of the date hereof (the "Policy"), insuring Certificates of Obligation, Series 2006 in aggregate principal amount of$9,700,000 issued by the City of Pearland, Texas. I or lawyers under my supervision have examined the Policy and such corporate records, certificates and other documents and such questions of law as I have considered necessary or appropriate in the circumstances for purposes of this opinion. Based upon such examination and having regard to legal considerations I deem relevant, I am of the opinion that: 1. CIFG is a stock insurance company duly organized and validly existing in good standing under the laws of the State of New York with power and authority under applicable laws to conduct its insurance business in the manner in which it is being conducted. 2. The Policy has been duly authorized, executed and delivered by CIFG and constitutes a legal, valid and binding obligation of CIFG enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, liquidation, reorganization, rehabilitation, moratorium and other state and federal laws affecting the enforcement of creditors' rights and to general principles of equity. 3. The execution, delivery and performance of the Policy and the consummation of the transactions contemplated thereby will not conflict with or result in a breach of any of the terms, conditions or provisions of the Charter or By-Laws of CIFG, or any restriction contained in any contract, agreement or instrument to which CIFG is a party or by which it is bound or constitute a default under any of the foregoing. I CIFG Assurance North America,Inc. 825 Third Avenue,6th Floor New York,NY 10022 Tel.(212)909-3939 Fax(212)909-3958 CAISSE 1j www.cifg.com CAISSE D'EPARGNE r City of Pearland, Texas A.G. Edwards & Sons, Inc. July 13, 2006 Page 2 4. All proceedings legally required for the issuance of the Policy have been taken by CIFG and all licenses, orders, consents or other authorizations or approvals of any governmental boards or bodies legally required for the enforceability of the Policy in all material respects have been obtained. I have, with your approval, relied as to certain matters on information obtained from public officials, officers of CIFG and other sources believed by me to be responsible. This opinion is furnished to you solely for your benefit and may not be relied upon or distributed to any other person. i Very trul ours, Robert M. Drillings I I p I I I I I I I CIFG CIFG Assurance North America,Inc. IXIS FINANCIAL GUARANTY 825 Third Avenue,6"'Floor- New York,NY 10022 $9,700,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION SERIES 2006 — RECEIPT AND CROSS RECEIPT July 13, 2006 I, the undersigned, a duly authorized representative of Wells Fargo Bank, National Association, paying agent/registrar for the City of Pearland, Texas Certificates of Obligation, Series 2006 (the "Certificates"), hereby acknowledge receipt on behalf of the City of Pearland, Texas (the "City") of the full purchase price for the Certificates in the total amount of $9,716,237.42 (representing the par amount of the Certificates of$9,700,000, plus a net premium of$970.00, plus accrued interest of$15,267.42)on the date hereof. WELLS FARGO BANK, NATIONAL ASSOCIATION By: k,(IJ-u.t-L,- � 1)--u-AXD Name: Deirdre H. Ward Title: Vice President I, the undersigned, a duly authorized representative of A.G. Edwards & Sons, Inc.., hereby acknowledge receipt from the City of the initial Certificates of its $9,700,000 Certificates of Obligation, Series 2006, dated July 1, 2006, which have been delivered to the undersigned in proper form on the date hereof. A.G. EDWARDS & SONS, INC. By: Name: Title: S a — $9,700,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION SERIES 2006 RECEIPT AND CROSS RECEIPT July 13, 2006 I, the undersigned, a duly authorized representative of Wells Fargo Bank, National Association, paying agent/registrar for the City of Pearland, Texas Certificates of Obligation, Series 2006 (the "Certificates"), hereby acknowledge receipt on behalf of the City of Pearland, Texas (the "City") of the full purchase price for the Certificates in the total amount of $9,716,237.42 (representing the par amount of the Certificates of$9,700,000, plus a net premium a of$970.00, plus accrued interest of$15,267.42)on the date hereof. WELLS FARGO BANK,NATIONAL ASSOCIATION a By: Name: Deirdre H. Ward Title: Vice President I, the undersigned, a duly authorized representative of A.G. Edwards & Sons, Inc.., hereby acknowledge receipt from the City of the initial Certificates of its $9,700,000 Certificates of Obligation, Series 2006, dated July 1, 2006, which have been delivered to the undersigned in proper form on the date hereof. — A.G. EDWARDS & SONS, INC. By: Name: Title: 1 JUL-19-2006 12:43 AG EDWARDS P.02 $9,700,000 ; t ; CITY OF PEARLAND,TEXAS L', CERTIFICATES OF OBLIGATION , ''•:r SERIES 2006 s'•W , . RECEIPT AND CROSS RECEIPT ,a. ' r 4fi 4 - July 13, 2006 ., , I, the undersigned, a duly authorized representative of Wells Fargo Bank, National � ` Association, paying agent/registrar for the City of Pearland, Texas Certificates of Obligation t; Series 2006 (the "Certificates"), hereby acknowledge receipt on behalf of the City of Pearland, ,.,�; Texas (the "City") of the full purchase price for the Certificates in the total amount of �, i .~,fit $9,716,237.42 (representing the par amount of the Certificates of$9,700,000,plus a net premium , • , of$970.00,plus accrued interest of$15,267.42)on the date hereof. r "`' • c'r:' ,, WRIT S FARGO BANK, NATIONAL ASSOCIATION • ' a;, , •ti rto a[•;, rri $ r' rName: rh;. .. .:„.,,,,,4,r.: Title: I, the undersigned, a duly authorized representative of A.G. Edwards & Sons, Inc.., , ‘,,,,,,,, '1 a.�. r, hereby acknowledge receipt from the City of the initial Certificates of its $9,700,000 Certificates �- I -� of Obligation, Series 2006, dated July 1, 2006, which have been delivered to the undersigned in ' + ,l 1 proper form on the date hereof. •L;;3:.(,T;• 1� f z�y±,r i IF A.G. EDWARDS &SONS, INC. • •a f ; ::'-tpla p, . IlFir By: / • .a r .? ,4'1 Name: _ c. a 9>`s z Title: ,. �; • * Yx 'r iit W▪ t . ,,, n4,i. ., 4, HOU'25967 73.1 ; �r• K r , .,,,tai;:ah! TrITAI P.A2 REGISTRAR'S RECEIPT The undersigned duly authorized representative of Wells Fargo Bank, National Association, the Registrar of the following described bonds: CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 2006, in the total authorized aggregate amount of$9,700,000 certifies that it has duly registered the above-mentioned bonds in accordance with the Resolution, dated June 12, 2006, and that such bonds have been delivered to the purchaser thereof. r EXECUTED AND DELIVERED this July 13, 2006. WELLS FARGO BANK, NATIONAL ASSOCIATION By: kat(Aiu—k___ c A L-u.,tD Name: Deirdre H. Ward Title: Vice President_ r CIFG Assurance North America,Inc. CIFG 825 Third Avenue,Sixth Floor New York,NY 10022 IXIS FINANCIAL GUARANTY For information,contact(212)909-3939 Toll-free(866)243-4212 r FINANCIAL GUARANTY INSURANCE POLICY r ISSUER: City of Pearland,Texas Policy No.: CIFG NA-1017 CUSIP: 704862XD8,704862XE6,704862XF3,704862XG1,704862XH9, Effective Date: July 13,2006 704862XJ5,704862XK2,704862XL0,704862XM8,704862XN6, 704862XPI,704862XQ9,704862XR7,704862XS5,704862XT3, 1/11 704862XUO,704862XV8,704862XW6,704862XX4,704862XY2, 704862XZ9,704862YA3 OBLIGATIONS: $9,700,000 Certificates of Obligation,Series 2006 CIFG ASSURANCE NORTH AMERICA, INC. ("CIFG NA"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY GUARANTEES to each Policyholder, subject only to the terms and conditions of this Policy (which includes each endorsement hereto), the full and complete payment by or on behalf of the Issuer of Regular Payments of principal of and interest on the Obligations. For the further protection of each Policyholder,CIFG NA irrevocably and unconditionally guarantees: (1) payment of any amount required to be paid under this Policy by CIFG NA following CIFG NA's receipt of notice and instruments of assignment as described in Endorsement No. I hereto and (2) payment of the amount of any distribution of principal of and interest on the Obligations made during the Term of this Policy to such Policyholder that is subsequently avoided in whole or in part as a preference payment under applicable law,all as described in Endorsement No. IMP 1 hereto. CIFG NA shall be subrogated to the rights of each Policyholder to receive payments under the Obligations to the extent of any payment by CIFG NA hereunder. Upon disbursement in respect of an Obligation,CIFG NA shall become the owner of the Obligation,appurtenant coupon,if any,and all rights to payment of principal thereof or interest thereon. The following terms shall have the meanings specified below, subject to and including any modifications set forth in any endorsement hereto,for all purposes of this Policy."Effective Date,""Issuer"and"Obligations"mean,respectively,the Effective Date,Issuer and Obligations referenced above. "Policyholder"means, if the Obligations are in book-entry form,the registered owner of any Obligation as indicated on the registration books maintained by or on behalf of the Issuer for such purpose or,if the Obligations are in bearer form,the holder of any Obligation; provided, however, that any trustee acting on behalf of and for the benefit of such registered owner or holder shall be deemed to be the Policyholder to the extent of such trustee's authority."Regular Payments"means payments of interest and principal which are agreed to be made .. during the Term of this Policy in accordance with the original terms of the Obligations when issued and without regard to any amendment or modification of such Obligations thereafter;payments which become due on an accelerated basis as a result of(a)a default by the Issuer or any other person, (b)an election by the Issuer to pay principal or other amounts on an accelerated basis or(c)any other cause,shall not constitute "Regular Payments" unless CIFG NA shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration. "Term of this Policy"has the meaning set forth in Endorsement No. 1 hereto. This Policy sets forth in full the undertaking of CIFG NA, and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto or to the Obligations (except a contemporaneous or subsequent agreement or instrument given by CIFG NA or to which CIFG NA has given its written consent)or by the merger,consolidation or dissolution of the Issuer. The premiums paid in respect of this Policy are nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Obligations prior to maturity. This Policy may not be cancelled or revoked during the Term of this Policy, including for nonpayment of premium due to CIFG NA.Payments under this Policy may not be accelerated except at the sole option of CIFG NA. In witness whereof,CIFG ASSURANCE NORTH AMERICA, . has caused this Policy to be executed on its behalf by its Authorized Officer. CIFG ASSURAN ,�{ORTH AMERICA,INC. IP° i By Authorized Officer Robert M. Drillings CIFGNA Bonds-I (8-04) Mafl. ging Director and Assistant Secretary sow CIFG IXIS FINANCIAL GUARANTY ENDORSEMENT NO. 1 TO FINANCIAL GUARANTY INSURANCE POLICY NO. CIFG NA-1017 CIFG ASSURANCE NORTH AMERICA, INC. 1. Definitions. For all purposes of this Policy, the terms specified below shall have the meanings or constructions provided below. Capitalized terms used without definition herein shall have the meanings provided in the documents governing the Obligations unless the context shall otherwise require. "Business Day" means any day (other than a Saturday or Sunday) that in the City of New York is neither a legal holiday nor a day on which banking institutions are authorized or obligated by law or executive order to be closed. "CIFG NA" means CIFG Assurance North America, Inc. and its successors and permitted assigns. "Policy" means this Financial Guaranty Insurance Policy and includes each endorsement thereto. "Receipt" and "Received" mean actual delivery to each of CIFG NA and the Fiscal Agent (as defined below), if any, prior to 12:00 noon, New York City time, on a Business Day; delivery either on a day that is not a Business Day, or after 12:00 noon,New York City time, shall be deemed to be Receipt on the next succeeding Business Day. If any notice or certificate given hereunder by the Policyholder is not in proper form or is not properly completed, executed or delivered in all material respects, it shall be deemed not to have been Received, and CIFG NA or its Fiscal Agent shall promptly so advise the Policyholder and the Policyholder may submit an amended notice. "Regular Payment Date" means (i), when referring to interest on an Obligation, the stated date for payment of interest and (ii), when referring to the principal of an Obligation, the stated final maturity date thereof or the date on which the same shall have been duly called for mandatory redemption (by sinking fund or otherwise) and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by such mandatory redemption), acceleration or other advancement of maturity unless CIFG NA shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration. "Regular Payments" means any and all regularly scheduled payments of principal of and interest on the Obligations required to be made in accordance with their original terms and without regard to any subsequent amendment or modification thereof except amendments or modifications to which CIFG NA has given its prior written consent. Regular Payments shall not include, nor shall coverage be provided under this Policy in respect of: (1) payments which become due on an accelerated basis as a result of(a) a default by the Issuer or any other person, CIFG NA Endorse-I (8-04) Ara jo, CIFG Policy Number CIFG NA-1017 Effective Date: July 13, 2006 IXIS FINANCIAL GUARANTY (b) an election by the Issuer to make payment on an accelerated basis, or (c) any other cause, unless CIFG NA shall elect, in its sole discretion, to pay any amount due upon such acceleration together with any accrued interest to the date of acceleration; (2) any amounts due in respect of the Obligations attributable to any increase in interest rate, penalty or other sum payable by the Issuer by reason of any default or event of default in respect of the Obligations, whether by the Issuer or any other person, or by reason of any deterioration of the creditworthiness of the Issuer or any other person, or (3) any taxes, withholding or other charge imposed by any governmental authority due in connection with the payment of any Regular Payment to the Policyholder. "Term of this Policy" means the period from and including the Effective Date to and including the date on which (i) all Regular Payments have been paid and the Obligations have been terminated in accordance with their terms; (ii) any period during which any Regular Payment could have been avoided in whole or in part as a preference payment under applicable bankruptcy, insolvency, receivership or similar law shall have expired; and (iii) if any proceedings requisite to avoidance as a preference payment have been commenced prior to the occurrence of(i) and (ii), a final and nonappealable order in resolution of each such proceeding has been entered. 2. Notices and Conditions to Payment in Respect of Regular Payments. Following Receipt by CIFG NA of a notice of claim and certificate from the Policyholder in the form attached as Exhibit A to this Endorsement (a "Notice of Claim and Certificate"), CIFG NA will pay any amount payable hereunder in respect of Regular Payments on the Obligations on (i) in respect of the first Regular Payment Date after Receipt by CIFG NA of such Notice of Claim and Certificate, the later to occur of(a) 10:00 a.m., New York City time, on the Business Day following such Receipt and (b) 10:00 a.m., New York City time, on the Regular Payment Date on which such payment is due on the Obligations and (ii) in respect of each subsequent Regular Payment Date after Receipt by CIFG NA of such Notice of Claim and Certificate, 10:00 a.m., New York City time, on the Regular Payment Date on which such payment is due on the Obligations. Payments due hereunder in respect of Regular Payments will be disbursed to the Policyholder by wire transfer of immediately available funds to such account as the Policyholder shall specify in writing at the time of or prior to the delivery of the Notice of Claim and Certificate in respect of such Regular Payment. CIFG NA shall be entitled to pay any amount hereunder in respect of Regular Payments on the Obligations, including any amount payable upon its election on the Obligations on an accelerated basis, whether or not any notice and certificate shall have been Received by CIFG NA as provided above; provided, however, that by acceptance of this Policy the Policyholder agrees to provide upon request to CIFG NA a Notice of Claim and Certificate in respect of any such payments or deliveries made by CIFG NA. CIFG NA's obligation hereunder in respect of Regular Payments shall be discharged to the extent funds are disbursed by CIFG NA as provided herein whether or not such funds are properly applied by any custodian or agent appointed by the Policyholder. 3. Notices and Conditions to Payment in Respect of Regular Payments Avoided as Preference Payments. If any Regular Payment paid in respect of the Obligations during the Term 2 �' CIFG Policy Number CIFG NA-1017 Effective Date: July 13, 2006 IXIS FINANCIAL GUARANTY of this Policy is avoided as a preferential transfer or similar payment (a"Preference Payment") under applicable bankruptcy, insolvency, receivership or similar law ("Insolvency Law"), CIFG NA will pay such amount out of the funds of CIFG NA on the later of(a) the date when due to be paid pursuant to the Order referred to below or(b) the first to occur of(i) the fourth Business Day following Receipt by CIFG NA from the Policyholder of(A) a certified copy of the order (the "Order") of the court or other governmental body of competent jurisdiction to the effect that the Policyholder is required to return all or part of such Regular Payment because such payment was avoidable as a Preference Payment under applicable Insolvency Law, (B) a certificate of the Policyholder that the Order has been entered and is not subject to any stay and (C) an assignment duly executed and delivered by the Policyholder in such form as is reasonably required by CIFG NA, and provided to the Policyholder by CIFG NA, irrevocably assigning to CIFG NA all rights and claims of the Policyholder relating to or arising under the Obligations against the Issuer or its estate or otherwise with respect to such Preference Payment or (ii) the date of Receipt by CIFG NA from the Policyholder of the items referred to in clauses (A), (B) and (C) above if, at least four Business Days prior to such date of Receipt, CIFG NA shall have Received written notice from the Policyholder that such items were to be delivered on such date and such date was specified in such notice. Such payment shall be disbursed to the receiver, conservator, debtor-in- possession or trustee in bankruptcy named in the Order, and not the Policyholder directly (unless the Policyholder has previously paid such amount to the receiver, conservator, debtor-in- possession or trustee in bankruptcy named in the Order, in which case such payment shall be disbursed to the Policyholder upon proof of such payment reasonably satisfactory to CIFG NA). 4. Fiscal Agent. At any time during the Term of this Policy, CIFG NA may appoint a fiscal agent (the "Fiscal Agent") for purposes of this Policy by written notice to the Policyholder at the notice address specified in the documents governing the Obligations specifying the name and notice address of the Fiscal Agent. From and after the date of receipt of such notice by the Policyholder, (i) copies of all notices and documents required to be delivered to CIFG NA pursuant to this Policy shall be simultaneously delivered to the Fiscal Agent and CIFG NA and shall not be deemed Received until Received by each, and (ii) all payments required to be made by CIFG NA under this Policy may be made directly by CIFG NA or by the Fiscal Agent on behalf of CIFG NA. The Fiscal Agent is the agent of CIFG NA only and the Fiscal Agent shall in no event be liable to any Policyholder for any acts of the Fiscal Agent or any failure of CIFG NA to deposit, or cause to be deposited, sufficient funds to make payments due under the Policy. 5. Notices. All notices to be given hereunder shall be in writing (except as otherwise specifically provided herein) and shall be mailed by registered mail or personally delivered or telecopied to CIFG NA as follows: CIFG Assurance North America, Inc. 825 Third Avenue, Sixth Floor New York, New York 10022 Attention: General Counsel Telecopy No.: (212) 909-3959 1 3 V Policy Number CIFG NA-1017 CIFG aEffective Date: July 13, 2006 IXIS FINANCIAL GUARANTY CIFG NA may specify a different address or addresses by writing mailed or delivered to the Policyholder. 6. Priorities. In the event that any term or provision of the face of this Policy is inconsistent with the provisions of this Endorsement, the provisions of this Endorsement shall take precedence and shall be binding. 7. Assignment of CIFG NA Obligations. The obligations of CIFG NA hereunder r- may be assigned to any affiliate of CIFG NA that is licensed as a financial guaranty insurance corporation, provided that at the time of such assignment the insurance strength or insurance financial strength of such affiliate is rated at least equal to the insurance strength or insurance financial strength of CIFG NA, and that the rating of the Obligations shall not have been reduced as a result of such assignment, by Moody's Investors Service and Standard & Poor's Ratings ' Group or their respective successors as nationally recognized statistical rating organizations. 8. Surrender of Policy. The Policyholder shall surrender this Policy to CIFG NA for cancellation upon expiration of the Term of this Policy. IN WITNESS WHEREOF, CIFG ASSURANCE NORTH AMERICA, INC. has caused this Endorsement No. 1 to be executed by its Authorized Officer. CIFG ASSURANCE NORTH AMERICA, INC. r s Po By Aut prized Officer Robert M. Drillings Managing Direct' -'Secretary P um PP 4 1 1 Exhibit A To Endorsement No. I NOTICE OF CLAIM AND CERTIFICATE ' CIFG Assurance North America, Inc. 825 Third Avenue, Sixth Floor New York, NY 10022 I The undersigned, a duly authorized officer of[Policyholder] (or any permitted r successor or assignee of its rights under the Obligations defined below) (the "Policyholder"), hereby certifies to CIFG Assurance North America, Inc. ("CIFG NA"),with reference to Financial Guaranty Insurance Policy No. CIFG NA-1017 having an Effective Date of July 13, r 2006 (the"Policy") issued by CIFG NA in respect of the Obligations(capitalized terms used without definition herein having the meanings provided in the Policy unless the context shall otherwise require),that: r (i) The Policyholder is the Policyholder under the Policy. (ii) [The Policyholder has not been timely advised in writing by the Issuer as to a source of funds reasonably satisfactory to the Policyholder sufficient to make payment in full of a Regular Payment required to be made on the immediately following Regular Payment Date] [The Regular Payment required to be made on the Regular Payment Date falling on [date] has not been paid in full]. The Regular Payment has been calculated as follows: [show calculation]. r (iii) Accordingly,the Policyholder is hereby making a claim under the Policy for the amount of the foregoing Regular Payment and,when due, any subsequent Regular Payments. The Policyholder will withdraw this Notice of Claim and Certificate, or submit a restated Notice of Claim and Certificate reducing the amount of the claim hereunder, if the required amount of any Regular Payment has been reduced (including reduction to zero)on or prior to any date on which CIFG NA is required to make payment or delivery under the Policy. (iv) If the Policyholder receives from the Issuer and CIFG NA an amount in excess of a Regular Payment, the Policyholder shall immediately return the excess amount to CIFG NA. (v) In consideration of the payments made and to be made to the Policyholder by CIFG NA under the Policy, the Policyholder hereby assigns to CIFG NA all of its interest in and rights with respect to the Obligations (including the documents governing the Obligations). The foregoing assignment is in addition to, and not in limitation of, rights of subrogation otherwise available to CIFG NA in respect of such payments. Payments to CIFG NA in respect of the foregoing assignment Al shall in all cases be subject to and subordinate to the rights of the Policyholder to receive all Regular Payments in respect of the aforementioned Obligations. The Policyholder shall take such action and deliver such instruments as may be reasonably requested or required by CIFG NA to effectuate the purpose or provisions of this clause (v). (vi) The Policyholder hereby agrees that, so long as no CIFG NA Termination Event (as defined below) shall have occurred and be continuing, CIFG NA may at any time during the continuation of any proceeding by or against the Issuer under any applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding") direct all matters relating to such Insolvency Proceeding, including without limitation, (A) all matters relating to such Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment made with respect to the Obligations (a "Preference Claim"), (B) the direction of any appeal of any order relating to any Preference Claim at the expense of CIFG NA and (C) the posting of any surety, supersedeas or performance bond pending any such appeal. In addition, so long as no CIFG Termination Event shall have occurred and be continuing, the Policyholder hereby agrees that CIFG NA shall be subrogated to, and the Policyholder hereby assigns, to the fullest extent permitted by law, the rights of the Policyholder in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any party to an adversary proceeding or action with respect to any court order — issued in connection with any such Insolvency Proceeding. A "CIFG NA Termination Event" shall be any event of default specified in the documents governing the Obligations with respect to CIFG NA as insurer of the Obligations or, if none is so specified, either: (i) CIFG NA's failure to make a payment required under the Policy in accordance with its terms or (ii) its institution of a proceeding seeking a judgment of insolvency or bankruptcy; the institution against it of such a proceeding or petition that is not dismissed, discharged or stayed within 180 days of the institution of such a proceeding or petition; or the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all of its assets. (vii) Payment should be made by wire transfer directed to the following account in [city]: [Policyholder's wire transfer information] A-2 IN WITNESS WHEREOF, the Policyholder has executed and delivered this Notice of Claim and Certificate as of the day of [POLICYHOLDER] By Title For CIFG NA or Fiscal Agent Use Only Wire transfer sent on by Confirmation Number A-3 ' �. CIFG IXIS FINANCIAL GUARANTY ENDORSEMENT NO. 2 TO FINANCIAL GUARANTY INSURANCE POLICY NO. CIFG NA-1017 CIFG ASSURANCE NORTH AMERICA, INC. Notwithstanding the terms and provisions contained in this Policy, it is further understood that any person who, with intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement is guilty of insurance fraud. IN WITNESS WHEREOF, CIFG ASSURANCE NORTH AMERICA, INC. has caused this Endorsement No. 2 to be executed by its Authorized Officer. CIFG ASSURANCE NORTH;AMERICA, INC. L By Authorized Officer 11obert M. Drillings - Managing Director and Assisia,nt Secretary I 1 I I P r CIFGNA Fraud Endorse-2(8-04) , C1FG IXIS FINANCIAL GUARANTY ENDORSEMENT NO. 3 TO FINANCIAL GUARANTY INSURANCE POLICY NO. CIFG NA-1017 CIFG ASSURANCE NORTH AMERICA, INC. THIS POLICY IS NOT COVERED BY THE TEXAS PROPERTY AND CASUALTY GUARANTY ASSOCIATION SPECIFIED IN ARTICLE 28.21-C OF THE TEXAS INSURANCE CODE. IN WITNESS WHEREOF, CIFG ASSURANCE NORTH AMERICA, INC. has caused this Endorsement No. 3 to be executed by its Authorized Officer. CIFG ASSURANCE NORTH AMERICA, INC. �� Y B / Auth rized Officer Robert M. Drillings Managing Director and Assistant Secretary CIFGNA Bonds Endorse-3-NY(8-04) r v Moody's Investors Service r99 Church Street New York, NY rJuly 7, 2006 CIFG Assurance North America, Inc ' 825 Third Avenue, 6th Floor New York, NY 10022 r To Whom It May Concern: Moody's Investors Service has assigned the rating of Aaa (CIFG Assurance North America, Inc Insured - Policy No. CIFGNA-1017) to the $9,700,000.00, City of Pearland, Texas - Certificates of Obligation, Series 2006, dated July 1, 2006 which sold on June 12, 2006. The rating is based upon an insurance policy provided by CIFG Assurance North America, Inc. Should you have any questions regarding the above, please do not hesitate to contact Karen Malkowski at (201) 395-6370. r Sincerely yours, 1 Sean Cullen Senior Vice President SC / DC I I I I neMcGrow'Hlll STANDARD N water Street,38th floor New York,NY 10041-0003 tel 212 438-2074 &P O O R'S reference no.:40174203 July 7,2006 rCIFG Assurance North America,Inc. 825 Third Avenue-6th Floor New York,NY 10022 Attention: Mr. Steven Klein,Managing Director of Public Finance Re: $9,700,000 City of Pearland, Texas, Certificates of Obligation,Series 2006, dated:July 1, 2006, due:March 1,2008-2029, (POLICY#CIFG NA-1017) Dear Mr.Klein: Standard&Poor's has reviewed the rating on the above-referenced obligations. After such review,we have changed the rating to"AAA"from"A+". The rating reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your [ company is providing. Therefore,rating adjustments may result from changes in the financial position of your company or from alterations in the documents governing the issue. The rating is not investment, financial, or other advice and you should not and cannot rely upon the rating as such. The rating is based on information supplied to us by you but does not represent an audit. We undertake no duty of due diligence or independent verification of any information. The assignment of a rating does not create a fiduciary relationship between us and you or between us and other recipients of the rating. We have not consented to and will not consent to being named an"expert"under the applicable securities laws, including without limitation, Section 7 of the Securities Act of 1933.The rating is not a"market rating"nor is it a recommendation to buy, hold,or sell the obligations. This letter constitutes Standard&Poor's permission to you to disseminate the above-assigned rating to interested parties. Standard&Poor's reserves the right to inform its own clients, subscribers, and the public of the rating. Standard&Poor's relies on the issuer and its counsel, accountants, and other experts for the accuracy and completeness of the information submitted in connection with the rating. This rating is based on financial information and documents we received prior to the issuance of this letter. Standard&Poor's assumes that the documents you have provided to us are fmal. If any subsequent changes were made in the final documents,you must notify us of such changes by sending us the revised final documents with the changes clearly marked. Standard&Poor's is pleased to be of service to you. For more information please visit our website at www.standardandpoors.com. If we can be of help in any other way,please contact us. Thank you for choosing Standard&Poor's and we look forward to working with you again. V Mr Steven Klein Page 2 July 7, 2006 F Sincerely yours, ., Standard&Poor's Ratings Services a division of The McGraw-Hill Companies, Inc. ,A4441,1,46 a74,01 ak I f I I 1 f i 1 I f • NMI UNITED STATES OF AMERICA STATE OF TEXAS CITY OF PEARLAND,TEXAS NUMBER DENOMINATION R-1 $25,000 REGISTERED CERTIFICATE OF OBLIGATION REGISTERED SERIES 2006 its INTEREST RATE: DATED DATE: MATURITY DATA 7'r ,: CUSIP: 6.125% July 1,2006 March 1,2098 =s' ; 704862 XD8 • r:, • r REGISTERED OWNER: A.G.EDWARDS &SONS,INC. , l PRINCIPAL AMOUNT: TWENTY FIVE THOUSAND AND NO/10&;D©LLARS THE CITY OF PEARLAND,TEXAS, a municipal corpolation of the State of Texas(the"City"),for value received,hereby promises to pay to the Registered Owner identi£ed above or its registered assigns, on the maturity date specified above (or on earlier redemption as herein provided.), upon presentation and surrender of this Certificate at the principal corporate trust office of Wells Earto Bank;.N.A., Houston, Texas, or its successor (the •. "Paying Agent/Registrar"), the principal amount identifiediabove(or�so much thereof as shall not have been paid or indeemed to have been paid upon prior redemption) payableany coin or currency of the United States of America which on the date of payment of such principal is legal tender-fij>; the payment of debts due to the United States of America, and to pay interest thereon at the rate sho'il above,calculated on a basis of a 360-day year composed of twelve 30-day months, from the later of the Dated Date.identified above or the most recent interest payment date to which interest has been paid or duly provided for..Interest on this Certificate is payable on March 1,2007,and each March 1 and September 1 thereafter until matui o.earlier'redemption of this Certificate,by check sent by United .� States mail, first class, postage prepaid,by tb Paying Agent/Registrar to the Registered Owner of record as of the close of business on the fifteenth day of the calendar,month immediately preceding the applicable interest payment date, as shown on the registration boo wept,by the Paying Agent/Registrar. Any accrued interest payable at maturity or earlier redemption shall b 4 ajd+upon presentation and surrender of this Certificate at the principal MEI corporate trust office of the Paying Age " egistrar. THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of$9,700,000 issued pursuant to an ordinance adopted by the City Council of the City on June 12, 2006 (the"Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations to be incurred for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights-of-way for authorized needs and purposes and for the payment of contractual obligations for professional services,to wit(i) the purchase of approximately 40 acres of land to be used for a regional storm water detention facility to be located immediately north of Clear Creek and approximately 2000 feet west of State Highway 288, including the construction of an approximately 200-acre foot storm water detention ,. storage facility, the construction of storm sewer channel facilities for drainage and detention mitigation and related studies and site work for such facilities, (ii) the construction of an approximately 2300 foot segment of Barry Rose/Hughes Road northeast of Pearland Parkway, including the construction of bridge spanning Clear Creek to be used for such road, (iii) preliminary engineering services related to certain transportation, drainage, public building and city park projects to be undertaken by the City, and (iv) professional services rendered in connection with the above listed projects. THIS CERTIFICATE shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certificate either (i) is registered by the Comptroller of Public Accounts of the State of Texas by due execution of the registration certificate endorsed hereon or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. Page 1 of 6 HOU:2589588.1 THE CITY RESERVES THE RIGHT,at its option,to redeem,prior to their maturity,Certificates maturing on and after March 1,2017,in whole or in part,on March 1,2016,or any date thereafter,at par plus accrued interest to the date fixed for redemption. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of$5,000. If a Certificate .� subject to redemption is in a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of$5,000. In selecting portions of Certificates for redemption, each Certificate shall be treated as representing that number of Certificates of $5,000 denomination which is obtained by dividing the principal amount of such Certificate by$5,000. Upon surrender of any Certificate for redemption in part,the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefor a Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Certificate so surrendered. NOTICE OF ANY SUCH REDEMPTION, identifying the Certificates or portions thereof to be redeemed, shall be sent by United States mail, first class, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar, not less than thirty (30) days before the .. date fixed for such redemption. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Certificates called for redemption. If such notice of redemption is given,and if due provision for such payment is made,all as provided above,the Certificates which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid with the funds so provided for such payment. THIS CERTIFICATE IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Paying Agent/Registrar,accompanied by an assignment duly executed by the Registered Owner or its authorized representative, subject to the terms and conditions of the Ordinance. a THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate trust office of the Paying Agent/Registrar for a Certificate or Certificates of the,same maturity and interest rate and in the principal amount of $5,000 or any integral multiple thereof,subject to the'terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR,is not required to accept for transfer or exchange any Certificate called for redemption, in whole or in part, cltring the forty-five (45) day period immediately prior to the date fixed for redemption;provided,however,that such limitation shall not apply to the transfer or exchange by the Registered Owner of an unredeemed portion of a Certificate called for redemption in part. _ THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of a Certificate. Any fee or charge of the Paying Agent/Registrar for a transfer or exchange shall be paid by the City. THE REGISTERED OWNER of this Certificate by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. MINO IT IS HEREBY DECLARED AND REPRESENTED that this Certificate has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, exist and to be done precedent to or in the issuance and delivery of this Certificate have been performed, exist and have been done in accordance with law; that the Certificates do not exceed any constitutional or statutory limitation; and that annual ad valorem taxes sufficient to provide for the payment of the interest on and principal of this Certificate, as such interest comes due and such principal matures, have been levied and ordered to be levied, within the limits prescribed by law, against all taxable property in the City and have been irrevocably pledged for such payment. Page 2 of 6 HOU:2589588.1 p IT IS FURTHER DECLARED AND REPRESENTED that the revenues to be derived from the City's water and sewer system, after the payment of all operation and maintenance expenses thereof(the"Net Revenues"), in an amount not to exceed $10,000, are pledged to the payment of the principal of and interest on the Certificates, provided that the pledge of Net Revenues is and shall be junior and subordinate in all respects to the pledge of Net Revenues to the payment of any obligation of the City, whether authorized heretofore or hereafter, which the City MIN designates as having a pledge senior to the pledge of the Net Revenues to the payment of the Certificates. The City also reserves the right to issue,for any lawful purpose at any time, in one or more installments,bonds,certificates of obligation and other obligations of any kind, secured in whole or in part by a pledge of Net Revenues, that may be prior and superior in right to, on a parity with, or junior and subordinate to the pledge of Net Revenues securing the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying Agent/Registrar, for the full provisions thereof, to all of which the Registered Owners of the Certificates assent by acceptance of the Certificates. IN WITNESS WHEREOF, the City has caused its corporate seal to be impresseg;. .laced in facsimile hereon and this Certificate to be signed by the Mayor, countersigned by the City,Secret.'- •y their manual, lithographed or printed facsimile signatures. CITY OF PEARLAND,,TE 'A 1, .N. •y Mayor,'?'' (SEAL) tt111i �� ` 7J/ /`/ `f ?'ci ••,..«.,o eii� COUNTERSIGNED: 1 I 7 e 7 a • : _ •• • //` /flillilil,A00```` City Secretary r Page 3 of 6 HOU:2589588.1 COMPTROLLER'S REGISTRATION CERTIFICATE THE STATE OF TEXAS REGISTER NO. OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS I hereby certify that this certificate has been examined,certified as to validity and approved by the Attorney General of the State of Texas, and that this certificate has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL OF OF E this e(Lkl,) mptroller of Public Accounts of the State of Texas [SEAL] Pop •t `tip, 1Ye.. � I 1 rr�'t r i r r Page 4 of 6 HOU:2589588.1 1 Ps STATEMENT OF INSURANCE 11100 CIFG Assurance North America, Inc. ("CIFG NA"), New York, New York, has delivered its fmancial guaranty insurance policy (the "Policy"( with respect to the scheduled payments of principal and interest on this Bond as described herein below to Wells Fargo Bank, N.A., Houston, Texas or its successor, as paying agent/registrar(the "Paying Agent/Registrar") for the $9,700,000 City of Pearland, Texas Certificates of Obligation, Series 2006. Said Policy is on file and available for inspection at the principal office of the Paying Agent/Registrar and a copy may be obtained from CIFG NA or the Paying Agent/Registrar. MN ic* I r r { E I rPage 5 of 6 HOU:2589588.1 Oft ASSIGNMENT For value received,the undersigned hereby sells,assigns and transfers unto (Please print or type name,address,and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within bond and all rights thereunder,and hereby irrevocably constitutes and appoints .11 attorney to transfer such bond on the books kept for registration thereof,with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE:The signature above must correspond to the name of the Registered Owner as shown on the face of NOTICE: Signature must be guaranteed by a member this bond in every particular,without any alteration, firm of the New York Stock Exchange or a commercial enlargement or change whatsoever. bank or trust company. t 1 i f r I f Page 6 of 6 HOU:2589588.1 JUN-1G—GUUb 1G•UD HU tUWHKUS P,04 is s4 ri,41 ,. rOFFICIAL BID FORM t irar June 12,2006 : "f:"• Mayor and City Council <. , PO City of Pearland 3519 Liberty Drive Pearland,Texas 77581 f Gentlemen; aipa "• B.t Subject to the terms of your Official Notice of Sale and Official Statement, dated May 30, 2006, which are , f ;s; rm incorporated herein by reference, we hereby submit the following bid for the $9,700,000 CITY OF P.ARIAND, '• r TEXAS, CERTIFICATES OF OBLIGATION, SERIES 2006, dated July 1, 2006. This offer is being made for all said Certificates and for not less than all. PI' For said legally issued Certificates of Obligation, we will ! pay you the par value thereof, plus accrued interest from their date to the date of delivery to us, plus a cash premium of$ 910. =' for the Certificates maturing and bearing interest per annum as follows: Maturity Principal Interest Maturity Principal Interest Date Amount Rate Date Amount Rate r• March 1,2008(a) $ 25,000 (o•tl•r % March 1,2019(a)(b) $505,000 9.2 SO c March 1,2009(a) 25,000 (o•I2,5 March 1,2020(a)(b) 470,000 LI.30 c) March 1,2010(a) 50,000 (o• Its March 1,2021(a)(b) 500,000 H. 76 O March 1,2011(a) 125,000 (a• 12S March 1,2022(a)(b) 525,000 Li. 3 7 S rot March 1,2012(a) 315,000 L•t t S" March 1,2023(a)(b) 555,000 '-I• M00 • March I,2013(a) 335,000 1.. u S' March 1,2024(a)(b) 585,000 `I. 4-+S d March 1,2014(a) 355,000 fa• t z S March I,2025(a)(b) 605,000 `I•Tv O am March 1,2015(a) 370,000 to,X1-s March 1,2026(a)(b) 730,000 ' • T O v March 1,2016(a) 395,000 5.2S O March 1,2027(a)(b) 765,000 4.S Ot March 1,2017(a)(b) 405,000 LI. 11 s- March 1,2028(s)(b) 805,000 '1•,f Ott March 1,2018(a)(b) 405,000 4-1.1.00 March 1,2029(a)(b) 850,000 ti.So ow (a) At the option of the Purchaser, any or all of such serial maturities may be designated as term certificates subject to mandatory sinking fund redemption as follows;provided that the mandatory sinking fund amount Po in each year shall equal the amounts shown above as maturing in such year. • Term Bonds Years of First Maturity Date Mandatory Principal Amount Interest (March 1) Redemption of Term Bonds Rate . $ % oor (b) Subject to optional redemption and payment, at the option of the City, in whole or, from time to time, in part, on March 1, 2016, or on any date thereafter at a price equal to the principal amount thereof, plus accrued interest to the date fixed for redemption. Po Pm JUIY 1G-cut/o lc•CJo I"IU Cl'UJNRLJ. H.L15 r • -r Interest cost, in accordance with the above bid,is: Total Interest Cost from July 1,2006.- $ to, V'1 1, to to D, Less: Premium g 9"1 Cl• w NET INTEREST COST.................._.....................,......,.,. S la,e 4-1(o ,10910. NET EFFECTIVE INTEREST RATE '4.Si 0 o y c, % The Initial Certificates shall be registered in the name of III;upon payment for the Certificates, be cancelled by the Paying Agent/Registrar. The Certificates will then be registered in the name of Cede&Co.(DTC's partnership nominee), under the Book-Entry-Only System. Cashier's Check of the o)cf- k- Bank, / .1)57)A..) ,Texas, in the amount of$194,000 which represents our Good Faith Deposit(is attached hereto)or(has been made available to you prior to the opening of this Bid), and is submitted in accordance with the terms as set forth in the "Official Notice of Sale" and "Official Statement." We agree to accept delivery of the Certificates utilizing the Book-Envy-Only System through DTC and make payment for the Initial Certificates in immediately available funds in the Corporate Trust Office, Wells Fargo Bank, N.A.,Houston, Texas, not later than 10:00 AM,CST,on July 13,2006, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Notice of Sale and Bidding Instructions. It will be the obligation of the purchaser of the Certificates to complete the DTC Eligibility Questionnaire. The undersigned agrees to complete, execute and deliver to the City, by the date of delivery of the Certificates, a certificate relating to the "issue price" of the Certificates in the form and to the effect attached to or accompanying the Official Notice of Sale,with such changes thereto as may be acceptable to the City and its Bond Counsel. Respectfully submitted, A. aONs, arc. By I . • ,e' TJ r/. Authorized Representati .' ACCEPTED this 1211 day of June,2006, the City Council,City of Pearland, Texas. av'�e5tttttootttl�����'� '' j Mayor 8 N= o — "lam'• "'"a9a4uo.1o°° t '�i`r�rrUttitttt.�®`�```` y�- City , j or your information you will find attached a list of the group of purchasers associated with us in this proposal) r CITY OF PEARLAND, TEXAS $9,700,000 CERTIFICATES OF OBLIGATION SERIES 2006 rThe following information is included in the transcript submitted to the Office of the Attorney General for the purpose of obtaining Attorney General approval of the issuance of the referenced bonds, as required by H.B. 1564, 74th Legislature, Regular Session(Tex. Laws 1995, ch. 383, at 2930). rA. An additional copy of the Final Official Statement and the following information, if not included in the Final Official Statement or such statement has not been prepared. r1. Name of bond issue: City of Pearland,Texas Certificates of Obligation, Series 2006 2. a) par amount of issue: $9,700,000 b) dollar amount of bond premium, if any: $235,417.70 r c) dollar amount of bond original issue discount, if any: $121,380.80 3. Dated date: July 1,2006 4. Closing date(expected delivery date, on or about): July 13, 2006 5. By year,maturity amounts, coupon rates,prices or yields: See Exhibit A. (If no reoffering yield (NRO) indicated,please provide yield separately.) 6. Call provisions, including premiums, if any: See Official Statement 7. Mandatory redemption provisions: N/A 8. Debt-service schedule, principal and interest, and annual totals, with fiscal year identified: See Exhibit A. 9. Use of derivative products associated with financing: N/A 10. If applicable, schedule of bonds refunded, including, by year, principal amount, coupon, and interest cost: N/A 11. Pledge: tax (ad valorem, sales, other), revenue, combination: Ad valorem tax and subordinate revenue 12. Type of credit enhancement(including PSF guarantee): CIFG Assurance Corporation 13. Rating service(s) and rating(s) assigned to issue: Moody's "Aaa" Standard&Poor's "AAA" B. Additional Information 1. Type of sale: Competitive Bid 2. Pricing: Negotiated sale: N/A. Competitive sale: June 12, 2006;approx. 7:00 p.m 3. If purchaser of bonds is a governmental entity, such as the Texas Water Development Board, please name purchaser: N/A 4. If a refunding bond issue, please provide final schedule of cash and present value savings (loss): N/A r 5. If a school district refunding bond issue, and the refunding involves "old debt" per the Texas Education Code, please provide schedule of principal and interest payments of refunding bonds associated with"old debt": N/A r If the same issue also involves "new debt," please provide a schedule of principal and interest payments on the "new debt" portion as well. These two schedules together should equal total debt service by maturity: All of the refunded bonds represent (and accordingly all of the refunding bonds are associated with) "new debt." N/A 6. CAB's and CIB's—please provide the per annum bond interest rates by maturity as shown in the bond order document: N/A rHOU:2591941.1 r 7. Costs of Issuance—please provide best estimate of costs. rIf final costs are significantly different, please submit changes directly to the Texas Bond 1 Review Board. Call (512) 463-1741 or(512) 475-4802 (FAX). r SERVICE FIRM ONE-TIME FEE ANNUAL FEE(a) (in dollars) Bond Rating Moody's $5,000 r Standard & $9,000 Poor's Fitch N/A yy- r Other General Costs of Issuance(b) $81,400 _ $500 Any Specialized Costs of Issuance (c) N/A Credit Facility N/A Bond Insurance $19,800 r Total Underwritin. S•read d $93,266.90 Did underwriter pay rating fee(s) No Which one(s)? Did underwriter pay bond insurance fee? Yes II PARTICIPANTS FIRM Financial Advisor - RBC Capital Markets Bond Counsel Andrews Kurth LLP I Paying Agent/Registrar;Authenticating Agent Underwriters Wells Fargo Bank,N.A. A.G. Edwards &Sons, Inc. Trustee None r Underwriter's Counsel None Administrator None (a) relates to the ongoing fees or recurring costs of a financing for services such as paying agent, remarketing agent, credit provider and other similar services (may be expressed as a formula as Ir appropriate) (b) e.g.,bond counsel, financial advisor,paying agent,printing, AG approval (c) e.g.,remarketing fees, escrow verification fees, etc. r (d) the cost for marketing and selling the bonds, including takedown, structuring fee, underwriting risk and expenses. r PERSON COMPLETING FORM: Telephone No. (713) 220-4876 Name: Marcus Deitz Fax No. (713) 238-7125 r r I r .. ... IOU:2591941.1 r r i r i r r I a i I a a i a I * i a I i i I I I City of Pearland, Texas-General Obligation Debt FINAL NUMBERS-Series 2006 Certificates of Obligation-A.G.Edwards-June 13,2006 Dated Date=07/01/2006 Certificates of Olbigation,Series 2006 Delivery Date=07/13/2006 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call 03/01/2007 - - - - - 100.000000 305,348.33 305,348.33 - 305,348.33 . 09/01/2007 - - - - - - 229,011.25 229,011.25 534,359.58 229,011.25 03/01/2008 - 25,000.00 25,971.00 6.125 3.650000 103.884000 229,011.25 254,011.25 - 254,011.25 09/01/2008 - - - - - - 228,245.63 228,245.63 482,256.88 228,245.63 03/01/2009 - 25,000.00 26,506.50 6.125 3.700000 106.026000 228,245.63 253,245.63 - 253,245.63 09/01/2009 - - - - - - 227,480.00 227,480.00 480,725.63 227,480.00 03/01/2010 - 50,000.00 53,995.50 6.125 3.750000 107.991000 227,480.00 277,480.00 - 277,480.00 09/01/2010 - - - - - - 225,948.75 225,948.75 503,428.75 225,948.75 03/01/2011 - 125,000.00 137,345.00 6.125 3.780000 109.876000 225,948.75 350,948.75 - 350,948.75 09/01/2011 - - - - - 222,120.63 222,120.63 573,069.38 222,120.63 03/01/2012 - 315,000.00 350,541.45 6.125 3.875000 111.283000 222,120.63 537,120.63 - 537,120.63 09/01/2012 - - - - - - 212,473.75 212,473.75 749,594.38 212,473.75 03/01/2013 - 335,000.00 377,551.70 6.125 3.930000 112.702000 212,473.75 547,473.75 - 547,473.75 09/01/2013 - - - - - - 202,214.38 202,214.38 749,688.13 202,214.38 03/01/2014 _ - 355,000.00 403,432.65 6.125 4.030000 113.643000 202,214.38 557,214.38 - 557,214.38 09/01/2014 - - - - - - 191,342.50 191,342.50 748,556.88 191,342.50 03/01/2015 - 370,000.00 424,571.30 6.125 4.080000 114.749000 191,342.50 561,342.50 - 561,342.50 09/01/2015 - - - - - - 180,011.25 180,011.25 741,353.75 180,011.25 03/01/2016 - 395,000.00 430,502.60 5.250 4.110000 108.988000 180,011.25 575,011.25 - 8,280,011.25 09/01/2016 - - - - - - 169,642.50 169,642.50 744,653.75 - 03/01/2017 - 405,000.00 ' 402,395.85 4.125 4.200000 99.357000 169,642.50 574,642.50 - - 09/01/2017 - - - - - - 161,289.38 161,289.38 735,931.88 - 03/01/2018 - 405,000.00 * 401,302.35 4.200 4.300000 99.087000 161,289.38 566,289.38 - - 09/01/2018 - - - - - - 152,784.38 152,784.38 719,073.76 - 03/01/2019 - 505,000.00 • 499,136.95 4.250 4.370000 98.839000 152,784.38 657,784.38 - - 09/01/2019 - - - - - - 142,053.13 142,053.13 799,837.51 - 03/01/2020 - 470,000.00 * 464,247.20 4.300 4.420000 98.776000 142,053.13 612,053.13 - - 09/01/2020 - - - - - - 131,948.13 131,948.13 744,001.26 - 03/01/2021 - 500,000.00 * 491,445.00 4.300 4.460000 98.289000 131,948.13 631,948.13 - - 09/01/2021 - - - - - 121,198.13 121,198.13 753,146.26 - 03/01/2022 - 525,000.00 ' 517,660.50 4.375 4.500000 98.602000 121,198.13 646,198.13 - - 09/01/2022 - - - - - - 109,713.75 109,713.75 755,911.88 - 03/01/2023 - 555,000.00 " 545,964.60 4.400 4.540000 98.372000 109,713.75 664,713.75 - - 09/01/2023 - - - - - - 97,503.75 97,503.75 762,217.50 - 03/01/2024 585,000.00 ' _ 576,529.20 4.450 4.570000 98.552000 97,503.75 682,503.75 - - 09/01/2024 - - - - - - 84,487.50 84,487.50 766,991.25 - 03/01/2025 - 605,000.00 * 598,193.75 4.500 4.590000 98.875000 84,487.50 689,487.50 - - 09/01/2025 - - - - - - 70,875.00 70,875.00 760,362.50 - 03/01/2026 - 730,000.00 " 719,663.20 4.500 4.610000 98.584000 70,875.00 800,875.00 - - 09/01/2026 - - - - - - 54,450.00 54,450.00 855,325.00 - 03/01/2027 - 765,000.00 ' 750,832.20 4.500 4.640000 98.148000 54,450.00 819,450.00 - - 09/01/2027 - - - - - - 37,237.50 37,237.50 856,687.50 - 03/01/2028 - 805,000.00 ' 787,515.40 4.500 4.660000 97.828000 37,237.50 842,237.50 - - 09/01/2028 - - - - - - 19,125.00 19,125.00 861,362.50 - 03/01/2029 - 850,000.00 ' 828,733.00 4.500 4.680000 97.498000 19,125.00 869,125.00 869,125.00 - Total - 9,700,000.00 9,814,036.90 6,847,660.91 16,547,660.91 16,547,660.91 13,843,044.61 Acc int - - - -15,267.42 -15,267.42 - - Page-3 I 1 t I I 1 1 1 1 1 it t a I 1 I I 1 1 Term Bond Bond Coupon Interest Total Fiscal Year Debt Service - Dates Maturities Redemptions Proceeds Rate Yield Price Amount Debt Service Debt Service to Call Crand Totals - 9,700,000.00 9,814,036.90 6,832,393.49 16,532,393.49 16,547,660.91 13,843,044.61 *-Bonds callable... 03/01/2016 @ 100.000 TIC(Incl.all expenses)....4.69213059% Average Coupon 4.57069368% Net Eff.Int.Rate(Texas Vernon's)= 4.493929%(with Adjstmnt of-970.00). TIC(Arbitrage TIC) 4.50263915% Average Life(yrs)... 15.45 IRS Form 8038-G NIC =4.509223%(with Adjstmnt of$0.00). Bond Years 149,816.67 WAM(yrs) 15.181463 NIC= 4.493929%(with Adjstmnt of-970.00). s PEARLAND_GO-2006:NEW06CO Prepared by:RBC Capital Markets-Houston, Texas(713)651-3340(JHR) 06/13/2006 @ 10:11 v7.53 i Page-4