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Ord. 0776 1997-03-03
CERTIFICATE FOR ORDINANCE 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 special meeting on March 3, 1997, 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 Council Member Kevin Cole Council Member Helen Beckman Council Member Larry Wilkens Council Member Jerry Richardson Mayor Pro Tem Wendy Standorf Interim City Secretary L and all of such persons were present, except Larry Wilkens and Jerry Richardson, thus constituting a quorum. Whereupon, among other business, the following was transacted at said H meeting: a written ORDINANCE AUTHORIZING AND ORDERING THE ISSUANCE OF CITY OF. PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997; 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 a CERTIFICATES; 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; and, after due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: AYES.: NAYS: 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 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 subject 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 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 March 3 , 1997. (SEAL) 0367671.02 029726/1546 2 City Secre CITY OF PEARLAND, TEXAS ORDINANCE NO. 776 AN ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997; 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; 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 L 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 (i) for land acquisition, replacement, renovations, improvements, materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearland, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and. Independent Park located at ,the intersection of John Lizer Road and Liberty Drive, Pearland, Texas 77581, (ii) for certain street projects located in the City including but not limited to: the acquisition of right-of-way and construction of a street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemont; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including drainage) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage and bridge work); acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City, (ili) for the acquisition, construction, improvement, repair, 1 materials, supplies, equipment .and machinery for certain drainage facilities located in the City including but not limited to: flood control improvements within and in the vicinity of the Shadycrest, Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willowcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clear Creek bridge (including street renovations and improvements); storm water detention at the David L. Smith Project on Clear Creek, at the Southwest Environmental Center on Mary's Creek and at a future site on Hickory Slough; and formation of a jurisdiction -wide storm water drainage plan and analysis for a storm water utility, and (iv) for professional services. (b) The City Council authorized the publication of a notice of intention to issue Certificates of Obligation, Series 1997 (the "Certificates") to the effect that the City Council was tentatively scheduled to meet at 7:30 p.m. on March 3, 1997 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 waterworks and sanitary 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 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 March 3, 1997, 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. 2 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. "Certificate" or "Certificates" shall mean any or all of the City of Pearland, Texas Certificates of Obligation, Series 1997, 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. "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, 1998, 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. "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. 3 L' r-. "Paying Agent/Registrar" shall mean Texas Commerce Bank National Association, Houston, Texas, and its successors in that capacity. "Purchaser" shall mean the entity or entities specified in Section 6.1 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 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 SIX MILLION TWO HUNDRED AND FIFTY THOUSAND AND NO/100 DOLLARS ($6,250,000) for the purpose of providing all or part of the funds to pay contractual obligations to be incurred (i) for land acquisition, replacement, renovations, improvements, . ,materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearland, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and Independent Park located at the intersection of John Lizer Road and Liberty Drive, Pearland, Texas 77581, (ii) for certain street projects located in the City including but not limited to: the acquisition of right-of-way and construction of a street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemont; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including drainage) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and 4 bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage and bridge work); acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City, (iii) for the acquisition, construction, improvement, repair, materials, supplies, equipment and machinery for certain drainage facilities located in the City including but not limited to: flood control implements within and in the vicinity of the Shadycrest, Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willowcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clear Creek bridge (including street renovations and improvements); storm water detention at the David L. Smith Project on Clear Creek, at .the Southwest Environmental Center on Mary's Creek and at a future site on Hickory Slough; and formation of a jurisdiction -wide storm water drainage plan and analysis for a storm water utility, and (iv) for professional services. Section 3.2: Designation. Date and Interest Payment Dates. The Certificates shall be designated as the "City of Pearland, Texas Certificates of Obligation, Series 1997," and shall be dated April 1, 1997. The Certificates shall bear interest at the rates set forth in Section 3.3 below, from the later of May 1, 1997 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, 1998, 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 is of the close of business on the day prior to mailing of such notice. Section 3.3: Numbers. Denomination Interest Rates and Maturities. (a) 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 1999 $100,000 7.25 % R-2 2000 100,000 7.25 R-3 2001 100,000 7.25 R-4 2002 . 100,000 7.25 R-5 2003 100,000 7.25 R-6 2004 100,000 7.25. f R-7 2005 100,000 7.25 L R-8 2006 100,000 7.25 R-9 2007 110,000 7.25 R-10 2008 120,000 6.50 ' R-11 2009 120,000 5.25 R-12 2010 400,000 5.25 R-13 2011 460,000 5.25 R-14 2012 520,000 . 5.30 R-15 2013 580,000 5.35 R-16 2014 650,000 5.40 '_- R-17 2015 1,210,000 5.45 R-18 2016 1,280,000 5.50 i Section 3.4: Redemption Prior to Maturity. (a) Optional Redemption. The Certificates maturing on and after March 1, 2008 are subject to redemption prior to maturity, at the option of the City, in whole or in part, on March 1, 2007, 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 6 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. 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 Mayor, Day, Caldwell & Keeton, L.L.P., 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 IVof 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. 7 • r 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 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. 1-1 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: 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 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 G I 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 3.10: 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. ARTICLE IV FORM OF ERTIFICATES The Certificates, including the Form of Comptroller's Registration Certificate, Form of Paying Agent/Registrar Authentication Certificate 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: NUMBER R- REGISTERED UNITED STATES OF. AMERICA STATE OF TEXAS CITY OF PEARLAND, TEXAS DENOMINATION CERTIFICATE OF OBLIGATION REGISTERED SERIES 1997 INTEREST RATE: ISSUE DATE: MATURITY DATE: CUSIP: April 1, 1997 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 Texas Commerce Bank National Association, 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 Issue 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, 1998, 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, 10 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 $6,250,000 issued pursuant to an ordinance adopted by the City Council of the City on March 3, 1997 (the "Ordinance") for the purpose of providing all or part of the funds to pay contractual obligations to be incurred (i) for land acquisition, replacement, renovations, improvements, materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearland, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and Independent Park located at the intersection of John Lizer Road and Liberty Drive, Pearland, Texas 77581, (ii) for certain street projects located in the City including but not limited to: the acquisition of right-of-way and construction of a street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemont; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including drainage) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage and bridge work); acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City, (iii) for the acquisition, construction, improvement, repair, materials, supplies, equipment and machinery for certain drainage facilities located in the City including but not limited to: flood control implements within and in the vicinity of the Shadycrest, Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willowcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clear Creek bridge (including street renovations and improvements); storm. water detention at the David L. Smith Project on Clear Creek, at the Southwest Environmental Center on Mary's Creek and at a future site on Hickory Slough; and formation of a jurisdiction -wide storm water drainage plan and analysis for a storm water utility, and (iv) for professional services. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS CERTIFICATE SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. 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. 11 • 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. (AUTHENTICATION OR CITY OF PEARLAND, TEXAS REGISTRATION CERTIFICATE) (SEAL) * * * Mayor COUNTERSIGNED: City Secretary [REVERSE OF CERTIFICATE] THE CITY RESERVES THE RIGHT, at its option, to redeem, prior to their maturity, Certificates maturing on and after March 1, 2008, in whole or in part, on March 1, 2007, 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, 12 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. 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 fortransfer 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 waterworks and sanitary 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 such purpose, provided that the pledge 13 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. * * * 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 -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 OFFICE this Comptroller of Public Accounts [SEAL] of the State of Texas * * * 14 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 This Certificate is one of the Certificates described in and delivered pursuant to the within -mentioned Ordinance; and, except for the Certificates initially delivered, this Certificate has been issued in exchange for or replacement of a Certificate, Certificates, or a portion of a Certificate or Certificates of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. TEXAS COMMERCE BANK NATIONAL ASSOCIATION By Authorized Signature Date of Authentication: STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on . file at TEXAS COMMERCE BANK NATIONAL ASSOCIATION, HOUSTON, TEXAS. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the City to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, HOUSTON, TEXAS or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the . preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $6,250,000, CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice byregistered or certified mail,by the Insurer from the Paying. Agent or any . owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect theappointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State 16 Street Bank and Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the City, or any designee of the Issuer for such purpose. The term owner shall not include the City or any party whose agreement with i the City constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected• by an insurance guaranty fund or other solvency protection arrangement. MBIA Insurance Corporation 17 I 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 certificate and all rights thereunder, and hereby irrevocably constitutesand appoints attorney to transfer such certificate 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 certificate 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 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 18 Certificates by deposit to the Certificates of Obligation, Series 1997 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 1997 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 Articles 1111-1118, Vernon's Texas Civil Statutes, as amended, the City also hereby pledges the revenues to be derived from the City's waterworks and sanitary 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 to the extent that the ad valorem taxes referred to in Section 5.1(a) of this Ordinance are ever insufficient or unavailable for such purpose, 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 ore 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 1997 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 1997 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. 19 ARTICLE VI CONCERNING THE PAYING AGENT/REGISTRAR Section 6.1: Acceptance. Texas Commerce Bank National Association, 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 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. 20 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 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 Rauscher. Pierce Refnes, Inc. (the "Purchaser") at a price of the par value thereof 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 5.5259%, 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 Cityhereby acknowledges that the Purchaser's bid is contingent upon the issuance of a policy of municipal bond guaranty insurance from MBIA Insurance Corporation ("MBIA") insuring the timely payment of principal of and interest on the Certificates. .Such insurance is to be obtained at the Purchaser's expense. The appropriateofficials 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 MBIA, 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, 21 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. 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. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking ratings on the Certificates from Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and . such actions are hereby ratified and confirmed. Section 7.4: Application of Proceeds of Certificates: Appropriation. 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 1997 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. 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 22 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 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 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 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. 23 (f) The City will not take any action or knowingly omit to take any action, 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) (h) (i) 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)(b)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(li) 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. 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 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. 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 24 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 togain 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 1 City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (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 intereston 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 shall 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 25 ; f 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 1997, 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 "DEBT SERVICE SCHEDULE," "DEBT STATEMENT," "TAX DATA," "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. 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; 26 (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 fmancial information, operating data, fmancial 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 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 27 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: "MSRB" means the Municipal Securities Rulemaking Board. "NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. 28 "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. 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 State Treasurer 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 direct obligations of, or obligations the principal of and interest on which are guaranteed by the United States of America, in principal amounts and maturities and bearing interest at rates sufficient to provide for the timely payment of the principal amount of the Certificates plus interest thereon to the date of maturity or 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 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: 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 9.3: 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. 29 Section 9.4: 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 9.5: Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 9.6: 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 9.7: Repealer. All orders, resolutions and ordinances, or parts thereof, inconsistent herewith are hereby repealed to the extent of such inconsistency. Section 9.8: 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 9.9: Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. PASSED AND APPROVED on first reading pursuant to Section 3.10 of the City Charter this March 3 , 1997. CITY OF PEARLAND, TEXAS Mayor ATTEST (SEAL) Exhibit A — Paying Agent/Registrar Agreement Exhibit B — Official Notice of Sale Exhibit C — Preliminary Official Statement Exhibit D — Official Statement 31 EXHIBIT C PRELIMINARY OFFICIAL STATEMENT See Tab No. 4 EXHIBIT D OFFICIAL STATEMENT See Tab No. 5 0367671.04 049718/1722 MAYOR, DAY, CALDWELL 8 KEETON, L.L.P. 700 LOUISIANA, SUITE 1900 HOUSTON, TEXAS 77002-2778 (713) 225-7000 TELECOPIER (7131225-7047 June 9, 1997 Mr. Paul Grohman, City Manager City of Pearland 3519 Liberty Drive Pearland, Texas 77581 100 CONGRESS AVENUE SUITE 1500 AUSTIN, TEXAS 78701-4042 (5121320-9200 TELECOPIER (512) 320-9292 Re: $6,250,000 City of Pearland, Texas Certificiates of Obligation, Series 1997 Dear Paul: Enclosed are copies of the transcript of proceedings relating to the captioned Bonds. It has been a pleasure worldng with you on this transaction and I look forward to our worldng together again. Very truly yours, Rick A. Witte Enclosures 03898 3.01 069709/0931 CITY OF PEARLAND, TEXAS (Brazoria and Harris Counties, Texas) CERTIFICATES OF OBLIGATION, SERIES 1997 $6,250,000 TRANSCRIPT OF PROCEEDINGS MAYOR, DAY, CALDWELL & KEETON, L.L.P. 700 Louisiana, Suite 1900 Houston, Texas 77002 (713) 225-7000 CITY OF PEARLAND, TEXAS (Brazoria and Harris Counties, Texas) CERTIFICATES OF OBLIGATION. SERIES 1997 INDEX OF CONTENTS I. CERTIFICATE PROCEEDINGS AND DOCUMENTS Resolution Authorizing Publication of Notice of Intention to Issue Certificates Affidavits of Publication of Notice of Intent Ordinance Authorizing Issuance of the Certificates Preliminary Official Statement and Official Notice of Sale Official Statement Paying Agent/Registrar Agreement II. CERTIFICATES General Certificate Signature Identification and No -Litigation Certificate No -Arbitrage Certificate and Form 8038G Certificate of Assessed Valuation Closing Certificate Certificate of City Manager Official Statement Certificate of the Bond Insurer 10 11 12 13 III. OPINIONS Approving Opinion of Bond Counsel Opinion of Attorney General of Texas with Certificate of Comptroller of Public Accounts Opinion of Counsel to the Bond Insurer 14 15 16 IV. MISCELLANEOUS Receipt and Cross Receipt 17 Registrar's Receipt 18 Insurance Policy 19 Rating Agency Letters 20 Specimen Certificate 21 Winning Bid 22 0367636.02 049718/1628 2 CERTIFICATE FOR RESOLUTION STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the "City"), hereby certify as follows: 1. The City Council of the City convened in a regular meeting on the 27th day of January, 1997, 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 and the City Secretary, to wit: Tom Reid Mayor Richard Tetens Council Member Kevin Cole Council Member Helen Beckman Council Member Larry Wilkins Council Member Jerry rRichardson Mayor Pro Tem Wendy Standoff Interim City Secretary and all of such persons were present, thus constituting a quorum. Whereupon, among other - business, the following was transacted at such meeting: a written RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $6,250,000 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: 5 AYES 0 NOES 2. That a true, full and correct copy of the aforesaid Resolution adopted at the meeting described in the above and foregoing paragraph is attached to and follows this certificate; that the Resolution has been duly recorded in the City Council's minutes of the meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council's minutes of the 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 purpose of the aforesaid meeting, and that the Resolution would be introduced and considered for adoption at the meeting, and each of the officers and members consented, in advance, to the holding of such meeting for such purpose; that the meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of the meeting was given as required by the Open Meetings Law, Chapter 551, Texas Government Code, as amended. SIGNED AND SEALED thi /day of January, 1997. 4:1/r 'tr1 Vn City Secre City of Pe land, Texas (SEAL) 0360332.01 019724/1022 �om Mayor City of Pearland, Texas 2 RESOLUTION NO. R97-6 RESOLUTION AUTHORIZING PUBLICATION OF NOTICE OF INTENTION TO ISSUE CERTIFICATES OF OBLIGATION IN A PRINCIPAL AMOUNT NOT TO EXCEED $6,250,000 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 payycontractual 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 professional services rendered in connection therewith pursuant to Texas Local Government Code sections 271.041-.064, 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 $6,250,000 styled "City of Pearland, Texas Combination Tax and Revenue Certificates of Obligation, .Series 1997" (the "Certificates") for the acquisition, construction and improvement of certain public works to be used 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; WHEREAS, for purposes of providing for the sale of the Certificates, this City Council intends to authorize the preparation of a Preliminary Official Statement (the "Preliminary Official Statement") to be used by the underwriters in the public offering of the Certificates; and WHEREAS, this 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: 1 Section 1. Preamble.- The facts and recitations contained in the preamble of this Resolution are hereby found and declared to be true and correct. 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 in both English and Spanish 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 Mayor, Day, Caldwell & Keeton, L.L.P., as bond counsel ("Bond Counsel") in connection with the issuance of the Certificates pursuant to the terms of an agreement with such firm in substantially the form attached hereto as Exhibit B. Section 4. Authorization of a Preliminary Official Statement. This City Council hereby approves the preparation and distribution by the 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. 2 PASSED AND APPROVED di' day of January, 1997. Al LEST: riVenk City Secretary City of Pearls d, Texas (SEAL) 0360332101 019724/1022 3 Mayor i City of Pearland, Texas EXHIBIT A TO RESOLUTION 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 special meeting place at City Hall, Pearland, Texas at 7:30 p.m. on the 3rd day of March, 1997, 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 subordinate pledge of certain revenues of the City's water and sewer system, in the maximum aggregate principal amount of $6,250,000, 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 be incurred (1) for land acquisition, replacement, renovations, improvements, materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearland, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and Independence Park located at the intersection of John Lizer Road and Liberty Drive, Pearland, Texas 77581, (2) for certain street projects located in the City including but not limited to: the acquisition of right-of-way and construction of a street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemont; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including drainage) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage and bridge work); acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City, (3) for the acquisition, construction, improvement, repair, materials, supplies, equipment and machinery for certain drainage facilities located in the City including but not limited to: flood control improvements within and in the vicinity of the Shadycrest, Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willowcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clear . Creek bridge (including street renovations and improvements); storm water detention at the David L. Smith Project on Clear Creek, at the Southwest Environmental Center on Mary's Creek and at a future site on Hickory Slough;. and formulation of a jurisdiction -wide storm water drainage plan and analysis for a storm water utility, and (4) for professional services. WITNESS MY HAND AND THE OFFICIAL SEAL OF THE CITY, this 27th day of January, 1997. J (SEAL) 3 k(/ city Secre City of Peaiand, Texas /164-dey 0360332.01-019724/1022 EXHIBIT B MAYOR, DAY, CALDWELL E KEETON, L.L.P.. RICK A. WITTE PARTNER 225-7165 Mayor and City Council City of Pearland, Texas P. O. Box 2068 Pearland, Texas 77588-2068 700 LOUISIANA, SUITE 1900 HOUSTON, TEXAS 77002-2778 (7131225-7000 _ TE LECOPIER (7131225-7047 January 27, 1997 100 CONGRESS AVENUE SUITE 1500 AUSTIN,TEXAS 78701-4042 (5121320-9200 TELECOPIER(512) 320-9292 Re: $6,250,000 City of Pearland, Texas Combination Tax and Revenue Certificates of Obligation, Series 1997 Dear Mayor and Council Members: We are pleased to submit to you a proposed agreement for Mayor, Day, Caldwell & Keeton, L.L.P. ("MDC&K"), Houston, Texas to serve as Bond Counsel with respect to the captioned certificates of obligation (the "Certificates"). When approved by y u (the "City"), this letter will become effective and will evidence an agreement between the City and 'MDC&K. As Bond Counsel, we will prepare, or assist the appropriate City officials and staff in the preparation of, all required legal proceedings and will perform certain other necessary legal work in connection with the City's authorization, issuance and sale of the Certificates. Our services as Bond Counsel will include the following Basic Services, which we will carry out directly or in concert with City officials and staff, as follows: (1) Preparation of the ordinance authorizing _ the issuance of the Certificates (the "Ordinance") and all other legal instruments which comprise the transcript of legal proceedings pertaining to the authorization, issuance and sale of the Certificates; (2) Attendance at meetings called by the appropriate City officials and staff, to discuss the sizing, timing or sale of the Certificates; (3) Consultation with City officials and staff and the City's financial advisor to review information to be included in the offering documents for the Certificates, but only to the extent that such information describes the Certificates, the security therefor, its federal income tax status and our opinion; (4) Preparation and submission of a transcript of legal proceedings pertaining to the issuance of the Certificates to the Attorney General of Texas to obtain an approving opinion; City of Pearland, Texas January 27, 1997 Page 2 (5) Supervision of the printing of the Certificates and the delivery thereof to the purchasers, including, if requested, solicitation of bids from bond printers, to obtain the lowest responsible printing costs for the City; (6) At the closing of the Certificates, delivery of an approving opinion, based on facts and law existing as of its date, generally to the effect that the.Certificates have been duly issued, executed and delivered in accordance with the Constitution and laws of the State of Texas, that the Certificates constitute valid and legally binding obligations of the City secured by a lien on 'and pledge of ad valorem taxes of the City pledged to their payment in the Ordinance (subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws in effect from time to time relating to or affecting the enforcement of rights of creditors of political subdivisions) and that, subject to certain restrictions, interest on the Certificates is excludable from the gross income of the owners thereof for federal income tax purposes under then existing law; provided that, after the closing, we do not undertake, unless specifically engaged by you to do so an Additional Service described below, to provide continuing advice concerning any actions necessary to assure that interest paid on the Certificates will continue to be excludable from gross income for federal income tax purposes; and (7) Prior to and in connection with the closing of the Certificates, giving advice to the City to enable appropriate officials to comply with the arbitrage requirements of the Internal Revenue Code of 1986 as they affect the Certificates, including_yield restrictions and rebate requirements. In addition to the foregoing Basic Services, as Bond Counsel, we are prepared to undertake the following Additional Services, as directed by appropriate City officials; (1) Disclosure work or similar services (other than the limited review of certain sections of the offering documents for the Certificates as described in paragraph (3) under Basic Services above) to assist the City or its financial advisor in the preparation of such offering documents, on such basis and to such extent as shall be directed by the appropriate City officials and staff; (2) Attendance at rating agency presentations, investor meetings or other presentations relating to the marketing of the Certificates and consultation with City officials, staff and advisors to develop such presentations; (3) Preparation of "Blue Sky" surveys or securities registration services; (4) Any other special services not ordinarily required in connection with the issuance of obligations of the nature of the Certificates, including services rendered in connection with special federal income tax issues, unusual issues arising in connection with the City's financial City of Pearland, Texas January 27, 1997 Page 3 reports or audits, any documentation or related services for credit or liquidity facilities or enhancements or other special structuring techniques or devices to be employed in connection with the issuance of the Certificates; and (5) After the closing of the Certificates, providing assistance to the City concerning questions and issues that may arise prior to the maturity of the Certificates. For the Basic Services performed for the Certificates, MDC&K will be paid a fee of $8,000. Such fee shall be paid from the proceeds of the sale of the Certificates or from other funds, as the City deems appropriate. Except as otherwise provided below, payment of the fee shall be made after the issuance and delivery of the Certificates and within thirty (30) days after receipt by the City of an approved invoice therefor. The fee for any Additional Services provided by MDC&K will be determined on an hourly rate basis, using .rates customarily charged by MDC&K to other clients for the same or similar services and taking into consideration the time consumed in providing the services, the level of expertise and ability of the attorneys performing the services and the difficulty and complexity of the tasks involved. The total fee for Additional Services prior to and in connection with the closing of the Certificates (other than fees for special services as described in paragraph (4) above under Additional Services) will not exceed such amount as is agreed to in writing by the City. MDC&K will be reimbursed for its reasonable and actual out-of-pocket expenses, such as the cost of reproduction of documents, out-of-town travel, long-distance telephone, telecopy and similar expenses, deliveries, filing fees and all items paid for by MDC&K on behalf of the City, incurred in connection withthe performance of any services hereunder. All of such expenses will be reasonable. Nothing herein shall be construed as creating any. personal liability on the part of any officer of the City, and this agreement may be terminated by the City by giving 30 days' written notice. i City of Pearland, Texas January 27, 1997 Page 4 If this proposed agreement for the services of MDC&K as Bond Counsel is satisfactory, please evidence your acceptance and approval by executing three copies in the space provided below. APPROVED: Mayor, City of Pearland ATTEST: City Secrecy, City of P 0360327.01 019724/1035 Very truly yours, Rick A. Witte L CERTIFICATE OF, NEWSPAPER PUBLISHER THE STATE OF TEXAS § COUNTIES OF BAZORIA AND HARRIS § Before me, the undersigned authority, on this day personally appeared Joan Cummings, who being by me duly sworn, deposes and says that she is the Publisfier of the Pearland Reporter News and that said newspaper (i) devotes not less than 25 % of its total column lineage to general interest items, (li) is published at least once each week, (iii) is entered as second-class postal matter in Brazoria and Harris Counties, and (iv) was published regularly and continuously for at least 12 months before February 5, 1997, and February 12, 1997, the dates on which the City of Pearland published the attached notice in said newspaper. Public r/Editor SUBSCRIBED AND SWORN TO before me the 2 day of 1997. 0373395.01 039720/1603 Notary ,'_�� • �f s eXaS °J'p AURA A i ®!NS :4s •�;..6.11 NOTARY POB� • STATE oFTE s a i s 4JI . COPJiMISS 1 EX ES My co fsi expire991 %•ormal dining. 1 in den. Large Breakfast bar. .ah. Mid $140's leaky, Inc. 485- • 12-Story, 3 bed- thI Excellent con- - ' die, updated Ize yard with to with cover. s priced to eel at :all Maggie at RE/MAX 'ore Information. .Se382278. Hurry rMin r on 8 acres. s in den overtook back. Updated tr, both tombs. 101 Call Debby ,R;lax Pearland; , HOME on,1/2 ute; Irom 288. ' _ j wooded ooun- rred al I$51,000. Worrel at 583- ,t. CUSTOM• ry home with 4 br, den with 11re- 1 dining on .82 1 d. Alvin area. •Item 100,000. to Monis Wisest, '485-291. bedroom; lA hardeogd r:•. traitrooIrri' F undererfl your 9894113800 OOU PP OJI toINS the Act 0f Illegpal' retire diicrkti feria, nal Iloniti 4raf101, chi knoid Thltt° Ware envy, gourmet !Malan, huge formal dining. Master bedroom down wleludy. Hot tub on master. Qsmeroom up. Studio apt. over garage wlkltchen. Pet GO Realty, Inc. 485.8375. GREEN temporary 4.2 1/2.2AtL Foetal dining. Rod' 3 yrs. rid, vim bar. Goff course view. 0n, year home warranty. antes drive. Cell for appt. Pal mot Realty. loc. 4858376. home lots for/of $36,000 e e60x13a, • Inr, Pa. Griffin Reeky, •. 4554376. them grand Ib9241g game. Priced Prices for 713901- 'rk or se : a 4Cal Wm Pin' wlh mac. story Bander shed. , wood and • 7 or or M '1t01 ATTN: DELORIS MCKENZIE, CITY SECRETARY, WILL BE RECEIVED AT . FRIENDSWOOD CITY HAU.. 910 . S. FRIENDSWOOD DRIVE. FRIENDSW00D, TEXAS. UNTIL 2:00 P.M.. TUESDAY, MARCH 4, 1997 AND AT THAT TIME. PUB. LICLY OPENED AND READ FOR THE FOLLOWING: SALE OF SURPLUS EQUIP- MENT BIDS SHALL BE SUBMITTED IN SEALED ENVELOPES CLEARLY MARKED WITH BID NO.97.2. THE CITY OF , FRIENDSMOD RESERVER THE RIGHT TO REJECT ANY AND ALL BIDS AND TO WAIVE ANY INFORMALITY IN BIDS RECEIVED. PHOTOGRAPHS OF VEHI- CLES AND BIDDING DOCU- MENTS ARE AVAILABLE FOR INSPECTION DURING REGULAR BUSINESS HOURS AT: CITY SECRETARY'S OFFICE (281) 9903270. CITY OF FRIENDSWOOD 910 S. FRIENDSWOOD DRIVE FRIENDSW00D, TEXAS 77548 A. VEHICLES MAY BE VIEWED AT PUBLIC WORKS, 1308 DEEPWOOD BETWEEN THE HOURS 0 9:00 AM - 4:00 PM, MON. DAY-FRIDAY. B. BICYCLES MAY BE VIEWED AT THE POLICE DEPARTMENT, 109 E. WIL• LOWICK BETWEEN THE HOURS OF 9;00 AM • 4:00 PM, MONDAY•FRIDAY. C. RADIO AND MISCELLA- N E 0 U S EOUIPMENT/OFFICE FUR- NITURE BY APPOINTMENT BETWEEN THE HOURS OF 7:30 AM - 4:30 PM. MON- DAY-FRIDAY. "VIEWING DATES: FEBRU- ARY 6, 1997 - MARCH 4, 1997. "THE PERSON TO CON- TACT FOR ADDITIONAL INFORMATION: CAPTAIN L.D. LOESER- (281) 996• 3370. DELORIS MCKENZIE, TRMC CITY SECRETARY CITY OF FRIENDSWOOD developed or the proceeds of such sales and use lex era used to pay principal of and Interest on bonds Issued by the Corporation for such Project, than the City w1A not develop the Pro)eot or use the proceeds W the sales and use tax to pay bonds issued there- fore Unless end untl approved el an election called and hold by the City for ouch purposes. Patine ns may be submitted to the City Secretary, City of Pearland, 3619 Liberty Drive, Peartand, Texas 77681. h/Werdy Mended Intadm Gty Secretary City of Pentland OTICE IS HEREBY GIVEN t the City Councll of the Iy of Pearland, Texas (the .• ivy) wit meet at its *eclat ;meeting place at City Hall, ';fesrland, Texas el 7;30 p.m. ppn the 3rd day of March, it097, which is the time and ace tentativety set for the siege of an ordinance and `uctt other erdlon es may be deemed necessary to autho- e the Issuance of the Chyle rllllcatea of obligation, yebte from ad valorem fax - lion and a subordlnate of certain revenues of he City's water and sewer oyster. In the maximum. ggregate primal amount of ,250,000, bearing Interest any rote or rates, not to the maximum interest to now or hereafter 90o ..rRed by law, as shall be 1 • determined within the discre- '1bp of the City Council at the i Imo of Issuance end maturing 1 Over a period of years not to exceed lorry (40) years from !ha date thereof, for the pur- e p nt of evidencing the lode* jdnsss of the City to be 'incurred (1) for land acquisi- tion, replacement, remove - ;lions, Improvements, materi- els. supplies, equipment and ' achinsry for certain CIIy Inge end tac211lee Includ- ing but not reined to the City, central pubfic library located ®I 3523 Liberty Drive, Pearland, Texas 77581, the " Public Safety Buiding and she :located at 2703 Veterans '•Drive. Pearland, Texas 77681 and•Iridependence Park located at the Intersec- tion of John Llzer Road and Q-Nr -mime NOTICE OF APPLICATION FOR WASTE DISCHARGE PERMIT AMENDMENT CITY OF PEARLAND, 3510 Liberty Drive, Peadond, Texas 77681 has applied to. the Texas Natural Resource Conservation Commission (Commission) for an amend- mem to Permit No. 10134-02 to Incorporate the Interim phase of 3,100,000 gallons per day In the existing permit. The current pern* authorizes e discharge of treated domes- flc wastewater effluent at an Interim volume not to exceed en average NOW of 2,250,000 gallons per day and a final volume not to exceed an average flow of 4,500,000 Woos per day. The eppllcant le also requesting a variance to the buffer zone require. merits In accordance with 30 TAC Section 309.13 (a)(1)(B). The wastewater treatment facilities are at 1092 112 Batty Rose Street, Immediately west of Clear Greek and approximately 7,000 loot north of Frarmto-Matlet Road 518 In Brazorle County, Texas. The treated effluent Is discharged into Clear Creek Above Tidal in Segment No. 1102 of the San Jaclnto- Brazos Coastal Basin. The designated uses for Segment No. 1102 are contact recre- ation and high aquatic Ale uses. No slgnlfleant degrada- tion of high quay receiving waters is ariticIpated. The Executive Director the TNRCC has prepareda daft permit which, 11 approved, would establish the pararne- ers and limitations within which the facility must oper- to. wun.Jee` `feWaatt�ures of a n'ti i� I �..,. .,. light off -road vel IRA,, and the murk ha 'new concept' sport ditty vethlde. The RAV4 was a big hit when first released In Jepen during the 1094 model year, and an even bigger hit when released in the United States early lest year. Aside from Its good looks, many Americans are asking what RAV4 means: Thalia Recreational Active Vehicle with 4WD to be exact, and It's unique since it's a tour -wheal drive with a tour cylinder engine. ,And speaking of four cylin ders, We one meets the stan- dards when othem have fated the test it's a 'punchy 2.0- Otter, 16-valve that performs `similar to sporty coupes end :salami: It's also fuel efficient. RAV4': size, lour -wheel drive and wide stance account for great maneuverability both on and off the road, end during any driving condition. The RAV4 la also designed with safety equipment alowing h to be classified as a passenger Car rather than a hick. Reeking Toyota had a hit on Its hands, only ninor modllica- tione accompany this 1997 model. Limited changes Include revised seat fabric (two -door models), an optionel power moonroof (four -door models) and a standard digital dock and larger front speak. era on power -window oqu-pad models. AJ models feature pit foldlg and reclining rear seats that enhance carrying capacity, Standard Interior features Include cup holder", tachome- ter, trtpo netor and intermIflenl owtDers. The Executive Director win Issue the permit unless a writ- ten request Is fled within 30 days eher newspaper pub4ca- eon of this notice. To request a hearing, you must submit the folfowing: (1) your name (or fora group or association, 1 an official representstive), mailing address, daytime phone number, and fax num- ber, II any; (2) the name of the applicant and the permit number; (3) the statement. 'Uwe request a public hear- ing,.' (4) a brief deecdptlon d how you would be adversely affected by the granting of the r There's no doubt that the RAV4 has provided Toyota w*h an attractive entry Into the already -crowded sport utility market. It seems there's always room for one more quakty Product. EQUAL. HOUSING OPPORTUNITY' MAR 11 '97 16:46 PAGE.03 EIRLAND 7 W. Broadway, tuts Pearls'!, Texas. 85-32O luetosmocielstimomr c 'iffin REALTY, Inc. Profeesieoel Real 'stets Services Janet Huber 83344632 (Pgr) Ma9gie McFarland 617-1123 (P94 teg Reduesdtl6stready br iwronsr or Country Place -Lovely retirement community) 'h thh hsstod pool and spa.Tred. idr Traditional 2-2.2Att. Recently redluedl Stone iag wee. L'I 0bdahed nMahbod ood. door on Front. Controlled access. Now root In w to Ssltely and M. Low POI. '03. Dishwasher In'as. $74,900. arbor-Lherpool-Great Vocation or hone on Cheoelsle Sayou osnML 'drill 1 bath on stets. Stoops end Ma- `ouse. Dock wiper. Ahln schools. Oren Tes-DraN 0M1y reduosdlt Don't Wu that French 4-3.2bo1, on wooded ovomited Iol. Master a 1 ester bdrm down formal dining. Wit bar. Enclosed sun room overlooks beeulltul pool a aps. Lots el ehdres1 t1 a9,000. •Y HEIOHiT$- ALVW ring. Trail. 34.3Dot. sq. it on 1,748 replace In den. !modeled. Barn. v/stet. & • water. d cross tented. 99.500 Pat el(an.. 1858375. 'E III Lovely Pores WOODCREEK• Fnpllsh - 2DaL Formal fireplace ion den. InsI6e Way. Weeper, dryer, bilge and satellite dish NOTICE TO BIDDERS remain. Make an .ollerl CITY OF FRIENDSWOOD. Established neighborhood. (TEXAS Pat Griffin Reeky. Inc. 4140,NO.37.2 8375. iiHEEN T'E Beautiful" SEALED BID'S IN DUPLI- Colonlel Mete on 1 112 LATE ADDRESSED TO THE wooded golf course lots. CITY OF FRIENDOw000. EPETTIEEM REAL ESTATE Marjorie Planks 716.6090 (Pgr) Cindy Cristlena 901-669I (Pgr) oh la TO AU. INTERESTED PER- SONS AND PARTIES Notice is hereby given that the Board of Directors'ol the Pearland Economic Dewelcpmenl Corporation (the 'Corporation, proposes to do the following: 1) Undertake a project In the City of Peadend, Texas (the 'City') to extend McHard Road from Stale Highway 35 (Main Street) to Mykawa Road via a new road and bridge over the existing rail- road (t(te'Pro)ect'); end 2)uso a portion of the pro- ceeds from the levy of the one -halt of one percent ales and see lax. approved by the voters of the City on January 21.1995, for the benefit of the Corporation to pay the costs o1 the Project, both es autho- rized under article 6100.6, Section 4B (a-1), Texas Revived CIvII Statutes, se amended. If, within 80 days after the publication of Ice notice, the City recelvee is petition from more than 10% of the regis- tered voters of the City requesting that an election be h.ld .b.lere the Prolool is 'LECALS ' ',bony Drive, Peatend, Texas 77581, (2) for certain street projects boated in the City Including but not limited to: the acquisition of right-of-way .and construction of a street (inducing drainage and bridge work) from Broadway (FM 618) to Hughes Road In Sagemont; acquisition of right-of-way and construction 01, a street (Including drainage) from Barry Rose gad to Plum Street; renova- tions end Improvements to Irst Street (Including ppage) from Main (SH 35) e railroad; Improvements irst Street (Including d Inage end bridge work). m Marys Creek to Oiler Ive; renovations and I(pprovements to Magnolia. grave (inducing drainage and Widge work); scquisltion of rrht-of-way and construction 4f pedestrian hike & bikeways uding drainage) at various locations In the City, (9) for ltte acquisition. construction, fritprovemenl, repair, mated- �, supplies, equdpment.and reechinery for certain drainage facilities located In If* CO kldudlng but not limk- pbdlo: Hood control improve - Is wtih n and In the vkk►I- of the Shadycreat, 4 view, Sunset Meadows. ir th Corrigan, North Otrigen, Willowcresl and n Tee Terrace subddvl- aubdMsbn; expansion of `fountry Club Drive at • Creek bridge (including i .at renovations and I vemente); storm water d Lion at the David L, Project on Clear Creek, is the Southwest nvironmentel Center on !ye Creek end ale future 0 on Hickory Slough; and Yonnulstion of a jurtedlctlon- rlde storm water drainage n and analysis bra storm ter utility, and (4) for pro - services. ITNESS MY HAND AND HE OFFICIAL SEAL OF THE CITY. thle 27th day of .hrey,1997, //Wendy Standoff . Interim Cory Secretary of Peanend, Texas LEGALS application In a way not com- mon to the general pubic; (5) the location of your property relative to the applicant's operations;; and (6) your pro- posed adjustments to the applIcaIIon/permit which would satisfy your concerns and cause you 10 withdrew your request for hearing, If a hearing request is rod, the Executive Director watt not issue the permit and will for- ward the applicetlon and hearing request to the TNRCC Commissioners for their consideration al a scheduled Commission meet- ing. II a hearing Is held, k wig be a legal proceeding similar to civil trials In stele district court. Requests for hearing on this application must to submitted In writing during the 30-day notice period 10 the Chief Clerk's Office, MC 105, TNRCC, P.O. box 13087, Austin, TX 78711.3087, Wrkten pubic comments may also be submitted to the Chief Clerk's Office during the notice pelted. For intonation concerning technical aspects of the pen*, contact Zdenek Mali, MC 141. the same address. For information con- cerning hearing procedures or citizen panlclpatbn, contact Bias J. Coy, Jr., MC 103. Ina same address. Individual members o1 the public who wish to Inquire about other agency pearl applications or penNNng processes, should call the TNRCC Office of Public Anlstance, Toil Free, et 1.800-887.4040. Issued this 281h day of January, 1097. /s/Mamie M. Black, Acting Chief Clerk Texas Natural Resource Conservation Commission 10 oyota '7 4: Big Fun, Small Package 'Roy Waldrop cloth's RAV4 combines nal oesseneer-car ole MAR 11 '97 16:47 PAGE.04 Available at i 0 Of thve erates GMAC plug WOast Banks In Houston 8poc at Help FJnanc/np, too --"IrOF DOLLAR FOR YOUR ADIN Wedel quail L vrolsEcom? 51oe 5719 Broadway Pearland E OF SURPWS EQUIP- 41' SHALL BE SUBMITTED SEALED ENVELOPES %ARLY MARKED WITH NO. 97-2. THE CITY OF ENDSWDOD RESERVES E RIGHT TO REJECT AND ALL BIDS AND TO fvE ANY INFORMALITY 3IDS RECEIVED. OTOGRAPHB OF VEHI- - _S AND BIDDING DCCU- NTS ARE AVAILABLE R INSPECTION DURING GULAR BUSINESS ,URS AT: TY SECRETARY'S 'FICE (281) 9963270 STY OF FRIENDSWOOD 10 S. FRIENDSWOOD :RIVE AIEND8W00D, TEXAS /548 %. 'VEHICLES MAY BE BETWEEN NE HOURS OF 9:00 AM - 4:00 PM, MON- DAY-FRIDAY. B. BICYCLES MAY B VIEWED AT THE POLIC8 DEPARTMENT, 109 E WI LOWICK BETWEEN T HOURS OF 9:00 AM - 4 r: OBI •••n P(AFW{NO•T/MAS IS HEREBY ONEN the City Council of the 01 Peedand, Tea (the all rneet u1 le special eating place et City Hall, earland, Texas al 7:30 p.m. bn the 3rd day of March, 1997, which Is the time and place tentatively set for the PM, MONDAY-FRIDAY. "' poaeage of en ok4nanoe end f such other action as may be C. RADIO AND MISCELLA•; deemed neroasary to autho- N E 0 U 8, die the Wum) of the Chyle EQUIPMENT/OFFICE FUR•; cortlllcetes of obligation, NiTURE BY APPOINTMENT{ (dyable Iron ad velum tax - BETWEEN THE HOURS OFy etlen and a subordinate 7:90 AM • 4:30 PM, MON- DAY-FRIDAY. H < 0..,, "VIEWING DATES: FEB ARY_8, 1997 • MARCH 1997. "THE PERSON TO CO -. TACT FOR ADDITIONA - INFORMATION:.CAPTAI L.O. LOESER- (281) 998- 3370. 1. • DELORIS MCKENZIE, TRIAD CiTY • RETARY 1EWED AT PUBLIC • nufsemsgmu ,.-'.. ,�-,—"••...•,`- YORKB. 1308 DEEPWOOD pledge of Main revenues of the City's water end sewer system, In the maximum ego plindpal amount of 250,000, bearing Internet any rate or rates, not to the ma,dmum interest to now at hereafter 'Who.' ed,by law, as shall be ermined MINI the amp_ of the City Cando at M of issuance and melding, r a period o1 years not tot ad lorly (40) years from date thereof, for the pur- of evidencing the indebi 0. dness of the City to nod (1) for land aoquish• Rion, replacement, renovpy! . Sena, improvements, mate,'• 4ale, supply., equipmem sue' '� machinery for certain Cite. •Fr 40.11,14 :. fwE DO Call for Details 997-5100 ' Ask for Mike Onader • Custom Painting • Running Boards • Spotters • Wood Grain • Wheel Flake • Runs • Consoles .i". s� - C=�LEGALS -, and Iodides WI rafted to the tral pubic library Iota 3523� ' Llb0rly.; Drive ft®nd,xrrs 7758t tit. is Sal Bu9dup end led al 2709 Veleta ve, Psarland, Tex 81 and Independen located at the inlets of John llzer Road Drive, Portend, T 1, (2) for certain at s toteted in the ding but not limited acqukldon of rlghtol. construction of a IV drainage and ) from Broadway ( ) to Hughes Road gement; acquisition •,p,,. ��� a . Mteet (inciutll :; s adage) from Be ' Ro );.` kitligm Street ne Ind Improvamenta Iret es( Ipclud FA41 (SH • t.. ^ LEG.ALS I 9te'm First. Street (Motu g ralnags and bridge w' tom Mary'a Creek to Direr. rive; renovations +ret provements to Magn.,I Onduding ge *al b light-0 way end d pedesiden hire ft btkew ya dntnage) el vs bone in the City, (3) for acquisition, oonatructlon, rovsmeM. repair, mated- , wppAee, ailment and uCIlinetyl:. ' for certain 9 6 facelt$ee located In ''Cayr Including but not irrdt to: hood control kriprove- S within and te the vicini- y of the Shadycrest, Parkvlew, Sunset Meadows, South Corrigan. North Corrigan, Wlllowcreat and Green Tee Terrace subdlvl- rdon subdivision; expansion of the Country Club Drive at Our Creak bridge (Including Street renovations and Improvements); dorm water detention at the David L. Smith Pro)ect on Clear Creek, at the Southwest Environmental Center on Mays Creek and al a future site on Hickory Slough; and formulation of a Jurisdiction• wide storm water drainage plait and analysis for a dorm water utility, ind (4) for pro- fessional whims. WITNESS MY HAND AND THE OFFICIAL SEAL OF THE CITY, this 27th day of January, 1997. falWendy Standoff Interim Clty Secretary by Roy Waldrop Subarir'i Import( Outbec Sport acts It twist b rite day market—k'a a spot( wagon and is *deg drib continue to compile racer sales. The sport utility wagon nth has emerged es a viable alter nallve for customers who wan ub'Iky.rype vehicles to their weekend afdivfiea, with out gig up the contort an safely they demand from pas senor cars. The Outbec Spoil perllculsrty appeals 1 the younger buyer who sail ian't cure II a truck is who they want. or need. This vehicle's aggressive begins with a functional scoop and vents. The white lettered 1S Inch al-ssaao tires and mised amen* ensure that the Outback ca do what it boles to promise Add other standard egupmen and Outback has ay. the sale features most boyars want The heart, of the Outlaw Sport Is a 2.2-Iter "boxe engine which is also the loon dation d the SubiN AN-Whee Driving System. To make sur the power Is delivered to the road In aW condtdons, Saba uses a tong4voko tour-aMee Independent MacPherson' strut suspension system *act is proven during the toughs• form of production -baud en racing —The World Rain Champlonehto. All cars eventually need. U stop. And lour•chennel anti lodr brakes (standard equip mere) makes sine thou stop are predictable end eomloeer Centered with al -wheel drW ABS guarantees the driver e the bast hectare whetter a1or ping,or going, Mile pievid n a smooth, comfortable ar safe ddvi g evidence. The Impnxa Outback Spon cold alongside the remand of the Imprexe lineup. It cc be found along with he b brother. the Legacy 0utbac and the award-*ren0 SVX over 880 Subaru deals nadonwlde. MAR 11 '97 16:49 PAGE.06 CITY OF PEARLAND OFFICE OF THE CITY SECRETARY 3519 LIBERTY DR., PEARLAND, TX 77581-5416 (281) 485-2411, EXT. 341 FAX (281) 485-1106 FAX TRANSMITTAL COVER SHEET TO: —PkCUt—L/ttGL�,�i FROM: DATE: 13 -9'i NO. OF PAGES: c79- INCLUDING THIS COVER PAGE. SUBJECT: .49I.QQL� P(,(,P2QtDGt 4Q, COA-0601Ak� yIQ�LCQ_, natiat ath�yf�eo VildP (114.‘ 1/1_ rrh J-tbri1 5, /947 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 special meeting place at City Hall, Pearland, Texas at 7:30 p.m. on the 3rd day of March, 1997, 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 subordinate pledge of certain revenues of the City's water and sewer system, in the maximum aggregate principal amount of $6,250,000, bearing interest at any rate or rates, not to exceed the maximum interest raterate 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 be incurred (1) for land acquisition, replacement, renovations, improvements,materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearland, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and Independence Park located at the intersection of John Lizer Road and Liberty Drive, Pearland, Texas 77581, (2) for certain street projects located in the City including but not limited to: the acquisition of right-of-way and construction of a street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemont; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including drainage) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage.and bridge work); acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City; (3) for the .acquisition, construction, improvement, repair, materials, supplies, equipment and machinery for certain drainage facilities located in the City including but not limited to: flood control improvements within and in the vicinity of the Shadycrest, Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willowcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clear Creek bridge (including street renovations and improvements); storm water detention at the David L. Smith Project on Clear Creek, at the Southwest Environmental Center on Mary's Creek and at a future site on Hickory Slough; and formulation of a jurisdiction -wide storm water drainage plan and analysis for a storm water utility, and (4) for professional services. WITNESS MY HAND AND THE OFFICIAL SEAL OF THE CITY, this 27th day of January, 1997. . /e`/ni City Secre City of PeaJnd, Texas (SEAL) 7, 0360332.01-019724/1022 ID: FEB 03'97 10:30 TRANSMIT CONFIRMATION REPORT NO. 002 RECEIVER REPORTER TRANSMITTER• DATE FEB 03'97 10:30 DURATION 01'16 MODE STD PAGES 02 RESULT ): OK AIBIA MBIA Insurance Corporation - 113 King Street Armonk, NY 10504 914 273 4545 VIA COURIER March 5, 1997 Joyce Holder Rauscher Pierce Refsnes, Inc. 2711 N.-Haskell Ave., Suite 2400 Dallas, TX 75204 RE: $6,250,000 City of Pearland, Texas (A political subdivision of the State of Texas located within Brazoria and Harris Counties), Certificates of Obligation, Series 1997 Dear Ms. Holder:. Enclosed please find the following documents for the referenced issue: 1. Two Commitments, each of which should be executed and one original returned to our offices in the enclosed self-addressed stamped . envelope. The second Commitment should be retained for your files; 2. Disclosure language and a form of the Financial Guaranty Insurance Policy (the "Policy") for inclusion in the Official Statement; and 3. A form of our Statement of Insurance for printing on the Obligations. In addition, under no circumstances should any changes be made to items 2 and 3, nor should any other versions of these materials be used on any financing unless you have direct confirmation from MBIA as to the acceptability of such changes. •Confirmation regarding items ,2 and 3 may come only from our Documentation and Closing Department or our Legal Department and may be written or verbal. Since the responsibility for this information remains with us, please send us drafts prior to the printing of any of these documents for our approval. The premium in the amount of $13,5010 should be wired to our account number 910-2-721728 with The Chase Manhattan Bank, N.A. on the day of closing. The Bank's number is ABA# 021000021. Moody's Investors Service rating agency fees will be billed directly by Moody's Investors Service, in an amount based on the final par and other' factors as determined by Moody's Investors Service. Standard & Poor's Ratings Group rating agency fees will be billed directly by Standard & Poor's Ratings Group, in an amount based on the final par and other factors as determined by Standard & Poor's Ratings Group. At your request, Fitch Investors Service will also provide a AAA rating letter. If such rating letter is requested, Fitch Investors Service will bill directly, in an amount based on the final par and others factors as determined by Fitch Investors Service. MQIA March 5, 1997 ' Joyce Holder Rauscher Pierce Refsnes, Inc. Page Two Thank you for sending a copy of the final debt service schedule for this issue. We would also appreciate receiving three copies of the final official statement and three executed unbound copies of the closing transcripts within 60 days of the closing. Thank you for your cooperation 'concerning these matters. If you have any questions, please contact our offices: Sinc re y, _ avid J. Rey Associate Documentation and Closing Department Fax Number: '914 765-3161 or 3162 Direct Dial: 914 765-3947 Enclosures 1 AIBIA 'COMMITMENT TO ISSUE A FINANCIAL GUARANTY INSURANCE POLICY Application No.: 1997-000976-01 Sale Date: March 3, 1997 Program Type: Competitive OBP Re: $6,250,000 City of Pearland, Texas (A political subdivision of the State of Texas located within Brazoria and Harris Counties), Certificates of Obligation; Series L997 (the "Obligations") This commitment to issue a financial guaranty insurance policy (the "Commitment") dated) March 5, 1997, constitutes an agreement between RAUSCHER PIERCE' REFSNES, INC. the ("Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York. Based on an approved application dated February 28, 1997, the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a fmancial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions: 1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of $13,500. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment. 2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations. 3. There shall have been no material adverse change in the Obligations or the Resolution, Bond Ordinance, Trust Indenture or other official document authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein. 4. There shall have been no material adverse change in any information submitted to the Insurer as a part of the application or subsequently submitted to be a part of the application to the Insurer. 5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing. l MA 6 A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations. 7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or' fail to state a material fact required to -be stated therein or necessary in order to make the statements contained therein not misleading. 8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations. 9. This Commitment may be signed in counterpart by the parties hereto. Dated this 5th day of March, 1997. MBIA Insurance Corporation By Assistant Secretary RAUSCHER PIERCE REFSNES, INC. By: -- Title: luotuo2treue uoipaicud'bumps raw 10 ping Am merit aouenmu! ne k1 papaiaad ion s< Japlogaie iiao Jo saplogiconod atp `o,latmoo.p aotrapcna 10 aiex3rirao 10 nocintdde 10 peiiuob 10 L gods sit i super►-UOTI qqo len iiiioo st! 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'agod spnnul atp jo uawaads e JO3 — x!puaddy 01 apew st oonara.Pra inowaRIS Ierr!$O silt) to asn 103 (Ants% nit) uotiero40 aouenmul VI dq pag5fi1113 uaag set unneti 03ui 2u!nwpo3 aILL AOrnOd aprzvu 1SN1 AIOLLVUi nI00 331•ItiRif1SAII VON ALL .(„ ao>ramPici., Ji Al B LA FINANCIAL GUARANTY INSURANCE POLICY. MBIA Insurance Corporation Armonk, New York I0504 Policy No. [NUMBER] MBIA Insurance Corporation (the "insurer"), in consideration of the payment of the premium and subject to the terms' of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/IRUSTEE] or its successor (the "Paying Agent") of An amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory s'uhking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or arrpleration resulting from defauh or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment,' the payments guaranteed hereby shalfbe made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "insured Amounts." "Obligations" shall mean: [PAR] . - [LEGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make'a deposit of funds, in an account with State Street Bank and Trust Company, NA, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate 6utruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and.Trust Company, NA, State Street Bank and Trust Company, NA. shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation: As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any'party whose agreement with the issuer constitutes the underlying security for the Obligations. Any service of prorecs on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. 1 IN WITNESS WHEREOF. the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR]. COUNTERSIGNED: ' MBIA Insurance Corporation Resident Licensed Agent Attest: Pre pz.e.y EN City, State Assistant Secretary r DISCLOSURE OF GUARANTY FUND NONPAR'iICIPATION: In the e%em the Insurer > o,t.thlc to u;t; i its contractual obligation under this policy or contract or application or certificate or,evidcncc of coverage. the policyholder or ccrtiticateholder is n•'t protected h an insurance guaranty fund or other sol'.encprotection arrangement STDRCS)T N1' 4.95 • STATEMENT,OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions; such policy being on file at JINSERT NAME OF TRUSTEE OR PAYING AGENT.JNCLUDING CITY. STATEI. I The Insurer, in consideration of the payment of the, premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [INSERT NAME OF TRUSTEE OR PAYING AGENT) or its successor (the "Paying Agent") of an amount equal to (i) the principal of ,(either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due dateof such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuantto a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner withinAthe meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: [INSERT LEGAL TITLE OFBONDS. CENTERED AS FOLLOWS:l [s PAR AMOUNTI l [ISSUER] [DESCRIPTION OF BONDS] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writings by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such, nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company; N.A., in New _ York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such -other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for, such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instrumentsbeing in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy -is non -.cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. DISCLOSURE OF GUARANTY FUND NONPA.TICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, , the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. MBIA Insurance Corporation STD-R-TX- 1 OFFICIAL BID FORM Mayor and City Council City of Pearland 3519 Liberty Drive Pearland, Texas 77581 Ladies and Gentlemen: March 3, 1997 Subject to the terms of your Official Notice of Sale and Official Statement, dated February 17, 1997, which are incorporated herein by reference, we hereby submit the following bid for $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, dated April 1, 1997. This offer is being made for all of the 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 their date to the date of delivery to us, plus a cash premium of $ —0 - for Certificates of Obligation maturing and bearing interest per annum as follows: Maturity Date principal Amount Interest Rate March 1, 1999 _ $ 100,000 ' 7. 2 S % March 1, 2000 100,000 7.2 S ,% March 1, 2001 100,000 ". 21". ,% March 1, 2002 100,000 7. 2f % March 1, 2003 100,000 7.2.' % /March 1, 2004 100,000 7.24"" % March 1, 2005 100,000 T. 24' % • March 1, 2006 100,000 ?. i r % March 1, 2007 110,000, 7 • N % March 1, 2008 120,000 G • -% March 1, 2009 120,000 1 : Lf % March 1, 2010 400,000 ,r: 2.& % March 1, 2011 460,000 S z r % March 1, 2012 520,000 3o % March 1, 2013 580,000 S. 3.1.- % March 1, 2014 ' 650,000 d-. vo % March 1, 2015 1,210,000 .5- 'lT % March 1, 2016 1,280,000 S, . CO % Interest cost, in accordance with the above bid, is: Gross Interest Cost Less: Premium NET INTEREST COST • EFFECTIVE INTEREST RATE $ ' $ _c $ v-• /? 2 , �3s' The Initial Certificates shall be registered in the name of Rauscher Pierce Refsnes, Inc. (syndicate manager). We will advise Texas Commerce Bank National Association, Houston, Texas the Paying Agent/Registrar, on forms to be provided by the Paying Agent/Registrar of our registration instructions at least five business days prior, to the date set for Initial Delivery. i Frost Austin Cashier's Check of -the • Bank, , Texas, in the amount of $125,000, 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." Upon delivery of the Certificates, said check µill be returned to the Purchaser Of the Certificates on the date of delivery of the Certificates. We agree to accept delivery of and make payment for the Initial Certificates in immediately available funds at the Corporate Trust Office of Texas Commerce Bank National Association, Houston, Texas not later than 10:00 A.M., on April 3, 1997, or thereafter on the date the Certificates are tendered for delivery,, pursuant to the terms set forth in the Official Notice of Sale. 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. Respectfully submitted, RAUSCHER PIERCE REFSNES, INC. LEGG MASON WOOD WALKER, INC. PAINEWEBBER INC. SMITH BARNEY, INC. By Authorized Representative ACCEPTED this 3rd day of March, 1997, by the City Council, City of Pearland, Tex Return of Good Faith Check is hereby acknowledged: Firm: By: (For your information you will find attached a list of the group of underwriters associated with us in this proposal) L H Issue Dates 4/01/97 CITY OF PEARLAND Seri.. 1997 Tax Bonds Rau.cher Pierce Refines Inc. Delivery Dates 4/03/97 DATES (Term) 3/01/98 9/01/98 3/01/99 9/01/99 3/01/00 9/01/00 3/01/01 9/01/01 3/01/02' 9/01/02 3/01/03 • 9/01/03 3/01/04 9/01/04, 3/01/05 9/01/05 3/01/06 9/01/06 3/01/07 9/01/07 3/01/08 9/01/08 3/01/09 9/01/09 3/01/10 9/01/10 3/01/11 9/01/11 3/01/12 9/01/12 3/01/13 9/01/13 3/01/14 9/01/14 3/01/15 9/01/15 3/01/16 Accrued Interest Totals MATURING COUPON INTEREST _ TOTAL FISCAL YEAR AMOUNT PROCEEDS RATE YIELD PRICE AMOUNT DEBT SERVICE DEBT SERVICE 100,000.00 100.000.00 100,000.00 100,000.00 100,000.00 100,000.00' 100,000.00 100,000.00 110,000.00 120,000.00 120,000.00 400,000.00 460,000.00 520.000.00 580,000.00 650,000.00 1,210,000.00. 1,280,000.00 325.655.00 177,630.00 100,000.00 7.250 7.250000 100.000000 177,630.00 174,005.00 100,000.00 7.250 7.250000 100.000000 174,005.00 170,380.00 100,000.00 7.250 7.250000 100.000000 170,380.00 166,755.00 100,000.00 7.250 7.250000 100.000000 166,755.00 163,130.00 100,000.00 7.250 7.250000 100.000000 163,130..00 159,505.00 100,000.00 7.250 7.250000 100.000000 159,505.00 155,880.00 100,000.00 7.250 7.250000 100.000000 155,880.00 152,255.00 100,000.00 7.250 7.250000 100.000000 152,255.00 148,630.00 110,000.00 7.250 7.250000 100.000000 148,630.00 144,642.50 120,000.00 6.500 6.500000 100.000000 144,642.50 140,742.50 120,000.00 5.250 5.250000 100.000000 140,742.50 137,592.50 400,000.00 5.250 5.250000 100.000000, 137,592.50 127,092.50 460,000.00 5.250 5.250000 100.000000 127,092.50 115,017.50 520,000.00 5.300 5.300000 100.000000 580,000.00 5.350 5.350000 100.000000 650,000.00 5.400 5.400000 100.000000 1,210,000.00 5.450 5.450000 100.000000 1,280,000.00 5.500 5.500000 100.000000 $6,250,000.00 $6,250,000.00 $6,250,000.00 - $6,250.000.00 115,017.50 101,237.50 101,237.50 85,722.50 85,722.50 68,172.50 ,68,172.50 35.200.00 35,200.00 325,655.00 177,630.00 277,630.00 174,005.00 274,005.00 170,380.00 270,380.00 166,755.00 266,755.00 163,130.00 263,130.00 159,505.00 259,505.00 155,e80.00 255,880.00 152,255.00 252,255.00 148,630.00 258,630.00 144,642.50 264,642.50 -•,140,742.50 260,742.50 137,592.50 537,592.50 127,092.50 587,092.50 115,017.50 635,017.50 101,237.50 681,237.50 85,722.50 735,722.50 68,172.50 1,278,172.50 35,200.00 1,315,200.00 503,285.00 451,635.00 444,385.00 437,135.00 429,885.00 422,635.00 415,385.00 408.135.00 400,885.00 403,272.50 405,385.00 398,335.00 664,685.00 702,110.00 736,255.00 /766,960.00 803,895.00 1,313,372.50 1,315,200.00 $5,172,835.00 $11,422,835.00 $11,422,835.00 -1,973.67 --1,973.67 85,170.861.33 911,420,861.33 TIC (Incl. all expense.)-.... 5.54497286% Average Coupon 5.52599193% NIC (Vernon's)' . 5."525992♦ (with'Adi.tnnt of $0.00).. TIC (Arbitrage TIC) 5.54497286% Average Life (yrs) ... 14.98 IRS Fora 8038-0 NIC . 5.525933% (with Adi.tmnt of $0.00) Bond Years 93,609.17 NAN (yrs) 14.971911 NIC . 5.525992% (with Adi.tant of $0.00). Prepared By Rau.cher Pierce Returnee, Inc. NR$497 0 01/0.1'/97 • ll,lle Issue Date: 4/01/97 CITY OF PEARLAND Series 1997 Tax Bonds Dian Witter Reynolds Inc. Delivery Date: 4/03/97 DATES (Term) 3/01/98 9/01/98 3/01/99 9/01/99 3/01/00 9/01/00 3/01/01 9/01/01 3/01/02 ,9/01/02 3/01/03 9/01/03 3/01/04 9/01/04 3/01/05 ,9/01/05 3/01/06 9/01/06 3/01/07 9/01/07 3/01/08 9/01/08 3/01/09 9/01/09 3/01/10 9/01/10 3/01/11 9/01/11 3/01/12 9/01/12 3/01/13 9/01/13 3/01/14 9/01/14 3/01/15 9/01/15 3/01/16 Accrued Interest Totals MATURING AMOUNT 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100 000.00 100,000.00 100,000.00 110,000.00 120,000.00 120,000.00 400,000.00 460,000.00 520,000.00 580,000.00 650,000.00 1,210,000.00 1,280,000.00 $6,250,000.00 $6,250,000.00 COUPON PROCEEDS RATE YIELD PRICE 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 100,000.00 7.150 7.150000 100.000000 110,000.00 7.150 7.150000 100.000000 120,000.00 5.150 5.150000 100.000000 120,000.00 5.250 5.250000 100.000000 400,000.00 5.350 5.350000 100.000000 460,000.00 5.400 5.400000 100.000000 520,000.00 5.450 5.450000 100.000000 580,000.00 5.500 5.500000 100.000000 650,000.00 5.550 5.550000 100.000000 1,210,000.00 5.500 5.500000 100.000000 1,280,000.00 5.500 5.500000 100.000000 $6,250,000.00 $6,250,000.00 IIITEREST AMOU11T 327,295.83 178,525.00 178,525.00 174,950.00 174,950.00 171,375.00 171,375.00 167, 800.00/ 167.800.00 164,225.00 164,225.00 160,650.00 160,650.00 157,075.00 157,075.00 153,500.00 153,500.00 149,925.00 149.925.00 145,992.50 145,992.50 142,902.50 142,902.50 139,752.50 139,752.50 129,052.50 129,052.50 116,632.50 116,632.50 102,462.50 102,462.50 86,512.50 86,512.50 68,475.00 68,475.00 35,200.00 35, 200'. 00 $5,217,310.83 -1,983.61 TOTAL DEBT SERVICE 327,295.83 178,525.00 270,525.00 174,950.00 274,950.00 171,375.00 271,375.00 167,800.00 267,800.00 164,225.00 264,225.00 160,650.00 260, 650.00 157,075.00 257,075.00 153,500.00 253,500.00 149,925.00 259,925.00 145,992.50 265,992.50 142,902.50 262,902.50 139,752.50 539,752.50 129,052.50 589,052.50 116,632.50 636,632.50 102,462.50 682,462.50 86,512.50 736,512.50 68,475.00 1,278,475.00 35,200.00 1,315,200.00 FISCAL TEAR DEBT SERVICE 505,820.83 453,475.00 446,325.00 439,175.00 432,025.00 424,875.00 417,725.00 410,575.00 403,425.00 405,917.50 408,895.00 402,655.00 668,805.00 705,685.00 739,095.00 768,975.00 804,987.50 1.311,675.00 1,315,200.00 $11,467,310.83 911,467,310.83 -1,983.61 $5,215,327.22 $11,465,327.22 TIC (Incl. all expenses) .... 5.58917343% ) Average Coupon 5.57350419% TIC (Arbitrage TIC) 5.58917343% A ge Life (yra) ... 14.98 Bond Years 93,609.17 WAN (yrs) 14.971911 Prepared4By Rauecher Pierce Refenes, Inc.. NIC (Vernon's) . 5.573504% (with Adjstamt of $0.00). IRS Form 8038-0 NYC . 5.573453% (with Adjstmnt of $0.00). NIC . 5.573504% (with Adjatant of $0.00). PRARC9,, NRW97 03/03/97 • 16.56 r Iaaue Date: 4/01/97 CITY OF PEARLAND Series 1997 Tax Bonds Southwest Securities Inc. Delivery Date: 4/03/97 DATES (Term) 3/01/98 9/01/98 3/01/99 9/01/99 3/01/00 9/01/00 3/01/01 9/01/01 3/01/02 9/01/02 3/01/03 9/01/03 3/01/04 9/01/04 3/01/05 9/01/05 3/01/06 9/01/06 3/01/07 9/01/07 3/01/08 9/01/08 3/01/09 9/01/09 3/01/10 , 9/01/10 3/01/11 9/01/11 3/01/12 9/01/12 3/01/13 9/01/13 3/01/14 9/01/14 3/01/15 9/01/15 3/01/16 Accrued Interest Total■ MATURING COUPON INTEREST TOTAL FISCAL YEAR AMOUNT PROCEEDS RATE YIELD PRICE AMOUNT DEBT SERVICE DEBT SERVICE 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 110,000.00 120,000.00 120,000.00 400,000.00 460,000.00 520,000.00 580,000.00 650,000.00 1,210,000.00 1,280,000.00 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 100,000.00 7.375 7.375000 100.000000 110,000.00 7.375 7.375000 100.000000 120,000.00 7.375 7.375000 100.000000 120,000.00 7.375 7.375000 100.000000 400,000.00 5.750 5.750000 100.000000 460,000.00 5.450 5.450000 100.000000 520,000.00 5.500 5.500000 100.000000 580,000.00 5.500 5.500000 100.000000 650,000.00 5.500 5.500000 100.000000 1,210,000.00 5.375 5.375000 100.000000 1,280,000.00 5.375 5.375000 100.000000 332,722.50 181?485.00 181,485.00 177,797.50 177,797.50 174,110.00 174,110.00 170,422.50 170,422.50 166,735.00 166,735.00 163,047.50 163,047.50 159,360.00 159,360.00 155,672.50 155,672.50 151,985.00 151,985.00 147,928.75 147,928.75 143,503.75 143,503.75 139,078.75 139,078.75 127,578.75 127,578.75 115,043.75 115,043.75 100, 743 ,75 100,743.75 84,793.75 84,793.75 66,918.75 66,918.75 34,400.00 34,400.00 332,722.50 181,485.00 281,485.00 177,797.50 277,797.50 174,110.00 274,110.00 170,422.50 270,422.50 166,735.00 266,735.00 163,047.50 263,047.50 159,360.00 259,360.00 155,672.50 255,672.50 151,985.00 261,985.00 147,928.75 267,928.75 143,503.75 263,503.75 139,078.75 539,078.75 127,578.75 587,578.75 115,043.75 635,043.75 100,743.75 680,743.75 84,793.75 734,793.75 66,918.75 1,276,918.75 34,400.00 1,314,400.00 514,207.50 459,282.50 451,907.50 444.332.50 437,157.50- 429,782.50 422,407.50 415,032.50 407,657.50 409,913.75 411,432.50 402,582.50 666,657.50 702,622.50 735,787.50 765,537.50 801,712.50 1,311,318.75 1,314.400.00 $6,250,000.00 $6,250,000.00 $5,253,932.30 $11,503,932.50 $11,503,932.50 -2,016.50 -2,016.50 $6,250,000.00 $6,250,000.00 $5,251,916.00 $11,501,916.00 TIC (Incl. all exp ) .... 5.64468690% ge Coupon 5.61262608% NIC (Vernon'.) . 5.612620% (with Adj.tant-of $0.00). TIC (Arbitrage TIC) 5.64468690% g. Life (yrs) ... 14.98 IRS Fora 8038-0 NIC . 5.612534• (with Adj.tmnt of $0.00). Bond Yeare 93,609.17 NAM (yrs) 14.971911 NIC . 5.612626% (with Adj.tnnt of $0.00). Prepared By Rauecher Pierce.Rel.n.., Inc. PRARC9,, N:[N97 0 03/03/97 • 17,04 AFFIDAVIT OF PUBLICATION The Pearland Reporter News 2404 South Park Pearland, Texas 77581 State of Texas Brazoria and Harris Countics 1, Joan Cummings, hereby certify that the notice hereby appended was published in Brazoria and Harris Counties in the REPORTER NEWS, a newspaper of general circulation in Drazoria and l•larri5 Counties, for / issues, as follows: No. Date 01'519 No. Date 19 No. Date 19 No. Date 19 No. Date— 19 Subscribe and worn to before me this 19 '3_? , A. F.Y.,40:A!3 Notes-ItVbfic, Stato Laura Ann Emmons, Publisher • -e•••; i'FNOTICE OF INTENTION TO ISSUE CERTIFICATES NOTIGE IS HEREBY GWEN that the City Council ot the ..city:of.pearId,rex.as (the.: p.I!,Citye)7.011- meet '010. special .) 0880§.1318*itt,CityiiHell t Peand6a4e*iiS 1410 d#1.0Plotarth R407;ilOtil04310:004 ,1001;0001011,400.0,04k"-!. 413414 )40116tiiick. :such o heritaWoolil be eill)s:4016106:CitijW. '1 1114.0":;:fr:64.0060:i141ation and a subordinate !ill$100:0::c6061i*ei*iC 4 1.1.:Ysiel,TilcitnAtiCipiiglffilOm agiricOite.i1pOtiallOpOil;oj 36;250',009gbiatif tntetes0 at anyrate or rates not to ,f("te;66*,or ifitii#61,Tiiiitli0,41. zed by Iaw as shall be 110,0itrii.CM0-00:10.1 Arltgouoride40-oturingl y-eOrs-licif to ! kid* !cued (1)ior land acquisi• !ift10640-415,46101,Kirit*I!,17: itos,;torrytileptgoiri;;; ios-,5000w9gypotcarid,,, 4006hirti#Vi,(or-,2,0eilairf City !buildings but not Iimited to the Cgs% centrat;pUblidliiirtrylaCeted., Pear1ahOi-,Te*:$77581th'er: PubIic Safety Building and site ;located at 2703 yittaiiins:'• 'Drive ,t Fearland;..-Texail. 040460te'dif ifiefifiefiedt: LEGALS 1 ', 4 !,..,,..5±,...., , .i...1: •it-4.1,c72,...,-,:- • . : . — ..,7: .,... 1 30pluding drainage and bridge:. 501.,Otiiiifiliafijdin',..fstii4root '-17 2 ceda '.- projects located . in the City' :Inchiding but KA:limited to:, Alia acquisition,of right-of-way.. 'ad construction of a street Vork) from. Broadway (FM ) 518) to Hughes Road in . 4 ;Still emont;,, iitqtiii ipp II pt.; right.of-Way and constructiOn:::. Irtf,ra,':: street 1400416g ArainSte)frOM-Barry,BOss, 'F,t0i:d-..tiiFfOliptilet. renoval '1 110ilindiiiiprotioments to First ,., Street(Including 4dralnage) IfOn:Maln. -35) 'firth*Obiatiii*PvemePti: 401it'itiliOi'Di§ltidi!i 100ttOliggP4i iilitif*2,.tEidoialiqns*I ., C ti*i§iilit(iiitite*MEidpplial DriTit(000400ilitiage and _. hrit1.919,ot\;.‘415,6:411.4tilliiirusitiOolS6;f7; ;of'f?.:.4#***Pikei440'.p ffe4t414:tilqiiiitir!illle°Cli.i.at:4(gtit1490...i! :prjI eitA101si.l0fiket1iiii tp00o,to011"ioii! and:I00$11k.000en9 gOlnery ::for .certain OnacjeifacilitieS7)Ocatid in pitiindknfm61461-not. limit . , Oildod TOntr011a4r.);-:; tlentSi'llthl1411114dkS!tiilltiao'lliCifeOntill i „SttiiS#A406:015; ;MiLiiitt:::::00i4an,',-:;i4oith' 1030-iigip,.#1fitiiitiiiiit and iiPriiPa :Tie Terrace subdivi- Or 0ch41.09; toganSfOg of 4fieiiiirffy:clutiAtifejt::.:i ..,,,..,'Creek_bilOjellirt00104j- ltffie0:40:61i0triiifct„ and. '..'ir,01.§4ifiefs); storm vatiii,,I, detention at the David L. - ;.00,0k Project ClearZree,:.! ''.' the.Southwest 5.---A rOnmeotat Center on speak andat a future olikOi-.N Skaiy, , S loUgh; and plrin„ Ulatiomofia itnisdictioti- op)ootiwiiaterAralnagq" --.itha,iiiiiiiiis:tof ,starnii''.'Ci $tlit.:01064*(1- (4) for pro- :fes1onaI services.-f...- " • _ tTNESS MY HAND ANHE-OFFtCIAL SEAL OF D 4.f.4 .01,_ • .1 AFFIDAVIT OF PUBLICATION The Pearland Reporter dews 2404 South Park Pcarland, Texas 77501 State of Texas Brazoria and Harris: Counties I, Joan Cummings, hereby certify that the notice hereby appended was published in Brazoria and Harris Counties in the REPORTER NJ WS, a newspaper of general circulation in Irazoria and 1•larri::, Counties, for I;,:,uCs, follows: No. A Date ;• 19 7 c% No. Date 19 No. Datc 19 No. Date 19 No. Date 19 1 , Editor Subscribe and worn to before me this / day of 10 41 7. 4W • STATE OF ' ,, xpdiEs otary Laura Ann Emmons, Publisher • 1 s' da edness:of�thO City tote `' r ` ' g, { a mpro�ements,,to Mafln ,rz ncurred (1) foreland acquisi pnve,�(induding drainage�:_m tlon1 replacement, reno�ie;�s Ibrydge1'workC),tocquisilio 0 na, improvem®nte, nteteth d ht�oi wa and construction gM � r Y4 a� , �_; ��, equipm'ent and 'of pedestrian hike& bikeways orceii Ctty jnrl drainat ' once and ma4lrirtg < �thearanroad; improveint o years no: o, o F(rst Street (inciud (40; 'ears tom rain ge and •t2, 0- a wd te thereof, fcr the put„ from Mary's,Croek to1Oli`er{ pose of evrder�tg: ttte indebt 'piive'; renovaiionsw;, n`d: LEGALS IOTICE IS HEREBY GIt( �tthe the;C Council+of f Pity of Pearland;-}Texas ,ityyw Umeetar HstfyspFE meeting paceofC earland Texasat7;30p .m�n;; ote3d,day;oMach,1997,`: which"is the time and - Spiace tenlabvely'set for the_ passage of an ondinanceand Fsucti otlieractionas maybe dee ttnecessaiy to autho- £rile the'.ssuance of the City's '`certificatea,.ot obligation, pyab from ad valorem tax= ation and 4a subordinate pted9e ttain :revenues of 4� the`City's`of awater'and sewer tsystem, -in the maximum aggregate'princrpai amount of ti 8,25t3A000,.bearing Interest io(any_rate or rates, not to �sxceed4lhe maximum interest 3 nte now.o hereafter autho- '_ rized,by:law as shall bed etermined tiro of the Crty Courted at theme Solis yw v—. er a peri0d� f t t' 1 xceed f t LEGALS j q;s and facilruescuic% oil but not hrnited to the �,cie�tral,public,;l�brary �opated 3523 liberty HFive iisnd; Texesi776t3133t1 I�`Safety;Bufld�rt��atd.:, peeled at 2703 Vetere„ rive, Pea�Iafl $Te> a 8i' and 'Indepehdeno. located at the intarstj Hof John;ll,"zer, oad„e LRi`e`rty Drive; Pearland Tex h;?L rf 4 %L`k 7ti91, (2) for certafn,str• piojeels tocatttidin `the {ncibding but not{Iimited.3 the=®cquis tk r of right -aft a►td construction of a st rincluding drainage and tit(,,., y w� rk) front Broadviay(PM ,t51�8) _to Hughos Roedr� Sagemont, Lacquigition; t tight-Ofway and constructioi •; street drainage) from Barry,RRo:e, �9oadtito PlumsStteetr ra ians`and improvements lob within (he discre�� {�st Street„w�(inciu �" rain'age)�rrom;Main=ISH�; issu rest orrigan,=Willoin This Official Notice of Sale does not alone constitute an invitation for bids but is merely notice of sale of the obligations described herein. The invitation for bids on such Certificates is being made by means of this Official Notice of Sale, the Official Bid Form and the Official Statement. Prospective purchasers are urged to carefully examine all the documents to determine the investment quality of the Certificates. OFFICIAL NOTICE OF SALE $6,250,000 CITY OF PEARLAND, TEXAS (Brazoria and Harris Counties, Texas) CERTIFICATES OF OBLIGATION, SERIES 1997 THE SALE CERTIFICATES OF OBLIGATION OFFERED FOR SALE AT COMPETITIVE BID:' The City Council (the "Council") of the City of Pearland (the "City") is offering for sale at competitive bid its $6,250,000 Certificates of Obligation, Series 1997 (the "Certificates"). PLACE AND TIME OF SALE: The City will receive sealed bids at the City Hall, 3519 Liberty Drive, Pearland, Texas 77581 until 5:00 P.M., C.S.T., Monday, March 3, 1997, and the -bids will be opened and publicly read. Sealed bids, which must be submitted in duplicate on the Official Bid Form and plainly marked "Bid for Certificates," are to be addressed to "Mayor and City Council, City of Pearland, Texas." All bids must be delivered at the above address prior to the above -scheduled time. Any bid received after such scheduled time for bid opening will not be accepted and will be returned unopened. AWARD OF THE CERTIFICATES: The Council will take action to award the Certificates (or reject all bids) at a regular meeting of the City Council on the date of the bid opening, and will adopt an ordinance authorizing the Certificates and approving the Official Statement (the "Ordinance"). The City reserves the right to reject any or all bids and to waive any irregularities. THE CERTIFICATES DESCRIPTION: The Certificates will be dated April 1, 1997 and interest will be calculated on the basis of a 360- day year of twelve 30-day months. Interest on the Certificates will be paid on March 1, 1998, and semiannually on March 1 and September 1 of each year thereafter until maturity or prior redemption. The Certificates are subject to redemption prior to their scheduled maturities on March 1, 2007, or any date thereafter, at the option of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. The Certificates will be issued in fully registered form in principal amounts of $5,000 or any integral multiple thereof. Principal and semiannual interest will be paid by Texas Commerce Bank National Association, Houston, Texas the Paying Agent/Registrar. Interest will be paid by check dated as of the interest payment date and mailed on or before each interest payment date by the Paying Agent/Registrar to the registered owner appearing on the Paying Agent/Registrar's books on the Record Date (hereinafter defined). Principal will be paid to the registered owners at maturity or earlier redemption upon presentation of the Certificates to the Paying Agent/Registrar. The Certificates will mature March 1 in each year as follows: Principal Principal Maturity Date Amoun Maturity Date Amount March 1, 1999 $100,000 March 1, 2008 $120,000 March 1, 2000 100,000 March 1, 2009 120,000 March 1, 2001 100,000 March 1, 2010 400,000 March 1, 2002 100,000 March 1, 2011 460,000 March 1, 2003 100,000 March 1, 2012 520,000 March 1, 2004 100,000 March -1, 2013 580,000 March 1, 2005 100,000 March 1, 2014 650,000 March 1, 2006 100,000 March 1, 2015 1,210,000 March 1, 2007 110,000 March 1, 2016 1,280,000 PAYING AGENT/REGISTRAR: The initial Paying Agent/Registrar shall be Texas Commerce Bank National Association, Houston, Texas (see "THE CERTIFICATES - Transfers and Exchanges of the Certificates" in Official Statement). SOURCE OF PAYMENT: The Certificates are direct obligations of the City, and the principal thereof and interest thereon 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 will be further payable from a junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000. CONDITIONS OF THE SALE TYPES OF BIDS AND INTEREST RATES: The Certificates will be sold in one block on an "All or None" basis, and at a price of not less than their par value plus accrued interest to the date of delivery of the Certificates. Bidders are invited to name the rate(s) of interest to be borne by the Certificates, provided that each rate bid must be in a multiple of 1/8 of 1 % or 1/20 of 1 % and the net effective interest rate for the Certificates (calculated in the manner required by Texas Revised Civil Statutes Annotated Article 717k-2, as amended) must not exceed 15 %. The highest rate bid may not exceed the lowest rate bid by more than 2% in rate. No limitation is imposed upon bidders as to the number of rates or changes which may be used. All Certificates of one maturity must bear one and the same rate. No bids involving supplemental interest rates will be considered Each bidder shall state in his bid the total interest cost in dollars and the net effective interest rate determined thereby, which shall be considered informative only and not as a part of the bid. BASIS OF AWARD: For the purpose of awarding sale of the Certificates, the interest cost of each bid will be computed by determining at the rate(s) specified therein, the total dollar cost of all interest on the Certificates from the date thereof to their respective maturities, using the table of Certificate Years herein, and deducting therefrom the premium bid, if any. Subject to the City's right to reject any or all bids and to waive any irregularities, the Certificates will be awarded to the bidder (the "Purchaser") whose complying bid, based on the above computation, produces the lowest net interest cost to the City. GOOD FAITH DEPOSIT: A Good Faith Deposit, payable to the "City of Pearland" in the amount of $125,000, is required. Such Good Faith Deposit shall be in the form of a Cashier's Check, which is to be retained uncashed by the City pending the Purchaser's compliance with the terms of his bid and the Notice of Sale and Bidding Instructions. The Good Faith Deposit may accompany the Official Bid Form or it may be submitted separately. If submitted separately, it shall be made available to the City prior to the opening of the bids, and shall be accompanied by instructions from the bank on which drawn which authorize its use as a Good Faith Deposit by the Purchaser who shall be named in such instructions. Unless otherwise agreed, the Good Faith Deposit will be returned to the Purchaser on the date of delivery of the Certificates. No interest will be allowed on the Good Faith Deposit. In the event the Purchaser should fail or refuse to take up and pay for the Certificates in accordance with his .bid, then said check shall be cashed and accepted by the City as full and complete liquidated damages. The checks accompanying bids other than the winning bid will be returned immediately after the bids are opened and an award of the Certificates has been made. INITIAL OFFERING PRICE CERTIFICATE: To provide the City with information to enable it to comply with certain conditions of the Internal Revenue Code of 1986 relating to the exclusion of interest on the Certificates from gross income for federal income tax purposes, the successful bidder will be required to complete, execute, and deliver to the City, at the time that the Certificates are awarded, a certification regarding "issue price" substantially in the form attached hereto or accompanying this Notice of Sale. If the successful bidder will not reoffer the Certificates for sale or has not sold a substantial amount of the Certificates of any maturity by the date of delivery, such certificate may be modified in a manner approved by the City. In no event will the City fail to deliver the Certificates as a result of the successful bidder's inability to certify actual sales of Certificates at a particular price prior to delivery. Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a certificate by the date of the award of the Certificates, if its bid is accepted by the City. It will be the responsibility of the successful bidder to institute such syndicate reporting requirements, to make such investigation, or otherwise to ascertain the facts necessary to enable it to make such certifications with reasonable certainty. Any questions concerning such certification should be directed to Bond Counsel. ii CONTINUING DISCLOSURE AGREEMENT: The City will agree in the Ordinance authorizing the Certificates to provide certain periodic information and notices of material events in accordance with the Securities and Exchange Commission Rule 15c2-12, as described in the Preliminary Official Statement under "CONTINUING DISCLOSURE OF INFORMATION." The Purchaser's obligation to accept and pay for the Certificates is conditioned upon delivery to the Purchaser or its agent of a certified copy of the Ordinance containing the agreement described under such heading. DELIVERY OF THE CERTIFICATES AND ACCOMPANYING DOCUMENTS CUSIP NUMBERS: It is anticipated that CUSIP identification numbers will appear on the Certificates, but neither the failure to print or type such number on any Certificates nor any error with respect thereto shall constitute cause for a failure or refusal by the Purchaser to accept delivery of and pay for the Certificates in accordance with the terms of this Notice of Sale and the terms of the Official Bid Form. All expenses in relation to the printing or typing of CUSIP numbers on the Certificates shall be paid by the City; provided, however, that the CUSIP Service Bureau fee for the assignment of the numbers shall be the responsibility of and shall be paid for by the Purchaser. INITIAL DELIVERY OF INITIAL CERTIFICATES: Initial Delivery will be accomplished by the issuance of registered Certificates in the aggregate principal amount of $6,250,000, payable to the Purchaser, signed by the manual or facsimile signature of the Mayor and City Secretary of the City, approved by the Attorney General, and registered by the Comptroller of Public Accounts. Initial Delivery will be at the corporate trust office of the Paying Agent/Registrar. Payment for the Certificates must be made in immediately available funds for unconditional credit to the City, or as otherwise directed by the City. The Purchaser will be given five (5) business days' notice of the time fixed for delivery of the Certificates. It is anticipated that Initial Delivery of the Initial Certificates can be made on or about April 3, 1997, and it is understood and agreed that the Purchaser will accept delivery and make payment for the Initial Certificates by 10:00 A.M., on April 3, 1997, or thereafter on the date the Certificates are tendered for delivery, up to and including May 5, 1997. If for any reason the City is unable to make delivery on or before May 5, 1997, then the City shall immediately contact the Purchaser and offer to allow the Purchaser to extend his offer for an additional fifteen (15) days. If the Purchaser does not elect to extend his offer within six (6) days thereafter, then his Good Faith Deposit will be returned, and both the City and the Purchaser shall be relieved of any further obligation. In no event shall the City be liable for any damages, whether direct, consequential or otherwise, by reason of its failure to deliver the Certificates. DELIVERY OF DEFINITIVE CERTIFICATES: Upon payment for the Initial Certificates at the time of the Initial Delivery, the Paying Agent/Registrar shall cancel the Initial Certificates, provided registration instructions have been received by the Paying Agent/Registrar, and shall register and deliver the registered definitive Certificates, in any integral multiple of $5,000 for any one maturity, in accordance with written instructions received from the Purchaser and/or members of the Purchaser's syndicate account. It shall be the duty of the Purchaser and/or members of the Purchaser's syndicate account to furnish to the Paying Agent/Registrar, at least five business days prior to the Initial Delivery, final written instructions designating the names in which the Certificates are to be registered, the addresses of the registered owners, the maturities, interest rates and denominations. The Paying Agent/Registrar will not be required to accept registration instructions after the fifth business day prior to Initial Delivery. If such instructions are not received within the specified time period, the cancellation of the Initial Certificates and delivery of registered definitive Certificates will be delayed until such instructions are received. CONDITIONS TO DELIVERY: The obligation of the Purchaser to take up and pay for the Certificates is subject to the Purchaser's receipt of (a) the legal opinion of. Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, Counsel for the City ("Bond Counsel"), (b) a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Certificates, and (c) the certification as to the Official Statement, all as further described in the Official Statement. LEGAL OPINIONS: The Certificates are offered when, as and if issued, subject to the unqualified legal opinion of the Attorney General of the State of Texas, and the approving legal opinion of Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, Bond Counsel (see LEGAL MATTERS - Legal Opinions" in the Official Statement); the opinion of said firm will be printed on the Certificates. iii CERTIFICATION OF OFFICIAL STATEMENT: At the time of payment for, and Initial Delivery of, the Initial Certificates, the City will execute and deliver to the Purchaser a certificate in the form set forth in. the Official Statement. CHANGE IN TAX EXEMPT STATUS: At any time before the Certificates are tendered for delivery, the Purchaser may withdraw his bid if the interest received by private holders on bonds or certificates of the same type and character shall be declared to be taxable income under present federal income tax laws, either by ruling of the Internal Revenue Service or by a decision of any Federal court, or shall be declared taxable or be required to be taken into account in computing any federal income taxes, by the terms of any federal income tax law enacted subsequent to the date of this Notice of Sale. GENERAL FINANCIAL ADVISOR: Rauscher Pierce Refsnes, Inc. is employed as Financial Advisor to the City in connection with the issuance of the Certificates. The Financial Advisor's fee for services rendered with respect to the sale of the Certificates is contingent upon the issuance and delivery of the Certificates. The City has authorized Rauscher Pierce Refsnes, Inc. to submit a bid for the Certificates, either independently or as a member of a syndicate organized to submit a bid for the Certificates. Rauscher Pierce Refsnes, Inc., in its capacity as Financial Advisor, has not verified and does not assume any responsibility for the information, covenants and representations contained in any of the documentation with respect to the federal income tax status of the Certificates. BLUE SKY LAWS: By submission of his bid, the Purchaser represents that the sale of the Certificates in states other than Texas will be made only pursuant to exemptions from registration or, where necessary, the Purchaser will register the Certificates in accordance with the securities law of the states in which the Certificates are offered or sold. The City agrees to cooperate with the Purchaser, at the Purchaser's written request and expense, in registering the Certificates or obtaining an exemption from registration in any state where such action is necessary, but the City will not consent to service of process in any such state. MUNICIPAL BOND INSURANCE: The City has submitted an application for municipal bond insurance under the bidder option program. The premium for such insurance, if any, will be paid by the Purchaser. OFFICIAL STATEMENT By accepting the winning bid, the City agrees to the following representations and covenants to assist the Purchaser in complying with Rule 15c2-12 of the Securities and Exchange Commission ("SEC"). FINAL OFFICIAL STATEMENT: The City has prepared the accompanying Official Statement for dissemination to potential purchasers of the Certificates, but will not prepare any other document or version for such purpose except as described below. The Purchaser will be responsible for informing the City of the initial offering yields. The City will prepare a final Official Statement describing these offering yields, the interest rates on the Certificates, the selling compensation, the final debt service schedule, the ratings assigned to the Certificates (if not currently included), and the terms of and obligor on any policy of municipal bond insurance. Accordingly, the City deems the accompanying Official Statement to be final as of its date, within the meaning of SEC Rule 15c2-12(b)(1), except for the omission of the foregoing items. By delivering the final Official Statement or any amendment or supplement thereto to the Purchaser on or after the sale date, the City represents the same to be complete as of such date, within the meaning of SEC Rule 15c2-12(e)(3). Notwithstanding the foregoing, the only representations concerning the absence of material misstatements or omissions from the Official Statement which are or will be made by the City are those described in the Official Statement under "GENERAL CONSIDERATIONS - Certification as to Official Statement." iv CHANGES TO OFFICIAL STATEMENT: If, subsequent to the date of the Official Statement, the City learns, through the ordinary course of business and without undertaking any investigation or examination for such purposes, or is notified by the Purchaser of any adverse event which causes the Official Statement to be materially misleading, and unless the Purchaser elects to terminate its obligation to purchase the Certificates, as described above under "DELIVERY OF THE CERTIFICATES AND ACCOMPANYING DOCUMENTS - Conditions to Delivery," the City will promptly prepare and supply to the Purchaser an appropriate amendment or supplement to the Official Statement satisfactory to the Purchaser; provided, however, that the obligation of the City to do so will terminate when the City delivers the Certificates to the Purchaser, unless the Purchaser notifies the City on or before such date that less than all of the Certificates have been sold to ultimate customers, in which case the City's obligations hereunder will extend for an additional period of time (but not more than 90 days after the date the City delivers the Certificates) until all of the Certificates have been sold to ultimate customers. DELIVERY OF OFFICIAL STATEMENTS: The City will furnish to the Purchaser (and to each other participating underwriter of the Certificates, within the meaning of SEC Rule 15c2-12(a), designated by the Purchaser), within seven days after the sale date, up to a total of 200 Official Statements. The City will also furnish to the Purchaser a like number of any supplement or amendment prepared by the City for dissemination to potential purchasers of the Certificates as described above as well as such additional copies of the Official Statement or any supplement or amendment as the Purchaser may request prior to the 90th day after the end of the underwriting period referred to in SEC Rule 15c2-12(e)(2). The City will pay the expense of preparing up to 200 copies of the Official Statement and all copies of any supplement or amendment issued on or before the delivery date, but the Purchaser must pay for all other copies of the Official Statement or any supplement or amendment thereto. OFFICIAL STATEMENT: Upon the award of the sale of the Certificates, the Preliminary Official Statement will be amended to conform to the teams of the Purchaser's bid and, if necessary, to make certain other changes. In connection therewith, the Purchaser will be required to furnish information concerning the initial resale offering prices and yields of the Certificates as well as the names of the members of the underwriting syndicate. The Purchaser will be furnished with such copies of the Official Statement for distribution to purchasers from the Purchaser as he may reasonably request. Copies in excess of 200 copies will be made available at the Purchaser's request and expense. The City assumes no responsibility or obligation for the distribution or delivery of any copies of the Official Statement to anyone other than the Purchaser. ADDITIONAL COPIES OF NOTICE. BID FORM AND STATEMENT: A limited number of additional copies of this Notice of Sale, the Official Bid Form and the Official Statement, as available over and above the normal mailing, may be obtained at the offices of Rauscher Pierce Refsnes, Inc., 1001 Fannin, Suite 500, Houston, Texas, 77002, Financial Advisor to the City. On the date of the sale, the Council will, in the Ordinance authorizing the issuance of the Certificates, confirm its approval of the form and content of the Official Statement, and any addenda, supplement or amendment thereto, and authorize its use in the reoffering of the Certificates by the Purchaser. ATTEST: /s/ City Secretary City of Pearland, Texas February 17, 1997 /s/ Mayor City of Pearland, Texas v CERTIFICATE REGARDING ISSUE PRICE The undersigned hereby certifies with respect to the sale of $6,250,000 City of Pearland, Texas Certificates of Obligation, Series 1997 (individually, a "Certificate," and collectively, the "Certificates"), as follows: 1. The undersigned is a duly authorized representative of the underwriter or of the manager of the syndicate of underwriters that purchased the Certificates from the City of Pearland (the "City") pursuant to a competitive bid sale. (Such underwriter or syndicate of underwriters is referred to herein as the "Underwriters.") In this capacity, the undersigned is familiar with the facts stated herein. 2. The term "Initial Offering Prices" means the respective initial offering prices (exclusive of accrued interest) for the Certificates of each maturity (stated in term of dollars or as a percent of par) as set forth in the following table. Year of Maturity Principal Interest Initial (March 1) Amount Rate Offering Price 1999 $ 100,000 % 2000 100,000 % 2001 100,000 % 2002 100,000 % 2003 100,000 % 2004 100,000 % 2005 100,000 % 2006 100,000 % 2007 110,000 % 2008 120,000 % 2009 120,000 % 2010 400,000 % 2011 460,000 % 2012 520,000 % 2013 580,000 % 2014 650,000 % 2015 1,210,000 % 2016 1,280,000 % 3. Based on the actual facts and reasonable expectations in existence on the Sale Date, the Initial Offering Price for each Certificate: a. Represented as the price (payable in cash, with no other consideration being included, and exclusive of accrued interest), at which the Underwriters reasonably expected, as of the Sale Date, each such Certificate would be sold to the Public; and b. Did not exceed what the Underwriters believed to be the respective fair market value of each such Certificate as of the Sale Date. 4. The Underwriters have purchased the Certificates for contemporaneous sale to the Public and not for investment for their own account. Each of the Certificates has actually been offered to the Public at its respective Initial Offering Price in a bona fide offering of all the Certificates and, as of the Issue Date, a substantial amount of the Certificates (at least 10 percent) of each maturity has been sold to the Public in arm's length transactions for cash prices (with no other consideration being included). Of the Certificates sold, none were sold at prices other than the respective Initial Offering Prices for such Certificates, plus accrued interest. 5. The term "Public" shall not include bond houses, brokers, and similar persons or organizations acting in the capacity of wholesalers or underwriters. 6. The accrued interest on the Certificates as of the Issue Date is $ . 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 $ We understand that the City will rely on the above in making certain representations to Mayor, Day, Caldwell & Keeton, L.L.P., Bond Counsel to the City, 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 as of and on , 1997. Very truly yours, UNDERWRITERS Name of Underwriter or Manager of Syndicate By: Name: Title: OFFICIAL BID FORM Mayor and City Council City of Pearland 3519 Liberty Drive Pearland, Texas 77581 Ladies and Gentlemen: March 3, 1997 Subject to the terms of your Official Notice of Sale and Official Statement, dated February 17, 1997, which are incorporated herein by reference, we hereby submit the following bid for $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, dated April 1, 1997. This offer is being made for all of the 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 their date to the date of delivery to us, plus a cash premium of $ for Certificates of Obligation maturing and bearing interest per annum as follows: Maturity Date Principal Amount Interest Rate March 1, 1999 $ 100,000 % March 1, 2000 100,000 % March 1, 2001 100,000 % March 1, 2002 100,000 % March 1, 2003 100,000 % March 1, 2004 100,000 % March 1, 2005 100,000 % March 1, 2006 100,000 % March 1, 2007 110,000 % March 1, 2008 120,000 % March 1, 2009 120,000 % March 1, 2010 400,000 % March 1, 2011 460,000 % March 1, 2012 520,000 % March 1, 2013 580,000 % March 1, 2014 650,000 % March 1, 2015 1,210,000 _ % March 1, 2016 1,280,000 % Interest cost, in accordance with the above bid, is: Gross Interest Cost $ Less: Premium $ NET INTEREST COST $ EFFECTIVE INTEREST RATE The Initial Certificates shall be registered in the name of (syndicate manager). We will advise Texas Commerce Bank National Association, Houston, Texas the Paying Agent/Registrar, on forms to be provided by the Paying Agent/Registrar of our registration instructions at least five business days prior to the date set for Initial Delivery. C shier's Check of the Bank, , Texas, in the amount of $125,000, 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." Upon delivery of the Certificates, said check will be returned to the Purchaser of the Certificates on the date of delivery of the Certificates. We agree to accept delivery of and make payment for the Initial Certificates in immediately available funds at the Corporate Trust Office of Texas Commerce Bank National Association, Houston, Texas not later than 10:00 A.M., on April 3, 1997, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Official Notice of Sale. 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. Respectfully submitted, By Authorized Representative ACCEPTED this 3rd day of March, 1997, by the City Council, City of Pearland, Texas. ATTEST: City Secretary • Return of Good Faith Check is hereby acknowledged: Mayor Firm: By: (For your information you will find attached a list of the group of underwriters associated with us in this proposal) OFFICIAL BID FORM Mayor and City Council City of Pearland 3519 Liberty Drive Pearland, Texas 77581 Ladies and Gentlemen: March 3, 1997 Subject to the terms of your Official Notice of Sale and Official Statement, dated February 17, 1997, which are incorporated herein by reference, we hereby submit the following bid for $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, dated April 1, 1997. This offer is being made for all of the 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 their date to the date of delivery to us, plus a cash premium of $ for Certificates of Obligation maturing and bearing interest per annum as follows: Maturity Date Principal Amount Interest Rate March 1, 1999 $ 100,000 % March 1, 2000 100,000 % March 1, 2001 100,000 % March 1, 2002 100,000 % March 1, 2003 100,000 % March 1, 2004 100,000 % March 1, 2005 100,000 % March 1, 2006 100,000 % March 1, 2007 110,000 % March 1, 2008 120,000 % March 1, 2009 120,000 % March 1, 2010 400,000 % March 1, 2011 460,000 - % March 1, 2012 520,000 % March 1, 2013 580,000 % March 1, 2014 650,000 % March 1, 2015 1,210,000 % March 1, 2016 1,280,000 % Interest cost, in accordance with the above bid, is: Gross Interest Cost $ Less: Premium $ NET INTEREST COST $ EFFECTIVE INTEREST RATE The Initial Certificates shall be registered in the name of (syndicate manager). We will advise Texas Commerce Bank National Association, Houston, Texas the Paying Agent/Registrar, on forms to be provided by the Paying Agent/Registrar of our registration instructions at least five business days prior to the date set for Initial Delivery. Cashier's Check of the Bank, , Texas, in the amount of $125,000, 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." Upon deliveryof the Certificates, said check will be returned to the Purchaser of the Certificates on the date of delivery of the Certificates. We agree to accept delivery of and make payment for the Initial Certificates in immediately available funds at the Corporate Trust Office of Texas Commerce Bank National Association, Houston, Texas not later than 10:00 A.M., on April 3, 1997, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Official Notice of Sale. 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. Respectfully submitted, Authorized Representative ACCEPTED this 3rd day of March, 1997, by the City Council, City of Pearland, Texas. ATTEST: City Secretary Return of Good Faith Check is hereby acknowledged: By Mayor Firm: By: (For your information you will find attached a list of the group of underwriters associated with us in this proposal) BOND YEARS $6,250,000 CITY OF PEARLAND, TEXAS (Brazoria and Hams Counties, Texas) CERTIFICATES OF OBLIGATION SERIES 1997 Dated: April 1, 1997 Due: As shown below Years Maturity Bond Cumulative Date Amount Years Bond Years March 1, 1999 $ 100,000 191.6667 191.6667 March 1, 2000 100,000 291.6667 483.3333 March 1, 2001 100,000 391.6667 875.0000 March 1, 2002 100,000 491.6667 1,366.6667 March 1, 2003 100,000 591.6667 1,958.3333 March 1, 2004 100,000 691.6667 2,650.0000 March 1, 2005 100,000 791.6667 3,441.6667 March 1, 2006 100,000 891.6667 4,333.3333 March 1, 2007 110,000 1,090.8333 5,424.1667 March 1, 2008 120,000 1,310.0000 6,734.1667 March 1, 2009 120,000 1,430.0000 8,164.1667- March 1, 2010 400,000 5,166.6667 13,330.8333 March 1, 2011 460,000 6,401.6667 19,732.5000 March 1, 2012 520,000 7,756.6667 27,489.1667 March 1, 2013 580,000 9,231.6667 36,720.8333 March 1, 2014 650,000 10,995.8333 47,716.6667 March 1, 2015 1,210,000 21,679.1667 69,395.8333 March 1, 2016 1,280,000 24.213.3333 93,609.1667 $6,250,000 93,609.1667 AVERAGE MATURITY - 14.977 YEARS CITY OF PEARLAND, TEXAS (Brazoria and Harris Counties) OFFICIAL STATEMENT DATED: FEBRUARY 17, 1997 $6,250,000 CERTIFICATES OF OBLIGATION SERIES 1997 SELLING: 5:00 PM. MONDAY, MARCH 3, 1997 C.S.T RFL RAUSCHER PIERCE REFSNES, INC. Financial Advisor to the City 8 i; PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY 17, 1997 $6 u O a E The Preliminary Official Statement is subject to completion and amendment and is intended solely for the °' 6 E. solicitation of initial bids to purchase the Certificates. Upon the sale of the Certificates, the Official Statement 1 En CC $ o In the opinion of Bond Counsel, interest on the Certificates will be excludable from gross income for federal .X h I income tax purposes under existing law and is not subject to the alternative minimum tax on individuals. See "TAX o ▪ - EXEMPTION" for a discussion of alternative minimum tax consequences for corporations. o E NEW ISSUE o `" $6,250,000 rep 4 g a L. CITY OF PEARLAND, TEXAS e (A political subdivision of the State of Texas located within Brazoria and Harris Counties) • S _ o CERTIFICATES OF OBLIGATION a17 s Series 1997 to a t Dated: April 1, 1997 g oy' • I c Principal and interest is payable at the principal corporate trust office of the Texas Commerce Bank P a o National Association, Houston, Texas, the paying agent/registrar (the "Registrar"). Interest is payable March 1, ii 1998, and each March 1 and September 1 thereafter until maturity or prior redemption. The Certificates are 8 subject to redemption prior to their scheduled maturities on March 1, 2007 or any date thereafter, at the option g ; a of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof 4 6 ,., plus accrued interest to the date of redemption. See "THE CERTIFICATES —Description of the Certificates." 8 The Certificates are issued in fully registered form in integral multiples of $5,000. Interest on the Certificates °' will be payable by check, dated as of the interest payment date, and mailed by the Registrar to registered owners °' 3' shown on the records of the Registrar on the fifteenth calendar day of the month next preceding each interest 1 C payment date (the "Record Date"). o ' 2 MATURITY SCHEDULE l• i (Due March 1) 2.e. t Initial Initial 8 p, a� Interest Reoffering Interest Reoffering S 6 1 Amount Maturity Rate Yield (a) Amount Maturity Rate Yield (a) o $ 100,000 1999 % % $ 120,000 2008(b) % % a -a 0 100,000 2000 120,000 2009(b) IA co 1 g i 100,000 2001 400,000 2010(b) 100,000 2002 460,000 2011(b) 4 ▪ .. z 100,000 2003 520,000 2012(b) la 100,000 2004 580,000 2013(b) • '0 ,= 100,000 2005 650,000 2014(b) a o y 100,000 2006 1,210,000 2015(b) 8 b 110,000 2007 1,280,000 2016(b) a Iva ig 2(a) The initial yields will be established by and are the sole responsibility of the Purchaser (as defined herein), o ai; and may subsequently be changed. ul • •,l (b) The Certificates maturing on or after March 1, 2008 are subject to redemption, at the option of the City, at ,L,• a •cd the par value thereof plus accrued interest, in whole or in part, on March 1, 2007, or any date thereafter. 1 • See "THE CERTIFICATES —Description of the Certificates." � Tel o ' C The above certificates (the "Certificates") constitute all the certificates authorized by the City Council on March 3, 1997. The Certificates, when issued, will constitute valid and binding obligations of the City of r.374. Pearland, Texas (the "City") and will be payable from the proceeds of an annual ad valorem tax, levied within 1 8 the limits prescribed by law, against taxable property within the City and will be further payable from a junior E 2 .� and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to C l3 exceed $10,000. See "THE CERTIFICATES —Source of Payment." •g� • Io The Certificates are offered when, as and if issued subject to the approving opinion of the Attorney General •- O ' of the State of Texas and the opinion of Mayor, Day, Caldwell. & Keeton, L.L.P., Houston, Texas, Bond Counsel a i 7 to the City, as to the validity of the issuance of the Certificates under the Constitution and the laws of the State 4 a 1 of Texas. The Certificates are expected to be available for delivery on or about April 3, 1997. USE OF INFORMATION IN OFFICIAL STATEMENT 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. 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 affairs of the City or other matters described herein since the date hereof. 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 Page INTRODUCTION 3 SALE AND DISTRIBUTION OF THE CERTIFICATES 3 Sale of the Certificates 3 Prices and Marketability 3 Securities Laws 4 Ratings 4 Municipal Bond Insurance 4 OFFICIAL STATEMENT SUMMARY 5 INTRODUCTION 7 THE CERTIFICATES 7 Description of the Certificates 7 Transfers and Exchanges of the Certificates 7 Source of Payment 8 Authority for Issuance 8 Use of Proceeds 8 Future Debt 8 Legal Investments in Texas 8 Remedies in the Event of Default 9 INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY 9 Legal Investments 9 Investment Policies 10 PRO -FORMA DEBT SERVICE SCHEDULE . 11 DEBT STATEMENT 11 General 11 Bonded Indebtedness 11 Estimated Overlapping Debt 12 Debt Ratios 12 TAX DATA 12 General 12 Property Tax Code and County -Wide Appraisal District 12 Tax Rate Limitations 13 Property Subject to Taxation by the City 13 Notice and Hearing Procedures 14 Levy and Collection of Taxes 14 Collection of Delinquent Taxes 14 Historical Analysis of Tax Collection 15 Analysis of Tax Base 16 Estimated Overlapping Taxes 17 Sales Tax 18 SELECTED FINANCIAL DATA 19 Historical Operations of the City's General Fund 19 General Fund and Debt Service Fund Balance for the Past Five Fiscal Years 19 Pension Fund 20 Financial Statements 20 ADMINISTRATION OF THE CITY 20 Mayor and City Council 20 Administration 21 Consultants 21 LEGAL MATTERS 22 Legal Opinions 22 No -Litigation Certificate 22 No Material Adverse Change 22 TAX EXEMPTION 23 TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES 23 Discount Certificates 23 Premium Certificates 24 CONTINUING DISCLOSURE OF INFORMATION 25 Annual Reports 25 Material Event Notices 25 Availability of Information From NRMSIRs and SID 26 Limitations and Amendments 26 Audited Financial Report of the City 26 Compliance With Prior Undertakings 27 GENERAL CONSIDERATIONS 27 Sources and Compilation of Information 27 Certification as to Official Statement 27 Updating of Official Statement 27 APPENDIX A - ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS APPENDIX B - FINANCIAL STATEMENTS OF THE CITY APPENDIX C - FORM OF LEGAL OPINION 2 INTRODUCTION All of the summaries of the statutes, resolutions, orders, contracts, audits, engineering and other related reports set forth in this Official Statement are made 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, copies of which are available from the City. 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. However, the City has agreed to keep this Official Statement current by amendment or sticker to reflect material changes in the affairs of the City and to the extent that information actually comes to its attention, the other matters described in this Official Statement until delivery of the Certificates to the Purchaser and thereafter only as specified in "SOURCES OF INFORMATION - Updating of Official Statement and CONTINUING DISCLOSURE OF INFORMATION." SALE AND DISTRIBUTION OF THE CERTIFICATES ,Sale of the Certificates: After requesting competitive bids for the Certificates, the City has accepted the bid resulting in the lowest net interest cost, which bid was tendered by a syndicate managed by ("Purchase?) to purchase the Certificates bearing the interest rates shown on the cover page hereof under "MATURITY SCHEDULE" at a price of the par value thereof, plus a cash premium of $ , plus accrued interest to the date of delivery. The net effective interest rate on the Certificates was % as calculated pursuant to Article 717k-2 of Vemon's Annotated Texas Civil Statutes. . Prices and Marketability: The delivery of the Certificates is conditioned upon the receipt by the City of a certificate executed and delivered by the Purchaser 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 a certificate house, broker or similar person acting in the capacity of purchaser or wholesaler. The City has no control over trading of the Certificates after a bona fide offering of the Certificates is made by the Purchaser at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Purchaser. The prices and other terms respecting the offering and sale of the Certificates may be changed from time to time by the Purchaser after the Certificates are released for sale, and the Certificates may be offered and sold at prices, 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 PURCHASER MAY OVER -ALLOT OR EFFECT 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. 3 Securities Laws: For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, as may be supplemented or corrected by the City from time to time, may be treated as an Official Statement with respect to the Certificates described herein "deemed final" by the City as of the date hereof (or of any such supplement or correction) except for the omission of certain information referred to in the succeeding sentence. This document, when further supplemented by adding information specifying the interest rates and certain other information relating to the Certificates, shall constitute a "FINAL OFFICIAL STATEMENT" of the City with respect to the Certificates, as such term is defined in Rule 15c2-12. 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. 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 a rating and the ratings of " " and "", respectively, has been assigned to the Certificates. An explanation of the significance of such ratings may be obtained from Moody's and S&P. The ratings reflect only the view 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 or S&P if, in the judgment of Moody's or S&P, circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Certificates. Municipal Bond Insurance: The City has made application for municipal bond insurance under the bidders option program. The premium for such insurance, if used, will be paid for by the Purchaser. 4 OFFICIAL STATEMENT SUMMARY The following material is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. - General - The Issuer The City of Pearland, a political subdivision of the State of Texas located within Brazoria and Harris Counties. The Certificates $6,000,000 Certificates of Obligation, Series 1997, dated April 1, 1997; various amounts due March 1, 1999 through 2016. Payment of Interest March 1, 1998, and each March 1 and September 1 thereafter, until maturity or prior redemption. Source of Payment Principal of and interest on the Certificates are payable from a continuing, direct annual ad valorem tax levied within the limits prescribed by law and will be further payable from a junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000. See "THE CERTIFICATES - Source of Payment." Other Characteristics The Certificates are issued in fully registered form in integral multiples of $5,000. The Certificates are subject to redemption prior to their scheduled maturities on March 1, 2007 or any date thereafter at the option of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. See "THE CERTIFICATES - Description of the Certificates. " Use of Proceeds Proceeds from the sale of the Certificates are to be used for (i) the renovation and improvement of certain of the City's building including the central public library, (ii) acquisition of right of way and construction of certain street projects, (iii) construction and improvement of certain drainage facilities, including flood control improvements and (iv) professional services related thereto. The proceeds will also be used to pay costs incurred in the issuance of the Certificates. See "THE CERTIFICATES - Use of Proceeds". Ratings Moody's Investors Service, Inc Standard & Poor's Ratings Group Population 1996 Estimate - 32,000. Payment Record The City has never defaulted on the timely payment of principal of and interest on its obligations. 5 " SELECTED FINANCIAL INFORMATION (Unaudited) 1996 Certified Assessed Valuation $912,597,870(a) (100% of market value as of January 1, 1996) See "TAX DATA" Direct Debt: Outstanding Bonds and Certificates (as of February 1, 1997) $ 23,119,392 The Certificates 6.250,000 Total Direct Debt $ 29,369,392 Estimated Overlapping Debt $ 42.127.751 Direct Debt and Estimated Overlapping Debt $ 71,497,143 Debt Service Fund Balance (as of February 1, 1997) $ 3.240,614 Ratio of Direct Debt to 1996 Certified Assessed Valuation ($912,597,870) 1996 Estimated Population (32,000) Ratio of Direct and Estimated Overlapping Debt to • 1996 Certified Assessed Valuation ($912,597,870) 1996 Estimated Population (32,000) 3.22% $ 918 7.83% $2,234 Estimated Annual Debt Service Requirements: Average (Fiscal Years 1997/2016) $2,320,767 Maximum (1998) $2,982,691 Tax Collections: Arithmetic Average, Tax Years (1992/1996) - Current Year - Current and Prior Years (a) Certified by the Brazoria County Appraisal District. 6 97.89% 99.39% $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 INTRODUCTION This Official Statement provides certain information with respect to the issuance by the City of Pearland, Texas (the "City") of its Certificates of Obligation, Series 1997 (the "Certificates"). The Certificates are issued pursuant to the Texas Constitution, the general laws of the State of Texas, 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 of the Certificates: The Certificates are dated April 1, 1997, bear interest from such date at the stated interest rates indicated under "MATURITY SCHEDULE" on the cover page hereof, which interest is payable March 1, 1998, and each March 1 and September 1 thereafter until maturity or prior redemption. The Certificates are issued in fully registered form in denominations of $5,000 each or any multiple thereof. The Certificates are subject to redemption prior to scheduled maturities on March 1, 2007 or any date thereafter at the option of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. Principal of and interest on the Certificates are payable at the principal payment office of the Texas Commerce Bank National Association, Houston, Texas (the "Registrar"). Interest on the Certificates will be payable by check, dated as of the interest payment date, and mailed by the Registrar to registered owners as shown on the records of the Registrar. The record date (the "Record Date") for the interest payable on any interest payment date means the 15th calendar day of the month next preceding such interest payment date. Transfers and Exchanges of the Certificates: So long as any Certificates remain .outstanding, the Registrar must keep at its principal corporate trust office registers in which, subject to such reasonable regulations as it may prescribe, the Registrar must provide for the registration and transfer of the Certificates in accordance with the terms of the Ordinance (as hereinafter defined). The Certificates are transferable only on the certificate register kept by the 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 corporate trust office of the 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. It will be required that all transfers be made within three business days after request and presentation. 7 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 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. 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 taxable property within the City. The Certificates will be further payable from a junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000. In the Ordinance, the City covenants that while the Certificates are outstanding, it will levy, assess and undertake to collect such tax. See also "Remedies in the Event of Default." Authority for Issuance: The Certificates are being issued pursuant to the applicable provisions of the Constitution and laws of the State of Texas, particularly Sections 271.041-271.063, Texas Local Government Code, as amended, and the provisions of an ordinance (the "Ordinance") adopted by the City Council on March 3, 1997, and which specifically authorizes the sale and issuance of the Certificates. Further reference to the Ordinance is hereby made. No election is required as a prerequisite to the sale and issuance of certificates of obligation, unless a petition signed by 5 % of the qualified voters of the City is 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 to provide funds for (i) the renovation and improvement of certain of the City's buildings, including the central public library, (ii) acquisition of right of way and construction of certain street projects, (iii) construction and improvement of certain drainage facilities, including flood control improvements and (iv) professional services related thereto. The proceeds will also be used to pay the costs of issuance of the Certificates, including the Financial Advisor's fee and Bond Counsel's fee, both of which are contingent upon the sale of the Certificates, as well as other administrative costs incurred. Future Debt: The City currently does not have any authorized but unissued bonds. Currently, the City Council has no plans to seek voter approval for such bonds; however, the City reserves the right to issue such bonds if authorized by the electorate. 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 Section 9 of the Bond Procedures Act of 1981, as amended, Texas Revised Civil Statutes Annotated Article 717k-6 (the "Procedures Act"), all certificates issued by the City constitute negotiable instruments, and are investment securities governed by Chapter 8, Texas Uniform Commercial Code, notwithstanding any provisions of law or court decision to the contrary, and are legal and authorized investments for banks, savings banks, trust companies, building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees, and for sinking fund of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas. The Procedures Act further provides that the Certificates are eligible to secure deposits of public funds of the State, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Certificates are legal investments for various institutions in those states. 8 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. Other than the limited pledge of waterworks and sewer system revenues, the Ordinance does not provide any other security for the payment of the Certificates, or any express remedies in the event of default, and 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 Certificateholders. Although a Certificateholder could presumably obtain a 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 Certificateholder could, in the event of default, ask a court for a writ of 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 on the Certificates or to perform the City's other obligations under the Ordinance. 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 City Council of the City. Both state law and the City's investment policies are subject to 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 issued by a state or national bank domiciled in the State of Texas that are guaranteed or insured by the Federal Deposit Insurance Corporation or are secured as to principal by obligations described in the preceding clause-c 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, and (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. 9 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. 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) the beginning market value, any additions and changes to market value and the ending value for each -pooled fund group, (3) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (4) the maturity date of each separately invested asset, (5) the account or fund or pooled fund group for which each individual investment was acquired, and (6) 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 City Council. The City's policies require investments in accordance with applicable state law. The City's Statement of Investment Policy does not exclude any investments allowable under State law described above under "Legal Investments." The City generally invests in certificates of deposits, money market accounts and obligations of the United States or its Agencies and instrumentalities. The City's investment balances on September 30, 1996 were as follows: Carrying Market Amount Principal Treasury Securities $17,177,507 $17,754,156 Money Market Accounts (TexPool) 3.453,914 3.453.914 Total Portfolio $20,631,421 $21,208,060 10 PRO -FORMA DEBT SERVICE SCHEDULE The following sets forth the principal and interest requirements on the City's outstanding debt and the Certificates. Fiscal Year Outstanding The Certificates Total New Total Ending Debt $6,250,000 Principal Debt 9-30 Requirements Principal Interest a & Interest Service 1997 $ 2,443,604 $ 2,443,604 1998 2,451,441 $ 531,250 $ 531,250 2,982,691 1999 2,441,789 $ 100,000 372,000 472,000 2,913,789 2000 2,437,314 100,000 366,000 466,000 2,903,314 2001 2,438,211 100,000 360,000 460,000 2,898,211 2002 2,430,601 100,000 354,000 454,000 2,884,601 2003 2,423,879 100,000 348,000 448,000 2,871,879 2004 2,434,633 100,000 342,000 442,000 2,876,633 2005 2,433,559 100,000 336,000 436,000 2,869,559 2006 2,434,770 100,000 330,000 430,000 2,864,770 2007 2,444,265 110,000 323,700 433,700 2,877,965 2008 2,445,638 120,000 316,800 436,800 2,882,438 2009 2,448,090 120,000 309,600 429,600 2,877,690 2010 624,250 400,000 294,000 694,000 1,318,250 2011 596,500 460,000 268,200 728,200 1,324,700 2012 568,250 520,000 238,800 758,800 1,327,050 2013 539,500 580,000 205,800 785,800 1,325,300 2014 512,500 650,000 168,900 818,900 1,331,400 2015 1,210,000 113,100 1,323,100 1,323,100 2016 1,280,000 38,400 1,318,400 1,318,400 $34,548,794 $6,250,000 5 616 550 $11,866,550 $46,415,344 Estimated Average Annual Debt Service Requirements (1997/2016) $2,320,767 Estimated Maximum Annual Debt Service Requirement (1998) $2,982,691 (a) Interest estimated at 6.00 % for illustration purposes. DEBT STATEMENT General: The following tables and calculations relate to the Certificates and to all other tax supported debt of the City. In addition to outstanding certificates and bonds the City has also issued revenue bonds and has incurred contractual and other indebtedness and liabilities which are not included below. 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 ad valorem taxation against all or a portion of property within the City. Bonded Indebtedness: 1996 Certified Assessed Valuation (100% of Estimated Market Value) $912,597,870(a) Direct Debt Outstanding Debt (as of February 1, 1997) $ 23,119,392 The Certificates 6,250,000 Total Direct Debt $ 29,369,392 Interest & Sinking Fund Balance (as of February 1, 1997) $ 3,240,614 (a) Certified by the Brazoria County Appraisal District. 11 • 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. Overlapping Taxing Jurisdiction Debt as of 1-1-97 Percent Amount Pearland I.S.D. $ 59,089,942 66.77% $39,454,354 Brazoria County 32,467,503 6.97 2,262,985 Harris County 809,479,546 .02 161,896 Harris County Toll Road Authority 844,264,027 .02 168,853 Harris County Flood Control Dist. 236,311,645 .02 47,262 Port of Houston Authority 161,485,000 .02 32,297 Harris County Dept. of Education 520,000 .02 104 TOTAL ESTIMATED OVERLAPPING DEBT $42,127,751 The City 29.369.392 TOTAL DIRECT AND ESTIMATED OVERLAPPING DEBT $71.497.143 Debt Ratios: Direct and Overlapping Direct Debt Debt Per 1996 Certified Taxable Assessed Valuation ($912,597,870) 3.22% 7.83 % Per Capita (32,000) $ 918 $2,234 TAX DATA General: One of the City's principal sources of operational revenue and its principal source of funds for debt service payments 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 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 12 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 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 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 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 $26,858,010 from the 1996 tax roll. Voters of the State of Texas cast ballots on November 3, 1981, approving a state constitutional amendment which 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 1996 tax year. 13 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 1996 tax roll was approximately $16,454,810. On November 7, 1989, voters of the State of Texas approved an amendment to the constitution of the State of Texas which 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. 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. By September 1 of each year, or as soon thereafter as practicable, 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 year's roll, the prior year's total taxes levied for purposes other than debt service and such contractual obligations, 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. 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 fifteen percent (15 %) 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. The City does not permit such payments, except for those property owners who are over the age of 65 as provided in the Property Tax Code. 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 14 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. Historical Analysis of Tax Collection: Tax Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Assessed Valuation $591,810,120 554,727,670 558,477,970 562,461,502 576,486,290 575,624,520 617,887,160 654,804,750 730,329,940 763,443,870 844,357,847 912,597,870 - Collection Ratios - Tax Rate Per $100 of Adjusted Assessed Valuation Tax Levy % of Collections Current Current and Fiscal Year Year Prior Years Ending 9-30 $0.6000 $3,544,618 96.92 98.79 1986 .7000 3,902,598 96.99 99.07 1987 .7350 4,103,794 96.97 99.06 1988 .8250 4,640,320 98.04 100.24 1989 .8250 4,756,012 97.45 98.86 1990 .8000 4,604,996 98.24 99.99 1991 .8000 4,943,097 97.80 98.97 1992 .7970 5,218,794 98.53 100.37 .1993 .7153 5,224,050 96.11. 98.24 1994 .6974 5,316,625 98.37 99.65 1995 .6950 5,869,525 98.65 99.72 1996 .6950 6,342,555 (a) (a) 1997 (a) In process of collection. Maintenance Debt Service Total - Tax Rate Distribution - 1996 1995 1994 1993 1992 1991 $0.440 $0.440 $0.4374 $0.30728 $0.40078 .255 .255 .2600 .40802 .39622 $0.695 $0.695 $0.6974 0.71530 $0.79700 15 $0.41 .39 0.80 - Analysis of Delinquent Taxes - The following is an analysis, by tax year, of taxes delinquent as of September 30, 1996. Tax Year 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Outstanding Delinquent Taxes Adjusted as of September 30, 1996 Tax Lew $258,104 $5,869,525 280,499 5,316,625 383,032 5,224,050 286,677 5,218,769 303,983 4,943,097 278,501 4,604,996 283,909 4,756,012 245,832 4,640,320 253,055 4,103,794 235,090 3,902,598 - Delinquent Tax Collection Procedures - Percentage of Tax Levy 4.39% 5.28 7.33 5.49 6.15 6.05 5.97 5.30 6.17 6.02 In 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 15 % of the tax due. Analysis of Tax Base: Type of Property Residential Acreage Vacant Lots/Tracts Farm & Ranch Commercial/Industrial Utilities Other Gross Assessed Value Less: Exemptions Net Assessed Value - Tax Base Distribution - 1996 Tax Roll Amount $667,149,380 31,379,920 16,073,990 3,644,960 . 205,342,280 24,309,050 7,927.360 $955,910,450 (43,312,580) $912,597,870 1995 Tax Roll Amount 69.79% $611,904,760 3.28 30,917,640 1.68 15,284,170 .38 3,528,350 21.48 194,189,797 2.54 22,776,570 .83 5.645.430 $884,237,377 (39,703,7001 $844,533,677 16 1994 Tax Roll Amount 69.20% $536,541,165 3.50 32,241,330 1.73 15,499,150 .40 3,124,050 21.96 204,285,622 2.58 24,027,190 .64 6.042.360 $821,760,867 (40.059.810) $781,701,057 65.29% 3.92 1.89 .38 24.86 2.92 .74 Taxpayer Weatherford U.S. Inc. Aggreko, Inc. Southwestem Bell Telephone Wal-Mart Houston Lighting & Power Co. K-Mart Corp. Whispering Winds, Ltd. & Assoc. Continental 34 Fund Ltd. Pearland Remington Ltd. Texas Windmill Apts. Aerospace International Energy Coatings Company Total Ten Principal Taxpayers - Principal Taxpayers - 1996 Type f Property Tax Roll Oil Field Equipment $26,185,200 Mobile Temperature Control 9,602,570 Utility Shopping Center Utility Shopping Center Apartments & Townhomes Department Store Apartments Apartments Airplane Parts Pipe Coating & Storage Percentage Ten Principal Taxpayers Comprise of their Respective Tax Rolls (a) Not a principal taxpayer in such tax year. 8,918,020 8,185,230 8,113,730 7,696,180 6,452,760 6,093,140 5,140,100 4,493,430 (a) (ai $83,184,180 - Tax Adequacy - 1995 Tax Roll $21,413,220 8,944,310 8,495,970 9,389,860 7,625,020 8,495,970 7,404,660 6,581,370 5,145,460 (a) (a) 5.004.360 $86,107,530 1994 Tax Roll $16,999,590 8,079,340 8,336,680 9,389,850 8,549,450 (a) 6,468,080 5,289,110 5,024,330 (a) 8,600,000 5.233.480 $ 81.969,910 912% 10.20% 10.49% Estimated Average Annual Debt Service Requirements based on Total New Debt Service (1997/2016) $2,320,767 the 1996 Certified Assessed Valuation, at 95 % collection, produces $2,323,474 Estimated Maximum Annual Debt Service Requirements based on Total New Debt Service (in the year 1998) $2,982,691 the 1996 Certified Assessed Valuation, at 95 % collection, produces $2,991,040 Estimated Overlapping Taxes: Tax Rate of $0.268 per $100 assessed valuation against Tax Rate of $0.345 per $100 assessed valuation against 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. 17 Set forth below is an estimation of ad valorem taxes levied on a $75,000 single-family residence by such jurisdictions, assuming the assessments are made at their claimed basisof 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. Taxing Jurisdictions 1996 Tax Estimated Rate/$100 1996 Tax Bill The City $0.695000 $ 521.25 Brazoria County .357500 268.13 Brazoria County Drainage District No. 4 .144441 108.33 Pearland Independent School District 1.76850 1.320.38 Estimated Total 1996 Tax Bill Sales Tax: - Authority - 2.965441 2 224.09 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 tax for economic development under Article 5190.6 VTCS, as amended. Such additional sales tax does not become effective until September, 1995. The City may not pledge the prods from the Sales Tax as security for the Certificates. - 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 tax: Ad Valorem Taxation Comparisons Fiscal Year Sales Tax Equivalent Tax Rate % of Actual Ended 9-30 Receipts Tax Year Equivalent Tax Levy 1987 , $ 943,940 (1986) $0.170 24.19% 1988 1,150,291 (1987) 0.206 28.03 1989 1,212,455 (1988) 0.216 26.13 1990 1,460,341 (1989) 0.254 30.71 1991 1,548,190 (1990) 0.269 33.62 1992 1,704,160 (1991) 0.260 32.65 1993 1,733,901 (1992) 0.265 33.22 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 18 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 junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000, are pledged to pay principal and interest on the Certificates. Fiscal Year Ended September 30, 1996 1995 1994 1993 1992 - REVENUES General Property Taxes (a) $5,978,307 $5,375,914 $3,031,246 $2,695,294 $2,551,102 Sales Taxes 2,298,546 2,166,219 1,905,741 1,733,901 1,704,160 Franchises 1,016,069 1,026,007 1,109,374 1,050,451 1,077,130 Licenses& Permits 514,081 339,309 432,626 418,577 296,725 Interest 181,256 254,324 151,852 156,942 196,030 Charges for Services 1,553,765 1,425,741 1,182,274 1,089,194 1,115,488 Fines & Forfeitures 459,884 415,378 415,511 404,857 315,085 Intergovernmental 115,262 78,882 107,987 -0- -0- Miscellaneous 518,124 583,268 463,971 - 311,959 371,742 Total Revenues $10,468,486 $9,687,452 $8,800,583 $7,869,175 $7,627,462 EXPENDITURES General Government $ 2,316,013 $1,998,228 $1,831,204 $1,708,983 $1,591,133 Police 3,001,997 2,609,804 2,365,096 2,171,519 1,979,188 Fire 95,047 115,865 157,065 326,884 120,354 Public Safety 768,402 703,347 577,995 392,496 368,378 Streets & Drainage 1,516,255 1,348,554 1,337,977 1,804,753 578,310 Sanitation 1,421,412 1,390,253 1,299,576 1,089,063 1,147,749 Public Works 1,175,272 496,561 675,376 620,409 567,695 Community Services 1,043.996 881.211 777.059 501.733 464,376 Total $11,338,397 $10,043,823 $9,021,348 $8,615,840 $6,234,662 (a) Includes penalties and interest. General Fund and Debt Service Fund Balance for the Past Five Fiscal Years: General Fund Debt Service Fund Fiscal Year Ended September 30, 1996 1995 1994 1993 1992 $2,004,644 $1,937,555 $2,872,119 $3,703,718 $4,136,446 $1,025,746 $1,218,757 $1,205,581 $1,142,763 $1,255,094 19 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 5 %, of their gross pay and the City matching percent is currently 10 %. 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 January 1, 1997, the City employed 181 full-time employees and 21 part-time and seasonal employees. All full-time employees are covered by TMRS and the City's contribution for this fiscal year as of September 30, 1996, amounted to approximately $264,881 which includes amortization of prior service cost over 25 years. The City had an unfunded pension benefit obligation in the amount of approximately $1,023,423 as of December 31, 1995. 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, 1996, 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 Expires Council Members Period Served Mav Occupation Tom Reid 1 year 1999 Retired -NASA Engineer Mayor Jerry Richardson 3 years 1997 Technology Procurement Council Member and Mayor Pro Tem Kevin Cole 2 years 1998 Marketing Representative Council Member Helen Beckman 2 years 1998 Public School Teacher Council Member Richard Tetens 3 years 1997 Engineer Council Member Larry Wilkins 1 year 1999 Optical Business Council Member 20 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 Perform such other necessary duties as prescribed by the Charter or required by City Council. (5) Members of the administrative staff are described below: City Manager - Paul Grohman - Mr. Grohman was appointed City Manager in June 1992 and has fourteen years experience as a City Manager. He is a graduate of Abilene Christian with a Masters in Management. Mr. Grohman is a member of the International City Managers Association, the Texas City Managers Association and Texas Police Association. Assistant City Manager for Planning and Development - Richard Burdine - Mr. Burdine joined the City in July 1992 as Division Director of Planning In February 1995 he was appointed Assistant City Manager. Mr. Burdine is a graduate of the University of Texas in Austin and has a MS from Penn State. Mr. Burdine is a member of the American Institute of Certified Planners and the International and Texas City Managers Associations. - Assistant City Manager for Administrative Services - Glen R. Erwin - Mr. Erwin was appointed administrative assistant to the City Manager in 1992 and Assistant City Manager in February 1995. Prior to joining the City, Mr. Erwin was a Regional Manager for the Harris County Appraisal District and Tax Assessor for the City of Baytown. Mr. Erwin is also a Registered Professional Appraiser. Director of Finance - David Castillo - Mr. Castillo was appointed Director of Finance for the City on January 13, 1997. Prior to that, Mr. Castillo was Director of Finance for the Corpus Christi Regional Transportation Authority where he was employed for the last ten years. Mr. Castillo is a Certified Public Accountant in the State of Texas and holds a Masters degree in Business Administration. He is a member of the Government Finance Officers Association, American Institute of CPAs and the Texas Society of CPAs. 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 Mayor, Day, Caldwell & Keeton, L.L.P. Houston, Texas Certified Public Accountants Lairson, Stephens & Reimer, P.C. Houston, Texas Financial Advisor Rauscher Pierce Refsnes, Inc. Houston, Texas 21 LEGAL MATTERS Legal Opinions: The City will furnish the Purchaser 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 Mayor, Day, Caldwell & Keeton, L.L.P., 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 the Certificates are payable, both as to principal and interest, from the levy of ad valorem taxes, within the limits prescribed by law, against taxable property within the City and a limited junior and subordinate pledge of certain revenues. 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 Purchaser 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, 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: The City will furnish to the Purchaser 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 Purchaser 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. 22 TAX EXEMPTION In the opinion of Mayor, Day, Caldwell & Keeton, L.L.P., 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 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. 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. Except as stated above and set forth below under "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. 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) or a real estate mortgage,investment conduit (REMIC)) 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 and the environmental tax imposed by the Code are computed. 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, 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 and taxpayerssswho are deemed to have incurred or continued indebtedness to purchase.or carry tax-exempt obligations. Such prospective purchasers should consult their owner tax advisors as to the consequences of investing in the Certificates. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates: According to representations of the Purchaser the Certificates maturing in the years through and including are being offered at initial offering prices which are less than the stated redemption prices at maturity of such Certificates. If a substantial amount of the Certificates of any .maturity are sold to the public in theinitial public offering of the Certificates at an initial offering price 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 23 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 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. 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 bysuch initial owner) will be includable in gross income for federal income tax purposes. 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 and environmental 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 does 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 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: According to representations of the Purchaser, the Certificates maturing in the years through and including are being 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 person or organizations acting in the capacity of wholesalers or purchasers) 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 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 24 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. No corresponding deduction is allowed for federal income tax purposes, however, 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 which 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. CONTINUING DISCLOSURE OF INFORMATION 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 typ,) included in this Official Statement under the headings "DEBT SERVICE SCHEDULE," "DEBT STATEMENT," "TAX DATA," "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 1997. 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 February 28 in each year, beginning February 28, 1998, 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 25 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. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and has been approved as such by the SEC staff. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6947. Limitations and Amendments: The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City mikes 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. 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 Purchasers 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. 26 Compliance With Prior Undertakings: The City has complied in all material respects with its prior continuing disclosure agreements made in accordance with SEC Rule 15c2-12. 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, 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 Financial Statements of the City" has been provided by Lairson, Stephens Reimer, P.C., 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 "Future Debt" and "Use of Proceeds"), "LEGAL MATTERS - Legal Opinions," "TAX EXEMPTION," "TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES, and "CONTINUING DISCLOSURE OF INFORMATION," 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. Certification as to Official Statement: At the time of payment for and delivery of the Certificates, the City will furnish the Purchaser 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. Updatine of Official Statement: 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. All changes in the affairs of the City and other matters described in the Official Statement subsequent to the delivery of the Certificates and all information with respect to the resale of the Certificates shall be the responsibility of the Purchaser. 27 This Official Statement was duly authorized and approved by the City Council of the City of Pearland, as of the date specified on the first page hereof. ATTEST: /s/ /s/ Mayor Pro Tem City of Pearland City Secretary City of Pearland 28 APPENDIX A - ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS The following information has been derived from various sources, including the Texas Almanac, Texas Municipal Reports, U.S. Census data, Texas Department of Agriculture, "Sales Management Survey of Buying PowerTM, and City officials. While such sources are believed to be reliable, no representation is made as to the accuracy thereof. - City Economics - The City of Pearland is a commercial center located in the northeast corner of Brazoria County, bordering the City of Houston to the north. The City is traversed by State Highway 35 and Farm -to -Market Road 518. The City's 1990 census was 21,000, increasing 58.51 % since 1980. Because of the City's proximity to Houston, the area has experienced continuing growth in residential, commercial and some light industrial development. At present there are numerous subdivisions either developed or under construction with homes ranging in value from $40,000 to $125,000, the average being approximately $75,000. There are approximately 1,282 business establishments located within the City which are rated by Dun and Bradstreet. - Building Permits - (Source - City of Pearland) Residential Commercial Other (a) Total Value Total Value Total Value Total Value 1982 113 8,240,600 28 3,353,835 309 5,588,377 450 17,182,812 1983 300 23,873,350 19 6,760,800 279 4,117,281 598 34,751,431 1984 231 18,135,848 31 6,314,418. 328 12,329,177 590 36,779,443 1985 139 18,018,608 41 2,781,094 300 3,424,632 480 24,224,334 1986 129 11,738,284 45 3,128,100 540 3,262,872 714 18,129,256 1987 58 6,062,000 11 364,832 155 522,330 224 6,949,162 1988 403 16,537,601 59 1,725,431 119 566,734 581 18,829,766. 1989 372 15,493,010 47 2,022,386 138 20,791,944 557 38,307,340 1990 670 35,378,197 90 2,947,222 119 931,546 879 39,256,965 1991 382 36,416,253 12 2,503,500 402 5,507,501 496 44,427,254 1992 402 37,249,884 15 1,849,000 456 16,768,978 873 55,867,862 1993 481 39,236,381 15 6,475,570. 863 5,961,881 1,359 51,673,832 1994 362 25,173,050 12 2,997,021 582 7,425,514 956 35,595,585 1995 340 34,734,829 13 3,762,900 528 7,799,090 881 46,296,819 1996 479 38,302,146 19 5,189,850 286 3,180,826 784 46,672,822 (a) Includes Apartments. Manufacturing and Commerce Employment in Brazoria County (the "County") is provided by the extensive petro-chemical industry and includes the following other industries: railroad tank cars, fabricated steel products, sulphur products, concrete, mattress and upholstery, printing, sheet metal and machine works, seafood processing, instruments and valve systems, and various others. Also adding to the general economy of the County are fishing, tourism and recreation activities and agribusiness. The Gulf Intracoastal Waterway comes through the lowlands near Surfside Beach and is an important waterway in America with reported annual tonnage compared to the Panama Canal and Suez Canal. (Source: Texas Municipal Report and Brazosport Industrial Committee.) Major Employers Industrial activities within the are 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 Directory of Texas Manufacturers - 1996 the following is a list of the industrial employers located within the area with employment numbers above 20. Name Columns Inc. CPI Sales & Mfg. Corp. Davis -Lynch Inc. Energy Coatings Co. Gate Concrete Products Co. Koza's Inc. Marldoad Syst. Inc. Metallurgical Technologies, Inc. Pauluhn Electric Mfg. Co. Inc. Replacement Parts Corporation Star Cooling Tower Services Inc. Texas Honing Inc. Weatherford Products Brazoria County Product Employment Aluminum colonial style structural columns Metal window screens and doors Oil well floating & cementing equipment Anticorrosive pipe coatings Asphalt paving mixtures Embroidering for the trade Electronic anchor -tensioning systems for the offshore oil and gas industry Metal powder for thermal sprays Industrial & marine signaling devices and lighting fixtures Special mechanical packing, including compressor rod & piston packing Redwood atmospheric & mechanical cooling towers Hones metal tubing Steel heavy wall drill pipe 20-49 50-99 100-249 50-99 20-49 50-99 20-49 20-49 50-99 20-49 20-49 50-99 100-249 Brazoria County, is a Gulf Coast County comprising the Brazoria Primary Metropolitan Statistical Area, which is a component of the Houston-Galveston-Brazoria CMSA. The economy is based extensive petroleum and chemical industry, fishing, tourism and agribusiness. In 1990, the County had a population of 183,510, an increase of 13,923 since 1980. According to the "1996-1997 Texas Almanac," the County was created in 1836 and organized in 1837 from the Municipality of Brazoria, name derived from the Brazos River. U.S. Census of Population ECONOMIC AND GROWTH INDICATORS 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 21,000 + 58.51 183,510 + 8.21 Marketing Survey of Buying Power (a) Houston -Galveston Brazoria CMSA Brazoria County Population (000's) Total Population 41,980.0 220.1 %18-24 9.1 8.1 %25-34 18.3 17.4 %35-49 25.1 24.7 %50-Over 18.8 20.3 Number of Households 1,491.2 72.8 Retail Sales (000's) Food $ 6,852,850 $ 289,390 Eating and Drinking 4,004,572 107,739 General Merchandise 5,053,515 289,841 Furniture, Furnishings, Appliances 1,896,435 32,907 Automotive 11,040,961 493,053 Total Retail Sales $38,704,351 $1,523,763 Effective Buying Income (1993) Total Effective Buying Income ("EBI) (000's) $69,877,754 $3,053,019 Median Household EBI $ 39,397 $ 36,379 %Household EBI $20,000 - $34,999 21.9 23.5 $35,000 - $49,999 17.5 20.2 $50,000 and Over 34.5 31.8 (a) Statistical data from "Sales & Marketing Management - 1996 Survey of Buying Power", copyright in 1994 Sales Management Survey of Buying Power: Further reproduction is forbidden. Represents data as of December 31, 1996. APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY EvEk9(, Qui ©©rrII©d * * 3519 liberty Drive • Pearland, Texas 77581-5416 TEX A� (281) 485-2411,. • fax (281) 485-8764 To the Honorable Mayor, Members of City Council and Citizens of the City of Pearland Pearland, Texas: The comprehensive annual financial report of the City of Pearland, Texas (the "City") for the fiscal year ended September 30, 1996, is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a manner designed to present fairly the fmancial position and results of operations of the various funds and account groups of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The comprehensive annual financial report is presented in three sections: Introductory, Financial and Statistical Section. The Introductory Section includes this transmittal letter, the City's organizational chart and a list of principal officials. The Financial Section includes the general purpose fmancial statements and the combining and individual fund and account group fmancial statements and schedules, as well as the auditor's report on the financial statements and schedules. The Statistical Section includes selected financial and demographic information, generally presented on a multi -year basis. - The financial reporting entity (the "City") includes all the funds and account groups of the primary government (i.e., the City of Pearland as legally defined), as well as all of its Component Units. Component Units are legally separate entities for which the primary government is finaiicially accountable. The City provides the full range of municipal services contemplated by statute or charter. This includes police and fire protection, health and social services, public improvements, planning and zoning, and general administrative services. The City also provides water, sewer and sanitation services. Additionally, the City has an Economic Development Corporation, designed to attract and retain jobs and more fully develop the local ad valorem tax base. Discretely presented component units are reported in a separate column in the combined financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position, results of operations and cash flows from those of the primary government. The Economic Development Corporation is reported as discretely presented component unit. ECONOMIC CONDITION AND OUTLOOK The City of Pearland lies fifteen miles southeast of downtown Houston and ten miles from the Texas Medical Center in the northeast corner of Brazoria County, with a small area within Harris County. Pearland is accessible by way of four major highways and is six miles from Houston Hobby Airport; the World's 27th busiest airport. MAJOR INITIATIVES The Pearland City Council has in recent years worked diligently at anticipating and planning for future needs. Many of the Council goals developed in 1994 and 1995 continue to be worked on and enhanced. Some highlights are: o Implementation of the community -wide strategic planning process. o Development of plans for Independence Park. o Continued strengthening of board, Commission and committee selections. o Continued annexation to improve the entrances to the City and ensure the integrity of the area. o Began implementation of the regional storm water detention. o Authorized expenditures and began engineering on Southwest Environmental Center. O Entered into agreement for first source of surface water. O Enhanced City -school cooperatives. o Implemented economic development program. DEPARTMENT FOCUS Economic Development Corporation The City Council established the Pearland Economic Development Corporation Board in the second quarter of 1995, after passage by a vote of the general public in January, 1995. The major departmental emphasis is on creation and retention of tax base, jobs, and visitorship. Major accomplishments include: O Opening of Best Western, Pearland's first motel. O Opening of Metallurgical Technologies - a world leader in thermal sprays. o Expansions at Associated Profax, Solvents and Chemicals, Weatherford Enterra, Western Atlas and a host of others. o Relocation of a variety of businesses, including Layt Manufacturing and several other heavy industrials. o Announcement of Kemlon, a major manufacturer of high tech electrical conductors moving to Pearland. 4 FINANCIAL INFORMATION Management of the City is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of controls should not exceed the benefits expected to be derived .and .(2).the evaluation_of.costs_ and ..benefits requires estimates and judgements by management. Accounting Controls. We believe that the City's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned function. Budgeting Controls. In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City's governing body. Activities of the General, Debt Service and Enterprise Funds are included in the annual appropriated budget. The level of budgetary control (the level at which expenditures cannot legally exceed the appropriated amount) is the total approved budget for each department. As demonstrated by the statements and schedules included in the financial section of this report, the City continues to meet its responsibility for sound financial management. General Government Functions. The revenue from the general fund, special revenue funds and debt service fund and the amount and percentage of increases and decreases in relation to prior year revenue is summarized in the following schedule: Revenue Sources Property taxes and penalties Sales taxes Franchise and gross receipts taxes Licenses and pennits Fines and forfeitures Charges for services Interest Other 1996 Percent of 1996 Percent of 1995 Increase Increase Amount Total Amount (Decrease) (Decrease $ 5,964,927 2,298,546 1,029,449 514,081 459,884 1,553,765 257,264 780,452 46.3% $ 5,354,512 $ 610,415 11.4 % 17.8 2,166,219 132,327 6.1 8.0 1,047,409 (17,960) (1.7) 4.0 339,309 174,772 51.5 3.5 415,378 44,506 10.7 12.0 1,425,741 128,024 9.0 2.0 334,363 (77,099) (23.1) 6.0 662,150 118,302 17.9 TOTAL $ 12,858,368 100.0% $ 11,745,081 $1,113,287 The most significant percentage increase in revenue was derived from sales tax. 5 Allocations of property tax levyby purpose for.1995-96. fiscal.year and the preceding two fiscal years are as follows (amount per $100/assessed value): Purpose 1995-96 1994-95 1993-94 General Fund $ 0.4400 $ 0.43740 $ 0.40078 General Obligation Debt 0.2550 0.26000 0.39622 TOTAL TAX RATE $ 0.6950 $ 0.69740 $ 0.79700 The expenditures for the general fund, special revenue funds and debt service fund and the amount and percentage of increases and decreases in relation to the prior year expenditures are summarized in the following schedule. 1996 Increase Percent of 1996 Percent of 1995 (Decrease) Increase Function Amount Total Amount Over 1995-96 (Decrease) General governmental $ 2,316,013 16.6% $ 1,998,228 $ 317,785 15.9 % Public safety 3,865,449 27.7 3,429,016 436,433 12.7 Public works 4,112,939 29.5 3,735,368 377,571 10.1 Community service 1,185,426 8.5 881,211 304,215 34.5 Debt service 2,430,097 17.4 2,044,453 385,644 18.9 $ 13,909,924 100.0% $ 12,088,276 $1,821,648 The most significant increases were in Public Safety and Community Service. These increases were a result of a reallocation of resources to these areas from street maintenance in Public Works and Debt Service(decrease caused by prior year refunding). Enterprise Operations. The government's enterprise operations are comprised of the Water and Sewer System. Water and Sewer System. During the year ended September 30, 1996, the City's Water and Sewer System reported an increase of $419,090 in operating revenues or 11 percent from the prior year. Operating expenses remained stable during fiscal year 1995-96. Comparative data for the past two fiscal years are presented in the following schedule. Operating revenue 1995-96 1994-95 $ 4,428,252 $ 4,226,052 Operating expenses (before depreciation) 3,147,519 2,550,748 Operating income (before depreciation) $1,280,733 $1,675,304 Number of customers (water) 8,645 7,249 6 Debt Administration. The ratio. of net.debt:to.assessed valuation.and .the amount of bonded debt per capita are. useful indicators of the City's debt position to municipal management, citizens, and investors. These data for the City of Pearland at September 30, 1996 were as follows: Total outstanding tax supported debt (general obligation bonds and certificates of obligation) at September 30, 1996 totaled $24,800,000. Debt service funds in the amount of $1,025,746 were available at September 30, 1996. The City's assigned bond ratings on its most recent issue were as follows: Moody's Standard & Poors Revenue Bonds Baa-1 A Tax Bonds Baa-1 A Cash Management. Cash temporarily idle during the year was invested in certificates of deposit ranging from 60 to 365 days to maturity. Certificate of deposit and cash amounts which exceed FDIC coverage are collateralized by securities owned by the City's depository. All investments held by the City during the year and at September 30, 1996, are classified in the category of lowest credit risk as defined by the Governmental Accounting Standards Board. OTHER INFORMATION Independent Audit. The City Charter requires an annual audit of the books of account, fmancial records and transactions of all administrative departments of the City by an independent certified public accountant. The accounting firm of Lairson, Stephens & Reimer, L.L.P., CPAs was selected by the City Council. This requirement has been complied with, and the auditors' opinion has been included in this report. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 1994. This was the eighteenth consecutive year that the City 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, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA's Award for Distinguished Budget Presentation, the 9th consecutive year for its annual appropriated budget dated July 28, 1996. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document was judged to be proficient in several categories including policy documentation, financial planning and organization. 7 Acknowledgments. We would like to express our appreciation to all members of the Finance and Administration Department who assisted and contributed to its preparation. We would also like to thank the Mayor, members of the City Council and City Manager for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, z- et S. Eastburn Chief Accountant 8 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, 1995 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. dZe Preside Executive Director 9 CITY OF PEARLAND, TEXAS ORGANIZATION CHART MUNICIPAL COURT JUDGES GRANTS S.PLAN ADMINISTRATIVE SERVICES CITIZENS ElvERG MGMT CITY COUNCIL CITY MANAGER FIRE MARSHAL Ea" CIS CITY SECRETARY MUNICIPAL COURT TTT P'. I'� --- P GRSONNEL FINANCE FIRE UTILITY BILLING COMMUNICATION CITY ATTORNEY P.D. STREETS W&S LINE EDC W&S TR/PROD ANIMAL CONTROL PERMITS I FL EET I 1L 11 ASST CITY MANAGER PUBLIC WORKS HEALTH PARKS & RECREATION RECREATION CUSTODIAL PARKS/ BLDG MAINT 10 PRINCIPAL OFFICIALS CITY OF PEARLAND, TEXAS September .30,1996 MAYOR Tom Reid Mayor Pro Tem Councilman Position No. 5 Kevin Cole Councilman Position No. 1 Helen Beckman Councilman Position No. 3 Larry Wilkins City Manager Paul W. Grohman City Secretary Councilman Position No. 2 Richard Tetens Councilman Position No. 4 Jeny Richardson City Attorney Yolanda Benitez Amy McCollough 11 (This page intentionally left blank.) 12 FINANCIAL SECTION 13 (This page intentionally left blank.) 14 LAIRSON o STEPHENS • REIMER, L.L.P. Trusted Business Advisors Since 1970 INDEPENDENT AUDITORS' REPORT Honorable Mayor and Members of City Council of the City of Pearland, Texas: We have audited the accompanying general purpose fmancial statements of the City of Pearland, Texas (the "City") as of and for the year ended September 30, 1996. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these fmancial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget CircularA-128, Audits of State and Local Governments. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial 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 opinion. In our opinion, the general purpose fmancial statements referred to above present fairly, in all material respects, the financial position of the City of Pearland, Texas at September 30, 1996 and the results of its operations and the cash flows of its proprietary fund types for the year then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated November 8, 1996 on our consideration of the City of Pearland's internal control structure and a report dated November 8, 1996 on its compliance with laws and regulations. Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying individual funds, combining funds, account group financial statements, schedules and statistical sections as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements of the City of Pearland, Texas. The information in these schedules has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is;fairly stated in all material respects in relation to the general purpose fmancial statements taken as a whole. iciA;b0\,, stef4v".4. RALsmvii L Houston, Texas November 8, 1996 Certified Public Accountants 5 Post Oak Park, Suite 250 Houston, Texas 77027-3413 Tel.(713)629-6000 fFSx(713)629-6004 GENERAL PURPOSE FINANCIAL STATEMENTS CITY OF PEARLAND, TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES, ACCOUNT GROUPS AND DISCRETELY PRESENTED COMPONENT UNIT September 30,1996 GOVERNMENTAL FUND TYPES SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECTS ASSETS AND OTHER DEBITS ASSETS Cash and cash equivalents $ 2,979,650 $ 31,379 S 1,026,593 $ 4,544,030 Receivables - less allowances for uncollectibles Taxes 141,097 Accounts 136,834 Accrued interest 2,913 Assessments Restricted assets Cash and cash equivalents Fixed assets (net where applicable of accumulated depreciation) OTHER DEBITS, Amount available in debt service fund Amount to be provided for retirement of general long-term debt 117,007 4,311 29,935 TOTAL ASSETS AND OTHER DEBITS $ 3,260,494 $ 31,379 $ 1,143,600 $ 4,578,276 18 1 of 2 TOTALS TOTALS PROPRIETARY ACCOUNT GROUPS PRIMARY COMPONENT REPORTING FUND TYPES GENERAL GENERAL GOVERNMENT UNIT ENTITY FIXED LONG- (MEMORANDUM (MEMORANDUM ENTERPRISE ASSETS DEBT ONLY) P.E.D.C. ONLY) $ 11,370,433 $ 19,952,085 $ 486,583 $ 20,438,668 258,104 258,104 359,753 496,587 496,587 7,224 7,224 5,146 35,081 35,081 255,610 255,610 255,610 12,502,759 S 32,223,482 44,726,241 13,500 44,739,741 $ 1,025,746 1,025,746 1,025,746 24,181,242 24,181,242 24,181,242 $ 24,493,701 $ 32,223,482 $ 25,206,988 $ 90,937,920 $ 500,083 $ 91,438,003 See notes to fmancial statements. 19 CITY OF PEARLAND,_TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES, ACCOUNT GROUPS AND DISCRETELY PRESENTED COMPONENT UNIT September 30,1996 GOVERNMENTAL FUND TYPES SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECT LIABILITIES, EQUITY AND OTHER CREDITS LIABILITIES Accounts payable $ 377,716 $ 250 $ 847 $ 57,148 Accrued expenses 126,082 Security deposits Accrued compensated absences 610,955 Payable from restricted assets Deferred revenues 141,097 117,007 29,935 Certificates of obligation Revenue bonds -less current portion General obligation bonds TOTAL LIABILITIES 1,255,850 250 117,854 87,083 EQUITY AND OTHER CREDITS Contributed capital Investment in general fixed assets Retained earnings Unreserved Fund balances Reserved For encumbrances For debt service Unreserved Designated For future expenditures Undesignated 321,795 1,682,849 1,025,746 31,129 4,491,193 TOTAL EQUITY AND OTHER CREDITS 2,004,644 31,129 1,025,746 4,491,193 TOTAL LIABILITIES, EQUITY AND OTHER CREDITS $ 3.260,494 $ 31,379 $ 1,143,600 $ 4,578 276 20 2 of 2 TOTALS TOTALS PROPRIETARY ACCOUNT GROUPS PRIMARY COMPONENT REPORTING FUND TYPE GENERAL GENERAL GOVERNMENT UNIT ENTITY FIXED LONG-TERM (MEMORANDUM (MEMORANDUM ENTERPRISE ASSETS DEBT ONLY) P.E.D.C. ONLY) $ 178,562 $ 614,523 $ 12,851 S 627,374 151,817 277,899 277,899 294,494 294,494 294,494 150,522 $ 406,988 1,168,465 11,107 1,179,572 240,000 240,000 240,000 288,039 288,039 6,670,000 6,670,000 6,670,000 9,536,991 9,536,991 9,536,991 18,130,000 18,130,000 18,130,000 10,552,386 0 25,206,988 37,220,411 23,958 37,244,369 12,380,545 1,560,770 13,941,315 $ 32,223,482 12,380,545 9,214 12,389,759 32,223,482 32,223,482 1,560,770 466,911 2,027,681 32,223,482 0 46,164,797 476,125 46,640,922 321,795 321,795 1,025,746 1,025,746 4,522,322 4,522,322 1,682,849 1,682,849 13,941,315 32,223,482 0 53,717,509 476,125 54,193,634 $ 24,493,701 $ 32,223,482 $ 25,206,988 $ 90,937,920 $ 500,083 $ 91,438,003 See notes to financial statements. 21 (This page intentionally left blank.) 22 CITY OF PEARLAND, .TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year ended September 30,1996 GOVERNMENTAL FUND TYPES TOTAL SPECIAL DEBT CAPITAL (MEMORANDUM GENERAL REVENUE SERVICE PROJECTS ONLY) REVENUES Taxes - (including penalties and interest) $ 7,126,114 $ 5,730 $ 2,161,078 $ 9,292,922 Licenses and permits 514,081 514,081 Interest on investments 181,256 76,008 $ 506,978 764,242 Fines and forfeitures 459,884 459,884 Intergovernmental 115,262 131,152 246,414 Charges for services 1,553,765 1,553,765 Other 518,124 5,064 226,109 749,297 TOTAL REVENUES 10,468,486 141,946 2,237,086 733,087 13,580,605 EXPENDITURES Current - General government 2,316,013 2,316,013 Public safety 3,865,449 3,865,449 Public works 4,112,939 4,112,939 Community services 1,043,996 141,430 1,185,426 Capital outlay 3,230,541 3,230,541 Debt service Principal retirement 1,010,000 1,010,000 Interest and fiscal charges 1,420,097 1,420,097 TOTAL EXPENDITURES 11338.397 141 430 2 430 097 3.230.541 17,140,465 REVENUES OVER (UNDER) EXPENDITURES (869,911) 516 (193,011) (2,497,454) (3,559,860) OTHER FINANCING SOURCES AND USES Operating transfers in 1,002,000 1,002,000 Operating transfers out (65,000) (65,000) REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES 67,089 516 (193,011) (2,497,454) (2,622,860) Fund balances at beginning of year 1,937,555 30,613 1,218,757 6,988,647 10,175,572 FUND BALANCES AT END OF YEAR $ 2,004,644 $ 31,129 $ 1,025,746 $ 4,491,193 $ 7,552,712 See notes to financial statements. 23 CITY OF PEARLAND, .TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GOVERNMENTAL FUND TYPES Year ended September 30,1996 REVENUES Taxes - (including penalties and interest) Licenses and permits Interest on investments Fines and forfeitures Charges for services Intergovernmental Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Community services Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES REVENUES OVER (UNDER) .EXPENDITURES OTHER FINANCING SOURCES ( USES) Operating transfers out Operating transfers in REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES Fund balances at beginning of year FUND BALANCES AT END OF.YEAR GENERAL FUND BUDGET $ 7,165,425 433,700 162,650 427,500 1,410,000 45,700 599,175 10,244,150 VARIANCE FAVORABLE ACTUAL (UNFAVORABLE) $ 7,126,114 514,081 181,256 459,884 1,553,765 115,262 518,124 10,468,486 2,329,704 2,316,013 3,818,613 3,865,449 4,423,695 4,112,939 1,095,256 1,043,996 11,667,268 (1,423,118) 11,338,397 (869,911) (65,000) (65,000) 1,002,000 1,002,000 $ (486,118) 67,089 1,937,555 $ 2,004,644 $ (39,311) 80,381 18,606 32,384 143,765 69,562 (81,051) 224,336 13,691 (46,836) 310,756 51,260 328,871 553,207 0 0 $ 553,207 24 DEBT SERVICE FUND BUDGET $ 2,272,815 100,000 ACTUAL $ 2,161,078 76,008 2,372,815 2,237,086 1,010,000 1,010,000 1,443,604 1,420,097 2,453,604 2,430,097 (80,789) (193,011) $ (80,789) VARIANCE FAVORABLE (UNFAVORABLE) $ (111,737) (23,992) (135,729) 0 23,507 23,507 (112,222) 0 (193,011) $ (112,222) 1.218.757 $ 1,025,746 See notes to fmancial statements. 25 CITY OF PEARLAND,TEXAS COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUND) AND DISCRETELY PRESENTED COMPONENT UNIT Year ended September 30,1996 PROPRIETARY COMPONENT FUND TYPE UNIT ENTERPRISE P.E.D.C. Operating revenues Water & sewer sales and services $ 4,418,321 Other revenue 9,931 $ 22 Sales tax 1,149,273 4,428,252 Operating expenses Treatment 1,581,250 Distribution and collection 557,879 Accounting 232,236 Construction 573,316 Other expenses 202,838 OPERATING INCOME BEFORE DEPRECIATION Depreciation OPERATING INCOME 1,149,295 585,811 3,147,519 585,811 1,280,733 563,484 649,938 3,375 630,795 560,109 Non -operating revenues (expenses) Interest revenue 246,868 Interest expense (206,521) INCOME BEFORE OPERATING TRANSFER Operating transfer in Operating transfer out 4,543 40,347 4,543 671,142 564,652 65,000 (881,000) (76,000) NET INCOME (144,858) 488,652 Retained earnings (deficit) at beginning of year 1,705,628 (21,741) RETAINED EARNINGS AT END OF YEAR $ 1,560,770 $ 466,911 See notes to financial statements 26 CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUND) AND DISCRETELY PRESENTED COMPONENT UNIT Year ended September 30,1996 PROPRIETARY COMPONENT FUND TYPE UNIT ENTERPRISE P.E.D.C. CASH FLOWS FROM OPERATING ACTIVITIES Operating income (loss) $ 630,795 $ 560,109 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation expense 649,938 3,375 (Increase) decrease in accounts receivable 51,985 Increase in customer deposits 17,024 Increase (decrease) in accounts payable 88,594 11,431 Increase in accrued expenses 158,953 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Operating transfers in Operating transfers out 1,597,289 574,915 65,000 (881,000) (76,000) (816,000) (76,000) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Contributed capital 549,037 Debt proceeds 9,985,000 Purchase of fixed assets (1,878,665) Principal payments - bonds (1,250,000) Interest paid (206,521) 7,198,851 CASH FLOWS FROM INVESTING ACTIVITIES Interest received (16,875) (16,875) 246,868 4,543 246,868 4,543 Net increase (decrease) in cash 8,227,008 486,583 Cash balance at beginning of year 3,399,035 0 CASH BALANCE AT END OF YEAR $ 11,626,043 $ 486,583 Cash $ 11,370,433 Restricted cash 255,610 See notes to financial statements. $ 11,626,043 27 (This page intentionally left blank.) 28 CITY OF PEARLAND, .TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY The City of Pearland, Texas (the City) was incorporated• in December, 1959 and adopted a "Home Rule Charter" on February 6, 1971, which provides for a "Council -Manager" form of city government. The City's financial statements include the accounts of all City operations. The primary operations are general and administrative, public safety, culture and recreation, public works, sanitation and water and sewer services. As required by generally accepted accounting principles, these financial statements present the City of Pearland and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government's operations and so data from these units would be' combined with data of the City. Each discretely presented component unit, on the other hand, would be reported in a separate column in the combined financial statements to emphasize it is legally separate from the City. Discretely Presented Component Units. The Pearland Economic Development Corporation (PEDC) is responsible for economic development within the City's jurisdiction. The members of the PEDC governing board are appointed by City Council. However, the PEDC is fiscally dependent upon the government because the City Council approves the PEDC's budget and must approve any debt issuances. The PEDC is presented as a proprietary fund type. Financial statements for the PEDC may be obtained at PEDC administrative offices at the following address: Pearland Economic Development Corporation 3519 Liberty Drive Pearland, Texas 77581-5416 B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND BASIS OF PRESENTATION The City of Pearland's accounts are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self -balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of funds aremaintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. 29 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND BASIS OF PRESENTATION (continued) The City has the following fund types and account groups: Governmental funds are used to account for the City general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual (i.e. when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Property taxes and interest are susceptible to accrual. Sales and use taxes and franchise revenue are recorded when received since normally they are not measurable until received. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Governmental funds include the following fund types: The General Fund is the City's primary operating fund. It accounts for all financial resources of the City, except those to be accounted for in another fund. The Special Revenue Funds account for revenue sources that are legally restricted to expenditure for specific purposes (not including expendable trusts or major capital projects). The Debt Service Fund accounts for the servicing of general long-term debt not being financed by proprietary funds. The Capital Projects Fund accounts for the acquisition of fixed assets or construction of major capital facilities not being financed by proprietary funds. Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City applies all applicable FASB pronouncements in accounting and reporting for its proprietary operations. Proprietary funds include the following fund types: 30 CITY OF PEARLAND,.TEXAS_ NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT. ACCOUNTING POLICIES (continued) B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND BASIS OF PRESENTATION (continued) The Enterprise Fund is used to account for those operations that are financed and operated in a manner similar to private business or where the Council has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The General Fixed Assets Account Group is used to account for fixed assets not accounted for in proprietary funds. The General Long -Term Debt Account Group is. used to account for general long-term debt and certain other liabilities. that are not specific liabilities of proprietary funds. C. ASSETS, LIABILITIES AND EQUITY 1. DEPOSITS AND INVESTMENTS The City's cash and cash equivalent are considered to be cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition. Investments are stated at cost. In the Statements of Cash Flows, cash refers to cash and cash equivalents. Statutes authorize the City and the PEDC to invest in direct obligations of the U.S. Government, fully collateralized certificates of deposit and investment pools. 2. RECEIVABLES AND PAYABLES Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non -current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds". Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available fmancial resources. All trade receivables areshownnet of an allowance for uncollectibles. 31 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. ASSETS, LIABILITIES AND EQUITY (continued) 2. RECEIVABLES AND PAYABLES (continued) General property taxes are recorded as revenue when levied for the current year and due, payable and collected in the current year. Uncollected amounts at year end are reported as deferred revenue. Property taxes collected within sixty days subsequent to September 30, 1995 were not considered material. The general property tax rate is required to be levied by September 15 each year. Taxes become due on October 1 and uncollected taxes are delinquent on February 1 following the tax year. The City's tax lien exists from January 1 (the assessment date) each year until the taxes are paid. The procedure for collection of delinquent taxes is to send to delinquent notices and a letter and then refer the delinquent accounts to the Tax Attorney for legal action. The Home Rule Charter requires foreclosure proceedings no later than two years after taxes first become delinquent. A penalty of 7% is added to delinquent taxes on February 1 and increases 2% each month through September. An additional penalty of 15% is added in July for attorney costs. There are no discounts allowed on taxes. 3. INVENTORIES AND PREPAIDS The costs of governmental fund -type inventories are recorded as expenditures when the related liability is incurred, i.e., the purchase method. Certain payments to vendors reflect costs applicable to future accounting periods are also recognized as an expenditure when purchased. 4. RESTRICTED ASSETS Certain proceeds of Enterprise Fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the combined balance sheet because their use is limited by applicable bond covenants. 5. FIXED ASSETS Property, plant and equipment are stated as original cost. Donated fixed assets are recorded at the fair market value on the date donated. Costs incurred for the purchase or construction of general fixed assets are recorded as capital outlay expenditures in the General, Special Revenue and Capital Projects Funds. All such costs are capitalized in the General Fixed Assets Account Group. Amounts expended for property, plant and equipment in the Enterprise Fund are capitalized in the fixed asset accounts within that fund. 32 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. ASSETS, LIABILITIES AND EQUITY (continued) 5. FIXED ASSETS (continued) Public domain fixed assets (roads, bridges, curbs and gutters, streets and sidewalks, lighting systems and similar assets that are immovable and of value only to the City) are capitalized when acquired. Depreciation is not recorded on general fixed assets. Depreciation has been recorded on plant and equipment of the Enterprise Fund using the straight-line method over the following estimated useful lives of the assets: Description Estimated Useful Lives Equipment Water and sewer systems 6. COMPENSATED ABSENCES 5 to 10 years 3 to 50 years It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Vacation and sick pay is accrued when incurred in proprietary funds and reported as a fund liability. Vacation pay that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it. Amounts not expected to be liquidated with expendable available financial resources are reported in the general long-term debt account group. No expenditure is reported for these amounts. 7. LONG-TERM OBLIGATIONS The City reports long-term debt of governmental funds at face value. in the general long-term debt account group. Certain other governmental fund obligations not expected to be fmanced with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. 33 CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. ASSETS, LIABILITIES AND EQUITY (continued), 7. LONG-TERM OBLIGATIONS (continued) For governmental fund types, bond premiums and. discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other fmancing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method, if material. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. 8. FUND EQUITY Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings are limited to outside third -party restrictions. Designations of fund balance represent tentative management plans that are subject to change. The proprietary fund's contributed capital represents equity acquired through capital grants and capital contributions from developers, customers or other funds. 9. "MEMORANDUM ONLY" CAPTIONS The "Memorandum Only" captions on the columns of the combined statements mean totals are presented for overview informational purposes only and they do not fairly present financial position or results of operations for the City as a whole in conformity with GAAP. "Memorandum Only" columns do not include eliminations for interfund activity and consolidated financial information is not presented. II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. BUDGETARY INFORMATION Annual budget's are adopted on a basis consistent with generally accepted accounting principles (GAAP) except the Capital Projects Fund, which adopts a project length budget. Budgets are not adopted for the Special Revenue Funds. The original budget is adopted by the City Council prior to the beginning of the fiscal year. The legal level of control is the total approved budget for each fund. The City may transfer funds within department categories without Council approval and between departments from one category to another within department budgets. All transfers from one fund to another must be approved by Council. The final amended budget is used in this report. Appropriations lapse at the end of the year. 34 CITY OF PEARLAND, .TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (continued) A. BUDGETARY INFORMATION (continued) The City of Pearland has complied with all budget requirements for the year ended September 30, 1996. Supplemental budget appropriations were made for the year ended September 30, 1996. Encumbrances represent the estimated amount of expenditures ultimately to result when unperformed contracts (in progress at year-end) are completed. Such encumbrances are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. DEPOSITS AND INVESTMENTS The City's deposits and investments are categorized as either (1) Insured or collateralized with securities held by the entity or by its agent in the entity's name, (2) Collateralized with securities held by the pledging fmancial institution's trust department or agent in the entity's name, or (3) Uncollateralized, including any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the entity's name. Cash temporarily idle during the year was invested in Texas Local Government Investment Pool (TexPool). TexPool was established as a Trust Company with the Treasurer of the State of Texas as trustee, segregated from all other trustees, investments and activities of the Trust Company. This investment is not subject to categorization of credit risk since it is an investment pool managed by other governments. At year end, the City's deposits and investment balances were as follows: 1 Categories Carrying Market 2 3 Amount Value Deposits $ 17,754,156 Investments not subject to categorization: TexPool $ 17,177,507 $17,754,156 $ 3,453,914 $ 3,453,914 35 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) B. RECEIVABLES Receivables as of year end, including the applicable allowances for uncollectible accounts, are as follows: Debt Capital General Service Projects Enterprise Total Receivables Taxes $ 141,097 $ 117,007 $ 258,104 Accounts 136,834 $ 364,753 501,587 Other 2.918 $ 34,246 5,146 42,310 Gross receivables 280,849 117,007 34,246 369,899 802,001 Less: allowance for doubtful accounts 5,000 5,000 Net total receivables $ 280,849 $ 117,007 $ 34,246 $ 364,899 $ 797,001 C. CHANGES IN FIXED ASSETS The changes in general fixed assets during the year ended September 30, 1996 are summarized as follows: Balance at Balance at Sept. 30,1995 Additions Retirements Sept. 30, 1996 Land $ 1,097,719 $ 1,097,719 Buildings 7,302,981 $ 6,212 7,309,193 Improvements 14,357,059 3,263,789 17,620,848 Equipment 5,141,874 894,044 6,035,918 Construction in progress 159,804 159,804 TOTAL $ 28,059,437 $ 4,164,045 $ 0 $ 32,223,482 36 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) C. CHANGES IN FIXED ASSETS (continued) The changes in Enterprise Fund fixed assets during the year ended September 30, 1996 are summarized as follows: Balance at Balance at Sept. 30,1995 Additions Retirements Sept. 30, 1996 Land $ 189,071 $ 189,071 Equipment 1,181,684 $ 209,965 1,391,649 Buildings and improvements 16,307,681 954,153 17,261,834 Construction in progress 614,146 614,146 17,678,436 1,778,264 0 19,456,700 Less allowance for depreciation (6,304,003) (649,938) (6,953,941) TOTAL $ 11,374,433 $1,128,326 $ 0 $ 12,502,759 D. LONG-TERM DEBT Long-term debt at September 30, 1996 was comprised of the following issues: Interest Principal Balance Description Rates Sept. 30, 1996 General Obligation Bonds 1986 Public Improvement Bonds 6.50 to 8.50% $ 425,000 1988 Public Improvement Bonds 6.80 to 8.80% 350,000 1991 Refunding Bonds 7.10 to 7.35% 10,000,000 1992 Street Improvement Bonds 6.00 to 8.00% 1,840,000 1993 Refunding Bonds 2.65 to 4.625% 5,515,000 $ 18,130,000 37 CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) D. LONG-TERM DEBT (continued) Description Interest Principal Balance Rates Sept. 30, 1996 Certificates of Obligation 1991 Tax and Revenue Certificate of Obligation 6.3 to 7.8% $ 1,670,000 1996 Public Works Certificate of Obligation 5,000,000 TOTAL GENERAL LONG-TERM DEBT 24,800,000 Revenue Bonds 1996 A Water and Sewer System Revenue Bond 4.50 to 5.20% 1,115,000 1996 B Water and Sewer System Revenue Bonds 2.90 to 4.85% 8,870,000 9,985,000 TOTAL LONG-TERM DEBT $ 34,785,000 The annual requirements to amortize general obligation bonds, certificates of obligation and revenue bonds outstanding at September 30, 1996, are as follows: Year Ending Sept. 30 General Long- Revenue Term Debt Bonds Total 1997 $ 2,443,604 $ 779,198 $ 3,222,802 1998 2,451,441 782,522 3,233,963 1999 2,441,789 778,692 3,220,481 2000 2,437,314 778,848 3,216,162 2001 2,438,211 777,886 3,216,097 2002 and beyond 22,336,434 11,696,338 34,032,772 Less interest payments 34,548,793 15,593,484 50,142,277 9,748,793 5,608,484 15,357,277 $ 24,800,000 $ 9,985,000 $ 34,785,000 38 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) D. LONG-TERM DEBT (continued) During the year ended September 30, 1996, the following changes occurred in liabilities reported in the general long-term account group: Balance Balance Oct. 1, 1995 Additions Reductions Sept. 30, 1996 Compensated absences $ 113,530 $ 293,458 $ 406,988 Certificates of obligation 6,785,000 $ 115,000 6,670,000 General obligation debt 19,025,000 895,000 18,130,000 TOTAL $ 25,923,530 $ 293,458 $ 1,010,000 $ 25,206,988 General obligation bonds are direct obligations of the City for which its full faith and credit are pledged. Repayment of general obligation bonds are from taxes levied on all taxable property located within the City. The City is not obligated in any manner for special assessment debt. E. CONTRIBUTED CAPITAL A summary of changes in contributed capital is as follows: ENTERPRISE P.E.D.C. Beginning balance $ 11,831,508 $ 9,214 Impact fees 549,037 Ending balance $ 12,380,545 $ 9,2.14 39 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 IV. OTHER INFORMATION A. 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; and natural disasters for which the City participates in the Texas Municipal League's General Liability Fund. In addition the City participates in the Texas Municipal League's Workers Compensation Fund to insure the City for workers compensation claims. The City has not significantly reduced insurance coverage or had settlements which exceeded coverage amounts for the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of pay -outs and other economic and social factors. No claim liabilities are reported at September 30, 1996. B. 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 which may be disallowed by the grantor cannot be determined at this time although the City 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, it is the opinion of the City's counsel that resolution of these matters will not have a material adverse effect on the financial condition of the City. C. EMPLOYEE RETIREMENT SYSTEM Plan Description The City provides pension benefits for all of its full-time employees through a nontraditional, joint contributory, defined contribution plan in the state-wide Texas Municipal Retirement System (TMRS), one of over 670 administered by TMRS, an agent multiple -employer public employee retirement system. It is the opinion of the TMRS management that the plans in TMRS are substantially defined contribution plans, but they have elected to provide additional voluntary disclosure to help foster a better understanding of some of the nontraditional characteristics of the plan. 40 CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Plan Description (continued) Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the city - financed monetary- credits, 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-fmanced monetary credits with interest were used to purchase an annuity. Members can retire at ages 60 and above with 10 or more years of service or with 25 years or more of service regardless of age. The plan also provides death and disability benefits. A member is vested after 20 years, but he must leave his accumulated contributions in the plan. If a member withdraws his own money, he is not entitled to the employer -financed monetary credits, even if he was vested. 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. Contributions The contribution rate for the employees is 5%, and the City matching percent is currently 10%, both as adopted by City Council. Under the state law governing TMRS, the City contribution rate is annually determined by the actuary. 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 City matching percent, which are 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 theactuarially determined percent of payroll necessary to satisfy the obligation of the City to each employee at the time his retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25-year amortization period. 41 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Contributions (continued) Currently, the unfunded actuarial liability is being amortized over the 25-year period which began January, 1996. The unit credit actuarial cost method is used for determining the City contribution rate. Contributions are made monthly by both the employees and the City. Since the City needs to know its contribution rate in advance to budget for it, there is a one-year lag between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. The City's total payroll in fiscal year 1996 was $5,058,304 and the City's contributions were based on a payroll of $4,806,786. Both the City and the covered employees made the required contributions, amounting to $349,364 (6.55% of covered payroll for the months in calendar year 1995 and 6.66% for the months in calendar year 1996) for the City and $264,881 (5%) for the employees. The normal cost contribution rates for 1995 and 1996 were 4.89% and 5.14%, and resulted in an actuarially determined contribution to cover normal cost of $240,339. The City adopted changes in the plan since the previous actuarial valuation, which had the effect of increasing the City's contribution rate for 1996 by 0.30% of payroll. There were no related -party transactions. Funding Status and Progress Even though the substance of the City's plan is not to provide a defined benefit in some form, some additional voluntary disclosure is appropriate due to the nontraditional nature of the defined contribution plan which had an initial unfunded pension benefit obligation due to the monetary credits granted by the City for services rendered before the plan began and which can have additions to the unfunded pension benefit obligation through the periodic adoption of increases in benefit credits and benefits. Statement No. 5 of the Governmental Accounting Standards Board (GASB 5) defines pension benefit obligation as a standardized disclosure measure of the actuarial present value of pension benefits, adjusted for the effects of projected salary increases, estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of public employee pension plans, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among public employee pension plans. 42 CITY OF PEARLAND, TEXAS. NOTES TO FINANCIAL STATEMENTS September 30,1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Funding Status and Progress (continued) The pension benefit obligation shown below is similar.in nature to the standardized disclosure measure required by GASB 5 for defined benefit plans except that there is no need to project salary increases since the benefit credits earned for service to date are not dependent upon future salaries. The calculations were made as part of the annual actuarial valuation as of December 31, 1995. Because of the money -purchase nature of the plan, the interest rate assumption, currently 8.5% per year, does not have as much impact on the results as it does for a defined benefit plan. Market value of assets is not determined for each City's plan, but the market value of assets for TMRS as a whole was 98.6% of book value as of December 31, 1995. Pension Benefit Obligation Annuitants currently receiving benefits $ 701,195 Terminated employees 1,750,849 Current employees Accumulated employee contributions including allocated invested earnings 2,058,036 Employer -financed vested 2,712,637 Employer -financed nonvested 494,937 Total Pension Benefit Obligation 7,717,654 Net Assets Available for Benefits, at Book Value 6,694,231 Unfunded Pension Benefit Obligation $ 1,023,423 The book value of assets is amortized cost for bonds and original cost for short-term securities and stocks. The actuarial assumptions used to compute the actuarially determined City contribution rate are the same as those used to compute the pension benefit obligation. The numbers above reflect the adoption of changes in the plan since the previous actuarial valuation, which had the effect of increasing the pension benefit obligation by $133,594. 43 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Trend Information UNFUNDED UNFUNDED PENSION NET ASSETS PENSION PENSION ANNUAL BENEFIT OBLIGATION CALENDAR AVAILABLE BENEFIT PERCENTAGE BENEFIT COVERED AS A PERCENTAGE YEAR FOR BENEFITS OBLIGATION FUNDED OBLIGATION PAYROLL OF COVERED PAYROLL 1986 $ 1,719,378 $ 2,572,328 66.84 % $ 852,950 $ 2,713,924 31.46 % 1987 2,100,361 3,040,489 69.08 940,128 2,841,130 33.09 1988 2,440,324 3,272,289 74.58 831,965 2,866,658 29.02 1989 2,568,286 3,445,280 74.55 876,994 2,871,853 30.54 1990 3,074,658 3,983,159 77.19 908,501 3,092,103 29.38 1991 3,683,710 4,638,085 79.42 954,375 3,530,891 27.03 1992 4,304,890 5,341,726 80.59 1,036,836 3,862,727 26.84 1993 5,222,033 6,400,037 81.59 1,178,004 4,018,940 29.31 1994 5,968,333 7,137,329 69.61 1,168,996 4,130,206 28.30 1995 6,694,231 7,717,654 86.74 1,023,423 4,806,786 21.29 44 APPENDIX C - FORM OF LEGAL OPINION MAYOR, DAY, CALDWELL 8 KEETON, L.L.P. 700 LOUISIANA, SUITE 1900 HOUSTON, TEXAS 77002-2778 (713) 225-7000 TELECOPIER (713) 225-7047 , 1997 100 CONGRESS AVENUE SUITE 1500 AUSTIN, TEXAS 78701-4042 (512) 320-9200 TELECOPIER(512) 320-9292 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 1997, dated April 1, 1997, in the aggregate principal amount of $6,000,000, maturing on March 1 in each year from 1999 through and including 2016. The Certificates are issuable in fully registered form only, in denomina- tions of $5,000 or integral multiples thereof, bear interest, are subject to redemption prior to maturity 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 con- tains 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 accor- dance 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, 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 the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The revenues to be derived from the operation of the City's waterworks and sanitary 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. 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) or a real estate mortgage investment conduit (REMIC)) 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 and the environmental tax imposed by the Code are computed. Purchasers of Certificates are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. UNDER EXISTING LAW and based upon the assumptions stated in the Official Statement prepared for use in connection with the sale of the Certificates, it is also our opinion as follows: (1) the difference between (a) the stated redemption price at maturity of each Certificate maturing in the years, through , inclusive (the "Discount Certificates"), and (b) the initial offering price at which a substantial amount of such Discount Certificates of the same maturity were sold to the public, as described in the Official Statement, constitutes original issue discount with respect to each such Discount Certificate in the hands of an owner who purchased such Discount Certificate at the initial offering price in the initial public offering of the Certificates; and (2) such initial owner is entitled to exclude from gross income for federal income tax purposes with respect to such Discount Certificate that portion of the original issue discount deemed to be earned 'for federal income tax purposes during the period that such Discount Certificate continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Discount Certificate prior to its stated maturity, however, any amount realized by such owner in excess of the basis of such Discount Certificate in the hands of such owner (adjusted upward by the portion of the original issue discount deemed to be earned during the period for which such Discount Certificate was held by such initial owner) is includable in gross income for federal income tax purposes. PURCHASERS OF DISCOUNT CERTIFICATES in the initial public offering are directed to the discussion entitled "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES" set forth in the Official Statement for purposes of determining the portion of the original issue discount which is deemed to be earned for federal income tax purposes during the period such Certificates are held by an initial owner. The federal income tax consequences of the purchase, ownership and redemption, saleor other taxable disposition of Discount Certificates which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those described above and in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences 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, 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 3 Security or Railroad Retirement benefits and taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. 4 RAUSCHER PIERCE REFSNFS, INC. OFFICIAL STATEMENT DATED MARCH 3, 1997 In the opinion of Bond Counsel, interest on the Certificates will be excludable from gross income for federal income tar purposes under existing law and is not subject to the alternative minimum tax on individuals. See "TAX EXEMPTION" for a discussion of alternative minimum tax consequences for corporations. NEW ISSUE $6,250,000 CITY OF PEARLAND, TEXAS (A political subdivision of the State of Texas located within Brazoria and Harris Counties) CERTIFICATES OF OBLIGATION Series 1997 Dated: April 1, 1997 Principal and interest is payable at the principal corporate trust office of the 'Ilxas Commerce Bank National Association, Houston, Texas, the paying agent/registrar (the "Registrar"). Interest is payable March 1, 1998, and each March 1 and September 1 thereafter until maturity or prior redemption. The Certificates are subject to redemption prior to their scheduled maturities on March 1, 2007 or any date thereafter, at the option of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. See "THE CERTIFICATES -Description of the Certificates." The Certificates are issued in fully registered form in integral multiples of $5,000. Interest on the Certificates will be payable by check, dated as of the interest payment date, and mailed by the Registrar to registered owners shown on the records of the Registrar on the fifteenth calendar day of the month next preceding each interest payment date (the "Record Date"). The Municipal Bond Guaranty Insurance Policy to guarantee the principal of and interest on the Bonds on the stated payment dates as described herein will be issued by MBIA Insurance Corporation. fEnA MATURITY SCHEDULE (Due March 1) Initial Initial Interest Re'tferiug Interest Reoffering Amount Maturity Rate Yield (a) Amount Maturity Rate Yield (a) $ 100,000 1999 7.25% 4.05% $ 120,000 2008(b) 6.50% 5.15% 100,000 2000 7.25 4.20 120,000 2009(b) 5.25 5.25 100,000 2001 7.25 4.35 400,000 2010(b) 5.25 5.30 100,000 2002 7.25 4.50 460,000 2011(b) 5.25 5.35 100,000 2003 7.25 4.60 520,000 2012(b) 5.30 5.40 100,000 2004 7.25 4.75 580,000 2013(b) 5.35 5.45 100,000 2005 7.25 4.85 650,000 2014(b) 5.40 5.50 100,000 2006 7.25 4.95 1,210,000 2015(b) 5.45 5.55 110,000 2007 7.25 5.05 1,280,000 2016(b) 5.50 5.60 (a) The initial yields will be established by and are the sole responsibility of the Purchaser (as defined herein), and may subsequently be changed. (b) The Certificates maturing on or after March 1, 2008 are subject to redemption, at the option of the City, at the par value thereof plus accrued interest, in whole or in part, on March 1, 2007, or any date thereafter. See "THE CERTIFICATES -Description of the Certificates." The above certificates (the "Certificates") constitute all the certificates authorized by the City Council on March 3, 1997. The Certificates, when issued, will constitute valid and bindingobligations 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 taxable property within the City and will be further payable from a junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000. See "THE CERTIFICATES -Source of Payment." 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 Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, Bond Counsel to the City, as to the validity of the issuance of the Certificates under the Constitution and the laws of the State of Texas. The Certificates are expected to be available for delivery on or about April 3, 1997. USE OF INFORMATION IN OFFICIAL STATEMENT 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. 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 affairs of the City or other matters described herein since the date hereof. 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 Page INTRODUCTION 3 SALE AND DISTRIBUTION OF THE CERTIFICATES 3 Sale of the Certificates 3 Prices and Marketability 3 Securities Laws 4 Municipal Bond Ratings 4 The MBIA Insurance Corporation Insurance Policy 4 Disclosure of Guaranty Fund Nonparticipation 6 OFFICIAL STATEMENT SUMMARY 7 INTRODUCTION 9 THE CERTIFICATES 9 Description of the Certificates 9 Transfers and Exchanges of the Certificates 9 Source of Payment 10 Authority for Issuance 10 Use of Proceeds 10 Future Debt 10 Legal Investments in Texas 10 Remedies in the Event of Default 11 INVESTMENT AUTHORITY AND INVESTMENT OBJECTIVES OF THE CITY 11 Legal Investments 11 Investment Policies 12 DEBT SERVICE SCHEDULE 13 d DEBT STATEMENT 13 General 13 Bonded Indebtedness 13 14 14 14 14 Property Tax Code and County -Wide Appraisal District 14 Tax Rate Limitations 15 Property Subject to Taxation by the City 15 Notice and Hearing Procedures 16 Levy and Collection of Taxes 16 Collection of Delinquent Taxes 16 Historical Analysis of Tax Collection 17 Analysis of Tax Base 18 Estimated Overlapping Taxes 19 Sales Tax 20 SELECTED FINANCIAL DATA 21 Historical Operations of the City's General Fund 21 General Fund and Debt Service Fund Balance for the Past Five Fiscal Years 21 Pension Fund 22 Financial Statements 22 ADMINISTRATION OF THE CITY 22 Mayor and City Council 22 Administration 23 Consultants 23 LEGAL MATTERS 24 Legal Opinions 24 No -Litigation Certificate 24 No Material Adverse Change 24 TAX EXEMPTION 25 TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES 25 Discount Certificates 25 Premium Certificates 26 CONTINUING DISCLOSURE OF INFORMATION 27 Annual Reports 27 Material Event Notices 27 Availability of Information From NRMSIRs and SID 28 Limitations and Amendments Z8 Audited Financial Report of the City 28 Compliance With Prior Undertakings 29 GENERAL CONSIDERATIONS 29 Sources and Compilation of Information 29 Certification as to Official Statement 29 Updating of Official Statement 29 Estimated Overlapping Debt Debt Ratios TAX DATA General APPENDIX A APPENDIX B - APPENDIX C APPENDIX D - ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS FINANCIAL STATEMENTS OF THE CITY - FORM OF LEGAL OPINION - SPECIMEN OF THE INSURER'S POLICY 2 INTRODUCTION All of the summaries of the statutes, resolutions, orders, contracts, audits, engineering and other related reports set forth in this Official Statement are made 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, copies of which are available from the City. 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. However, the City has agreed to keep this Official Statement current by amendment or sticker to reflect material changes in the affairs of the City and to the extent that information actually comes to its attention, the other matters described in this Official Statement until delivery of the Certificates to the Purchaser and thereafter only as specified in "SOURCES OF INFORMATION - Updating of Official Statement and CONTINUING DISCLOSURE OF INFORMATION." SALE AND DISTRIBUTION OF THE CERTIFICATES Sale of the Certificates: After requesting competitive bids for the Certificates, the City has accepted the bid resulting in the lowest net interest cost, which bid was tendered by a syndicate managed by Rauscher Pierce Refsnes, Inc., Legg Mason Wood Walker, Inc., PaineWebber Inc., and Smith Barney, Inc. (collectively, the "Purchaser") to purchase the Certificates bearing the interest rates shown on the cover page hereof under "MATURITY SCHEDULE" at a price of the par value thereof, plus accrued interest to the date of delivery. The net effective interest rate on the Certificates was 5.5259 % as calculated pursuant to Article 717k-2 of Vernon's Annotated Texas Civil Statutes. Prices and Marketability: The delivery of the Certificates is conditioned upon the receipt by the City of a certificate executed and delivered by the Purchaser 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 a certificate house, broker or similar person acting in the capacity of purchaser or wholesaler. The City has no control over trading of the Certificates after a bona fide offering of the Certificates is made by the Purchaser at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Purchaser. The prices and other terms respecting the offering and sale of the Certificates may be changed from time to time by the Purchaser after the Certificates are released for sale, and the Certificates may be offered and sold at prices 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 PURCHASER MAY OVER -ALLOT OR EFFECT 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. Municipal Bond Ratings: Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") have assigned municipal bond ratings of "Aaa" and "AAA," respectively to the Bonds with the understanding that upon delivery of the Bonds, a guaranty insurance policy insuring the timely payment of the principal of and interest on the Bonds will be issued by MBIA Insurance Corporation. The ratings of the Bonds reflects only the view of such companies at the time the rating is given, and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time, or that they will not be revised downward or'withdrawn entirely by Moody's or S&P, if, in the judgment of Moody's or 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 Bonds. The MBIA Insurance Corporation Insurance Policy: The following information has been furnished by MBIA Insurance Corporation (the "Insurer") for use in this Official Statement. Reference is made to Appendix D for a specimen of the Insurer's policy. The Insurer's policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the City to the Registrar or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Insurer's policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference"). The Insurer's policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. The Insurer's policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. The Insurer's policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Registrar or any other paying agent for the Bonds. 4 Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Registrar or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with. State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Registrar payment of the insured amounts due on such Bonds, less any amount held by the Registrar for the payment of such insured amounts and legally available therefor. The Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of or claims against the Insurer. The insurer is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. The Insurer has two European branches, one in the Republic of France and the other in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by the Insurer, changes in control and transactions among affiliates. Additionally, the Insurer is required to maintain contingency reserves on its liabilities in certain amounts and for certain periods of time. As of December 31, 1995, the Insurer had admitted assets of $3.8 billion (audited), total liabilities of $2.5 billion (audited), and total capital and surplus of $1.3 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of September 30, 1996, the Insurer had admitted assets of $4.3 billion (unaudited), total liabilities of $2.9 billion (unaudited), and total capital and surplus of $1.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Furthermore, copies of the Insurer's year end financial statements prepared in accordance with statutory accounting practices are available from the Insurer. A copy of the Annual Report on Form 10-K of MBIA Inc. is available from the Insurer or the Securities and Exchange Commission. The address of the Insurer is 113 King Street, Armonk, New York 10504. Moody's Investors Service ("Moody's") rates the claims paying ability of the Insurer "Aaa". 11 Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. ("Standard & Poor's"), rates the claims paying ability of the Insurer "AAA." Fitch Investors Service, L.P., rates the claims paying ability of the Insurer "AAA." Each rating of the Insurer should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of the Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. 5 The above ratings are not recommendations to buy, sell, or hold the Bonds, and such ratings may be subject to revision or withdrawal sat any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. The Insurer does not guarantee the market price of the Bonds nor does it guarantee that the ratings on the Bonds will not be revised or withdrawn. Disclosure of Guaranty Fund Nonparticipation: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. 6 i OFFICIAL STATEMENT SUMMARY The following material is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. - General - The Issuer The City of Pearland, a political subdivision of the State of Texas located within Brazoria and Harris. Counties. The Certificates $6,250,000 Certificates of Obligation, Series 1997, dated April 1, 1997; various amounts due March 1, 1999 through 2016. Payment of Interest March 1, 1998, and each March 1 and September 1 thereafter, until maturity or prior redemption. Source of Payment Principal of and interest on the Certificates are payable from a continuing, direct annual ad valorem tax levied within the limits prescribed by law and will be further payable from a junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000. See "THE CERTIFICATES - Source of Payment." Other Characteristics The Certificates are issued in fully registered form in integral multiples of $5,000. The Certificates are subject to redemption prior to their scheduled maturities on March 1, 2007 or any date thereafter at the option of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. See "THE CERTIFICATES - Description of the Certificates." Use of Proceeds Proceeds from the sale of the Certificates are to be used for (i) the renovation and improvement of certain of the City's building including the central public library, (ii) acquisition of right of way and construction of certain street projects, (iii) construction and improvement of certain drainage facilities, including flood control improvements and (iv) professional services related thereto. The proceMs will also be used to pay costs incurred in the issuance of the Certificates. See "THE CERTIFICATES - Use of Proceeds". Municipal Bond Insurance MBIA Insurance Corporation. See "SALE AND DISTRIBUTION OF THE CERTIFICATES - The MBIA Insurance Corporation Insurance Policy." Municipal Bond Ratings Moody's Investors Service, Inc. (MBIA) "Aaa" Standard & Poor's Ratings Group (MBIA) "AAA" See "SALE AND DISTRIBUTION OF THE CERTIFICATES - Municipal Bond Ratings." Population 1996 Estimate - 32,000. Payment Record The City has never defaulted on the timely payment of principal of and interest on its obligations. 7 tit u SELECTED FINANCIAL INFORMATION (Unaudited) 1996 Certified Assessed Valuation $912,597,870(a) (100% of market value as of January 1, 1996) See "TAX DATA" Direct Debt: Outstanding Bonds and Certificates (as of February 1, 1997) $ 23,119,392 The Certificates 6,250,000 Total Direct Debt $ 29,369,392 Estimated Overlapping Debt $ 42.127,751 Direct Debt and Estimated Overlapping Debt $ 71,497,143 Debt Service Fund Balance (as of February 1, 1997) $ 3,240,614 Ratio of Direct Debt to 1996 Certified Assessed Valuation ($912,597,870) 3.22% 1996 Estimated Population (32,000) $ 918 Ratio of Direct and Estimated Overlapping Debt to 1996 Certified Assessed Valuation ($912,597,870) 7.83 % 1996 Estimated Population (32,000) $2,234 Annual Debt Service Requirements: Average (Fiscal Years 1997/2016) $2,298,582 Maximum (1998) $2,954,726 Tax Collections: Arithmetic Average, Tax Years (1992/1996) - Current Year - Current and Prior Years (a) Certified by the Brazoria County Appraisal District. 97.89% 99.39 % $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 INTRODUCTION This Official Statement provides certain information with respect to the issuance by the City of Pearland, Texas (the "City") of its Certificates of Obligation, Series 1997 (the "Certificates"). The Certificates are issued pursuant to the Texas Constitution, the general laws of the State of Texas, 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 of the Certificates: The Certificates are dated April 1, 1997, bear interest from such date at the stated interest rates indicated under "MATURITY SCHEDULE" on the cover page hereof, which interest is payable March 1, 1998, and each March 1 and September 1 thereafter until maturity or prior redemption. The Certificates are issued in fully registered form in denominations of $5,000 each or any multiple thereof. The Certificates are subject to redemption prior to scheduled maturities on March 1, 2007 or any date thereafter at the option of the City. Upon redemption the Certificates will be payable at a price equal to the principal amount thereof plus accrued interest to the date of redemption. Principal of and interest on the Certificates are payable at the principal payment office of the Texas Commerce Bank National Association, Houston, Texas (the "Registrar"). Interest on the Certificates will be payable by check, dated as of the interest payment date, and mailed by the Registrar to registered owners as shown on the records of the Registrar. The record date (the "Record Date") for the interest payable on any interest payment date means the 15th calendar day of the month next preceding such interest payment date. Transfers and Exchanges of the Certificates: So long as any Certificates remain outstanding, the Registrar must keep at its principal corporate trust office registers in which, subject to such reasonable regulations as it may prescribe, the Registrar must provide for the registration and transfer of the Certificates in accordance with the terms of the Ordinance (as hereinafter defined). The Certificates are transferable only on the certificate register kept by the 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 corporate trust office of the 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. It will be required that all transfers be made within three business days after request and presentation. 9 i 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 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. 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 taxable property within the City. The Certificates will be further payable from a junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000. In the Ordinance, the City covenants that while the Certificates are outstanding, it will levy, assess and undertake to collect such tax. See also "Remedies in the Event of Default." Authority for Issuance: The Certificates are being issued pursuant to the applicable provisions of the Constitution and laws of the State of Texas, particularly Sections 271.041-271.063, Texas Local Government Code, as amended, and the provisions of an ordinance (the "Ordinance") adopted by the City Council on March 3, 1997, and which specifically authorizes the sale and issuance of the Certificates. Further reference to the Ordinance is hereby made. No election is required as a prerequisite to the sale and issuance of certificates of obligation, unless a petition signed by 5% of the qualified voters of the City is 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 to provide funds for (i) the renovation and improvement of certain of the City's buildings, including the central public library, (ii) acquisition of right of way and construction of certain street projects, (iii) construction and improvement of certain drainage facilities, including flood control improvements and (iv) professional services related thereto. The proceeds will also be used to pay the costs of issuance of the Certificates, including the Financial Advisor's fee and Bond Counsel's fee, both of which are contingent upon the sale of the Certificates, as well as other administrative costs incurred. Future Debt: The City currently does not have any authorized but unissued bonds. Currently, the City Council has no plans to seek voter approval for such bonds; however, the City reserves the right to issue such bonds if authorized by the electorate. 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, incre' sPs 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 Section 9 of the Bond Procedures Act of 1981, as amended, Texas Revised Civil Statutes Annotated Article 717k-6 (the "Procedures Act"), all certificates issued by the City constitute negotiable instruments, and are investment securities governed by Chapter 8, Texas Uniform Commercial Code, notwithstanding any provisions of law or court decision to the contrary, and are legal and authorized investments for banks, savings banks, trust companies, building and loan associations, savings and loan associations, insurance companies, fiduciaries, and trustees, and for sinking fund of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas. The Procedures Act further provides that the Certificates are eligible to secure deposits of public funds of the State, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. No review by the City has been made of the laws in other states to determine whether the Certificates are legal investments for various institutions in those states. 10 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. Other than the limited pledge of waterworks and sewer system revenues, the Ordinance does not provide any other security for the payment of the Certificates, or any express remedies in the event of default, and 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 Certificateholders. Although a Certificateholder could presumably obtain a 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 Certificateholder could, in the event of default, ask a court for a writ of 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 on the Certificates or to perform the City's other obligations under the Ordinance. 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 City Council of the City. Both state law and the City's investment policies are subject to 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 issued by a state or national bank domiciled in the State of Texas 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, and (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. 11 1 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. 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) the beginning market value, any additions and changes to market value and the ending value for each pooled fund group, (3) the book value and market value of each separately listed asset at the beginning and end of the reporting period, (4) the maturity date of each separately invested asset, (5) the account or fund or pooled fund group for which each individual investment was acquired, and (6) 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 City Council. The City's policies require investments in accordance with applicable state law. The City's Statement of Investment Policy does not exclude any investments allowable under State law described above under "Legal Investments." The City generally invests in certificates of deposits, money market accounts and obligations of the United States or its Agencies and instrumentalities. The City's investment balances on September 30, 1996 were as follows: Carrying Market Amount Principal Treasury Securities $17,177,507 $17,754,156 Money Market Accounts (TexPool) 3.453.914 3.453.914 Total Portfolio $20,631,421 $21,208,062 12 DEBT SERVICE SCHEDULE The following sets Fiscal Year Ending 9-30 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 forth the principal and interest requirements on the City's outstanding debt and the Certificates. Outstanding The Certificates Total New Debt $6.250,000 Principal Requirements Principal Interest & Interest $ 2,443,604 2,451,441 2,441,789 2,437,314 2,438,211 2,430,601 2,423,879 2,434,633 2,433,559 2,434,770 2,444,265 2,445,638 2,448,090 624,250 596,500 568,250 539,500 512,500 $34,548,794 $ 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 110,000 120,000 120,000 400,000 460,000 520,000 580,000 650,000 1,210,000 1,280,000 $6,250,000 $ 503,285 $ 503,285 351,635 451,635 344,385 444,385 337,135 437,135 329,885 429,885 322,635 422,635 315,385 415,385 308,135 408,135 300,885 400,885 293,273 403,273 285,385 405,385 278,335 398,335 264,685 664,685 242,110 702,110 216,255 736,255 186,960 766,960 153,895 803,895 103,373 1,313,373 35,200 1,315.200 $5,172,836 $11,422,836 Total Debt Service $ 2,443,604 2,954,726 2,893,424 2,881,699 2,875,346 2,860,486 2,846,514 2,850,018 2,841,694 2,835,655 2,847,538 2,851,023 2,846,425 1,288,935 1,298,610 1,304,505 1,306,460 1,316,395 1,313,373 1,315.200 $45,971,630 Average Annual Debt Service Requirements (1997/2016) $2,298,582 Maximum Annual Debt Service Requirement (1998) $2,954,726 DEBT STATEMENT General: The following tables and calculations relate to the Certificates and to all other tax supported debt of the City. In addition to outstanding certificates and bonds the City has also issued revenue bonds and has incurred contractual and other indebtedness and liabilities which are not included below. 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 ad valorem taxation against all or a portion of property within the City. Bonded Indebtedness: 1996 Certified Asce_ssed Valuation (100% of Estimated Market Value) $912,597,870(a) Direct Debt Outstanding Debt (as of February 1, 1997) $ 23,119,392 The Certificates 6,250,000 Total Direct Debt $ 29,369,392 Interest & Sinking Fund Balance (as of February 1, 1997) $ 3,,240,614 (a) Certified by the Brazoria County Appraisal District. 13 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. Overlapping Taxing Jurisdiction Debt as of 1-1-97 Percent Amount Pearland I.S.D. $ 59,089,942 66.77% $39,454,354 Brazoria County 32,467,503 6.97 2,262,985 Harris County 809,479,546 .02 161,896 Harris County Toll Road Authority 844,264,027 .02 168,853 Harris County Flood Control Dist. 236,311,645 .02 47,262 Port of Houston Authority 161,485,000 .02 32,297 Harris County Dept. of Education 520,000 .02 104 TOTAL ESTIMATED OVERLAPPING DEBT $42,127,751 The City 29.369,392 TOTAL DIRECT AND ESTIMATED OVERLAPPING DEBT $71,497,143 Debt Ratios: Direct and Overlapping Direct Debt Debt Per 1996 Certified Taxable Assessed Valuation ($912,597,870) 3.22% 7.83% Per Capita (32,000) $ 918 $2,234 TAX DATA General: One of the City's principal sources of operational revenue and its principal source of funds for debt service payments 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 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 14 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 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 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 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 $26,858,010 from the 1996 tax roll. Voters of the State of Texas cast ballots on November 3, 1981, approving a state constitutional amendment which 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 1996 tax year. 15 y t 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 1996 tax roll was approximately $16,454,810. On November 7, 1989, voters of the State of Texas approved an amendment to the constitution of the State of Texas which 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. 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. By September 1 of each year, or as soon thereafter as practicable, 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 year's roll, the prior year's total taxes levied for purposes other than debt service and such contractual obligations, 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. 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 fifteen percent (15 %) 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. The City does not permit such payments, except for those property owners who are over the age of 65 as provided in the Property Tax Code. 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 16 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. Historical Analysis of Tax Collection: Tax Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Assessed Valuation $591,810,120 554,727,670 558,477,970 562,461,502 576,486,290 575,624,520 617,887,160 654,804,750 730,329,940 763,443,870 844,357,847 912,597,870 - Collection Ratios - Tax Rate Per $100 of Adjusted Assessed Valuation Tax Levy $0.6000 .7000 .7350 .8250 .8250 .8000 .8000 .7970 .7153 .6974 .6950 .6950 (a) In process of collection. Maintenance Debt Service Total % of Collections Current Year $3,544,618 96.92 3,902,598 96.99 4,103,794 96.97 4,640,320 98.04 4,756,012 97.45 4,604,996 98.24 4,943,097 97.80 5,218,794 98.53 5,224,050 96.11 5,316,625 98.37 5,869,525 98.65 6,342,555 (a) - Tax Rate Distribution - Current and Prior Years Fiscal Year Ending 9-30 98.79 1986 99.07 1987 99.06 1988 100.24 1989 98.86 1990 99.99 1991 98.97 1992 100.37 1993 98.24 1994 99.65 1995 99.72 1996 (a) 1997 1996 1995 1994 1993 1992 1991 $0.440 $0.440 $0.4374 $0.30728 $0.40078 .255 .255 .2600 .40802 .39622 $0.695 $0.695 $0.6974 $0.71530 $0.79700 17 $0.41 .39 $0.80 1 - Analysis of Delinquent Taxes - The following is an analysis, by tax year, of taxes delinquent as of September 30, 1996. Outstanding Delinquent Taxes Adjusted Percentage Tax Year as of September 30, 1996 Tax Levy of Tax Levy 1995 $258,104 $5,869,525 4.39% 1994 280,499 5,316,625 5.28 1993 383,032 5,224,050 7.33 1992 286,677 5,218,769 5.49 1991 303,983 4,943,097 6.15 1990 278,501 4,604,996 6.05 1989 283,909 4,756,012 5.97 1988 245,832 4,640,320 5.30 1987 253,055 4,103,794 6.17 1986 235,090 3,902,598 6.02 - Delinquent Tax Collection Procedures - In 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 15 % of the tax due. Analysis of Tax Base: Type of Property Residential Acreage Vacant Lots/Tracts Farm & Ranch Commercial/Industrial Utilities Other Gross Assessed Value Less: Exemptions Net Assessed Value 1996 Tax Amount $667,149,380 31,379,920 16,073,990 3,644,960 205,342,280 24,309,050 7,927 360 $955,910,450 (43,312,580) $912,597,870 - Tax Base Distribution - Roll % 1995 Tax Roll Amount % 69.79% $611,904,760 3.28 30,917,640 1.68 15,284,170 .38 3,528,350 21.48 194,189,797 2.54 22,776,570 .83 5,645,430 $884,237,377 (39,703,700) $844,533,677 18 1994 Tax Roll Amount 69.20% $536,541,165 65.29% 3.50 32,241,330 3.92 1.73 15,499,150 1.89 .40 3,124,050 .38 21.96 204,285,622 24.86 2.58 24,027,190 2.92 .64 6,042.360 .74 $821,760,867 (40,059,810) $781,701,057 Taxpayer Weatherford U.S. Inc. Aggreko, Inc. Southwestern Bell Telephone Wa1-Mart Houston Lighting & Power Co. K-Mart Corp. Whispering Winds, Ltd. ,& Assoc. Continental 34 Fund Ltd. Pearland Remington Ltd. Texas Windmill Apts. Aerospace International Energy Coatings Company Total Ten Principal Taxpayers - Principal Taxpayers - Type of Property Oil Field Equipment Mobile Temperature Utility Shopping Center Utility Shopping Center 1996 Tax Roll $26,185,200 Control 9,602,570 8,918,020 8,185,230 8,113,730 7,696,180 Apartments & Townhomes Department Store Apartments Apartments Airplane Parts Pipe Coating & Storage Percentage Ten Principal Taxpayers Comprise of their Respective Tax Rolls (a) Not a principal taxpayer in such tax year. 6,452,760 6,093,140 5,140,100 4,493,430 (a) (a1 $83,184,180 9.12% - Tax Adequacy - 1995 Tax Roll $21,413,220 8,944,310 8,495,970 9,389,860 7,625,020 8,495,970 1994 Tax Roll $16,999,590 8,079,340 8,336,680 9,389,850 8,549,450 (a) 7,404,660 6,468,080 6,581,370 '; 5,289,110 5,145,460 5,024,330 (a) (a) (a) 8,600,000 5.004.360 5,233,480 $86,107,530 $ 81,969,910 10.20% 10.49 % Average Annual Debt Service Requirements based on Total New Debt Service (1997/2016) $2,298,582 Tax Rate of $0.266 per $100 assessed valuation against the 1996 Certified Assessed Valuation, at 95% collection, produces $2,306,135 Maximum Annual Debt Service Requirements based on Total New Debt Service (in the year 1998) $2,954,726 Tax Rate of $0.341 per $100 assessed valuation against the 1996 Certified Assessed Valuation, at 95% collection, produces $2,956,361 Estimated Overlappinn 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. 19 Set forth below is an estimation of ad valorem taxes levied on a $75,000 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. Taxing Jurisdictions The City Brazoria County Brazoria County Drainage District No. 4 Pearland Independent School District Estimated Total 1996 Tax Bill Sales Tax: - Authority - 1996 Tax Estimated Rate/$100 1996 Tax Bill $0.695000 $ 521.25 .357500 268.13 .144441 108.33. 1.76850 1,320.38 $2.965441 $2,224.09 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 tax for economic development under Article 5190.6 VTCS, as amended. Such additional sales tax does not become effective until September, 1995. The City may not pledge the proceeds from the Sales Tax as security for the Certificates. - 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 tax: Fiscal Year Ended 9-30 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Sales Tax Receipts $ 943,940 1,150,291 1,212,455 1,460,341 1,548,190 1,704,160 1,733,901 1,905,741 2,166,219 2,298,546 Ad Valorem Taxation Comparisons Equivalent Tax Rate % of Actual Tax Year Equivalent Tax Levy (1986) (1987) (1988) (1989) (1990) (1991) (1992) (1993) (1994) (1995) 20 $0.170 0.206 0.216 0.254 0.269 0.260 0,265 0.261 0.284 0.272 24.19 % 28.03 26.13 30.71 33.62 32.65 33.22 36.48 40.74 39.16 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 junior and subordinate pledge of the net revenues of the City's waterworks and sewer system in an amount not to exceed $10,000, are pledged to pay principal and interest on the Certificates. Fiscal Year Ended September 30, 1996 1995 1994 1993 1992 REVENUES General Property Taxes (a) $5,978,307 $5,375,914 $3,031,246 $2,695,294 $2,551,102 Sales Taxes 2,298,546 2,166,219 1,905,741 1,733,901 1,704,160 Franchises 1,016,069 1,026,007 1,109,374 1,050,451 1,077,130 Licenses & Permits 514,081 339,309 432,626 418,577 296,725 Interest 181,256 254,324 151,852 156,942 196,030 Charges for Services 1,553,765 1,425,741 1,182,274 1,089,194 1,115,488 Fines & Forfeitures 459,884 415,378 415,511 404,857 315,085 Intergovernmental 115,262 78,882 107,987 -0- -0- Miscellaneous 518,124 583,268 463,971 311,959 371,742 Total Revenues $10,468,486 $9,687,452 $8,800,583 $7,869 175 $7,627,462 EXPENDITURES General Government $ 2,316,013 $1,998,228 $1,831,204 $1,708,983 $1,591,133 Police 3,001,997 2,609,804 2,365,096 2,171,519 1,979,188 Fire 95,047 115,865 157,065 326,884 120,354 Public Safety 768,402 703,347 577,995 392,496 368,378 Streets & Drainage 1,516,255 1,348,554 1,337,977 1,804,753 578,310 Sanitation 1,421,412 1,390,253 1,299,576 1,089,063 1,147,749 Public Works 1,175,272 496,561 675,376 620,409 567,695 Community Services 1,043,996 881,211 777,059 501,733 464,376 Total $11,338,397 $10,043,823 $9,021,348 $8,615,840 $6,234,662 (a) Includes penalties and interest. General Fund and Debt Service Fund Balance for the Past Five Fiscal Years: General Fund Debt Service Fund Fiscal Year Ended September 30, _ 1996 1995 1994 1993 1992 $2,004,644 $1,937,555 $2,872,119 $3,703,718 $4,136,446 $1,025,746 $1,218,757 $1,205,581 $1,142,763 $1,255,094 21 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 5 %, of their gross pay and the City matching percent is currently 10 %. 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 January 1, 1997, the City employed 181 full-time employees and 21 part-time and seasonal employees. All full-time employees are covered by TMRS and the City's contribution for this fiscal year as of September 30, 1996, amounted to approximately $264,881 which includes amortization of prior service cost over 25 years. The City had an unfunded pension benefit obligation in the amount of approximately $1,023,423 as of December 31, 1995. 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, 1996, 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 Expires Council Members Period Served May Occupation Tom Reid 1 year 1999 Retired -NASA Engineer Mayor Jerry Richardson 3 years 1997 Technology Procurement Council Member and Mayor Pro Tem Kevin Cole 2 years 1998 Marketing Representative Council Member Helen Beckman 2 years 1998 Public School Teacher Council Member Richard Tetens 3 years 1997 Engineer Council Member Larry Wilkins 1 year 1999 Optical Business Council Member 22 Administration: (5) 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 govemment, the City Manager is given the power and duties to: (1) (2) (3) 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; Prepare the budget annually, submit it to City Council, and be responsible for its administration; 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 Perform such other necessary duties as prescribed by the Charter or required by City Council. Members of the administrative staff are described below: City Manager - Paul Grohman - Mr. Grohman was appointed City Manager in June 1992 and has fourteen years experience as a City Manager. He is a graduate of Abilene Christian with a Masters in Management. Mr. Grohman is a member of the International City Managers Association, the Texas City Managers Association and Texas Police Association. Assistant City Manager for Planning and Development - Richard Burdine - Mr. Burdine joined the City in July 1992 as Division Director of Planning. In February 1995 he was appointed Assistant City Manager. Mr. Burdine is a graduate of the University of Texas in Austin and has a MS from Penn State. Mr. Burdine is a member of the American Institute of Certified Planners and the International and Texas City Managers Associations. Assistant City Manager for Administrative Services - Glen R. Erwin - Mr. Erwin was appointed administrative assistant to the City Manager in 1992 and Assistant City Manager in February 1995. Prior to joining the City, Mr. Erwin was a Regional Manager for the Harris County Appraisal District and Tax Assessor for the City of Baytown. Mr. Erwin is also a Registered Professional Appraiser. Director of Finance - David Castillo - Mr. Castillo was appointed Director of Finance for the City on January 13, 1997. Prior to that, Mr. Castillo was Director of Finance for the Corpus Christi Regional Transportation Authority where he was employed for the last ten years. Mr. Castillo is a Certified Public Accountant in the State of Texas and holds a Masters degree in Business Administration. He is a member of the Government Finance Officers Association, American Institute of CPAs and the Texas Society of CPAs. 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 Mayor, Day, Caldwell & Keeton, L.L.P. Houston, Texas Certified Public Accountants Lairson, Stephens & Reimer, P.C. Houston, Texas Financial Advisor Rauscher Pierce Refsnes, Inc. Houston, Texas 23 r 7 LEGAL MATTERS Legal Opinions: The City will furnish the Purchaser 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 Mayor, Day, Caldwell & Keeton, L.L.P., 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 the Certificates are payable, both as to principal and interest, from the levy of ad valorem taxes, within the limits prescribed by law, against taxable property within the City and a limited junior and subordinate pledge of certain revenues. 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 Purchaser 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, 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: The City will furnish to the Purchaser 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 Purchaser 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 changein 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. 24 TAX EXEMPTION In the opinion of Mayor, Day, Caldwell & Keeton, L.L.P., 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 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. 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. Except as stated above and set forth below under "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. 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) or a real estate mortgage investment conduit (REMIC)) 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 and the environmental tax imposed by the Code are computed. 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, 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 and taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their owner tax advisors as to the consequences of investing in the Certificates. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates: According to representations of the Purchaser the Certificates maturing in the years 2010 through and including 2016 are being offered at initial offering prices which are less than the stated redemption prices at maturity of such Certificates. If a substantial amount of the Certificates of any maturity are sold to the public in the initial public offering of the Certificates at an initial offering price 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 25 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 t 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 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. 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. - 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 and environmental 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 does 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 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: According to representations of the Purchaser, the Certificates maturing in the years 1999 through and including 2008. are being 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 person or organizations acting in the capacity of wholesalers or purchasers) 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 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 26 TAX EXEMPTION In the opinion of Mayor, Day, Caldwell & Keeton, L.L.P., 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 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. 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. Except as stated above and set forth below under "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. 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) or a real estate mortgage investment conduit (REMIC)) 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 and the environmental tax imposed by the Code are computed. 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, 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 and taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their owner tax advisors as to the consequences of investing in the Certificates. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates: According to representations of the Purchaser the Certificates maturing in the years 2010 through and including 2016 are being offered at initial offering prices which are less than the stated redemption prices at maturity of such Certificates. If a substantial amount of the Certificates of any maturity are sold to the public in the initial public offering of the Certificates at an initial offering price 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 25 gA TAX EXEMPTION In the opinion of Mayor, Day, Caldwell & Keeton, L.L.P., 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 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. 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. Except as stated above and set forth below under "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," Bond Counsel will express no opinion as to any federal, state or local ,tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Certificates. 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) or a real estate mortgage investment conduit (REMIC)) 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 and the environmental tax imposed by the Code are computed. 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, 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 and taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their owner tax advisors as to the consequences of investing in the Certificates. TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES Discount Certificates: According to representations of the Purchaser the Certificates maturing in the years 2010 through and including 2016 are being offered at initial offering prices which are less than the stated redemption prices at maturity of such Certificates. If a substantial amount of the Certificates of any maturity are sold to the public in the initial public offering of the Certificates at an initial offering price 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" 25 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 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. 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. Because original issue discount on a Discount Certificate will be treated for federal income tax purposes as interest on a Certificate, such original issue discountmust 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 and environmental 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 does 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 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 theirtax 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: According to representations of the Purchaser, the Certificates maturing in the years 1999 through and including 2008 are being 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 person or organizations acting in the capacity of wholesalers or purchasers) 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 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 26 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. No corresponding deduction is allowed for : y federal income tax purposes, however, 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 which 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. CONTINUING DISCLOSURE OF INFORMATION 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 "DEBT SERVICE SCHEDULE," "DEBT STATEMENT," "TAX DATA," "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 1997. 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 February 28 in each year, beginning February 28, 1998, 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 27 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. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and has been approved as such by the SEC staff. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6947. Limitations and Amendments: The City has agreed to update information and to provide notices of material events only as described above. The City has not agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. The City makes no representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell 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. 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 Purchasers 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. 28 Compliance With Prior Undertakings: The City has complied in all material respects with its prior continuing disclosure agreements made in accordance with SEC Rule 15c2-12. 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, 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 Financial Statements of the City" has been provided by Lairson, Stephens Reimer, P.C., 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 "Future Debt" and "Use of Proceeds"), "LEGAL MATTERS - Legal Opinions," "TAX EXEMPTION," "TAX ACCOUNTING TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES," and "CONTINUING DISCLOSURE OF INFORMATION," 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. Certification as to Official Statement: At the time of payment for and delivery of the Certificates, the City will furnish the Purchaser 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: 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. All changes in the affairs of the City and other matters described in the Official Statement subsequent to the delivery of the Certificates and all information with respect to the resale of the Certificates shall be the responsibility of the Purchaser. 29 This Official Statement was duly authorized and approved by the City Council of the City of Pearland, as of the date specified on the first page hereof. ATTEST: /s/ Wendy Standorf City Secretary City of Pearland /s/ Tom Reid Mayor Pro Tem City of Pearland 30 APPENDIX A - ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS The following information has been derived from various sources, including the Texas Almanac, Texas Municipal Reports, U.S. Census data, Texas Department of Agriculture, "Sales Management Survey of Buying Power", and City officials. While such sources are believed to be reliable, no representation is made as to the accuracy thereof. - City Economics - The City of Pearland is a commercial center located in the northeast corner of Brazoria County, bordering the City of Houston to the north. The City is traversed by State Highway 35 and Farm -to -Market Road 518. The City's 1990 census was 21,000, increasing 58.51 % since 1980. Because of the City's proximity to Houston, the area has experienced continuing growth in residential, commercial and some light industrial development. At present there are numerous subdivisions either developed or under construction with homes ranging in value from $40,000 to $125,000, the average being approximately $75,000. There are approximately 1,282 business establishments located within the City which are rated by Dun and Bradstreet. Residential Total 1982 113 1983 300 1984 231 1985 139 1986 129 1987 58 1988 403 1989 372 1990 670 1991 382 1992 402 1993 481 1994 362 1995 340 1996 479 Value 8,240,600 23,873,350 18,135,848 18,018,608 11,738,284 6,062,000 16,537,601 15,493,010 35,378,197 36,416,253 37,249,884 39,236,381 25,173,050 34,734,829 38,302,146 (a) Includes Apartments. - Building Permits - (Source - City of Pearland) Commercial Total 28 19 31 41 45 11 59 47 90 12 15 15 12 13 19 Value 3,353,835 6,760,800 6,314,418 2,781,094 3,128,100 364,832 1,725,431 2,022,386 2,947,222 2,503,500 1,849,000 6,475,570 2,997,021 3,762,900 5,189,850 Other (a) Total Value Total Value 309 5,588,377 450 17,182,812 279 4,117,281 598 34,751,431 328 12,329,177 590 36,779,443 300 3,424,632 480 24,224,334 540 3,262,872 714 18,129,256 155. 522,330 224 6,949,162 119 566,734 581 18,829,766 138 20,791,944 557 38,307,340 119 931,546 879 39,256,965 402 5,507,501 496 44,427,254 456 16,768,978 873 55,867,862 863 5,961,881 1,359 51,673,832 582 7,425,514 956 35,595,585 528 7,799,090 881 46,296,819 286 3,180,826 784 46,672,822 Manufacturing and Commerce Employment in Brazoria County (the "County") is provided by the extensive petro-chemical industry and includes the following other industries: railroad tank cars, fabricated steel products, sulphur products, concrete, mattress and upholstery, printing, sheet metal and machine works, seafood processing, instruments and valve systems, and various others. Also adding to the general economy of the County are fishing, tourism and recreation activities and agribusiness. The Gulf Intracoastal Waterway comes through the lowlands near Surfside Beach and is an important waterway in America with reported annual tonnage compared to the Panama Canal and Suez Canal. (Source: Texas Municipal Report and Brazosport Industrial Committee.) Major Employers Industrial activities within the are 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 Directory of Texas Manufacturers - 1996 the following is a list of the industrial employers located within the area with employment numbers above 20. Name Columns Inc. CPI Sales & Mfg. Corp. Davis -Lynch Inc. Energy Coatings Co. Gate Concrete Products Co. Koza's Inc. Markload Syst. Inc. Metallurgical Technologies, Inc. Pauluhn Electric Mfg. Co. Inc. Replacement Parts Corporation Star Cooling Tower Services Inc. Texas Honing Inc. Weatherford Products Brazoria County Product Employment Aluminum colonial style structural columns Metal window screens and doors Oil well floating & cementing equipment Anticorrosive pipe coatings Asphalt paving mixtures Embroidering for the trade Electronic anchor -tensioning systems for the offshore oil and gas industry Metal powder for thermal sprays Industrial & marine signaling devices and lighting fixtures Special mechanical packing, including compressor rod & piston packing Redwood atmospheric & mechanical cooling towers Hones metal tubing Steel heavy wall drill pipe 20-49 50-99 100-249 50-99 20-49 50-99 20-49 20-49 50-99 20-49 20-49 50-99 100-249 Brazoria County, is a Gulf Coast County comprising the Brazoria Primary Metropolitan Statistical Area, which is a component of the Houston-Galveston-Brazoria CMSA. The economy is based extensive petroleum and chemical industry, fishing, tourism and agribusiness. In 1990, the County had a population of 183,510, an increase of 13,923 since 1980. According to the "1996-1997 Texas Almanac," the County was created in 1836 and organized in 1837 from the Municipality of Brazoria, name derived from the Brazos River. ECONOMIC AND GROWTH INDICATORS U.S. Census of Population City of Pearland Brazoria County Number % Change umber % 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 21,000 + 58.51 183,510 + 8.21 Marketing Survey of Buying Power (a) Houston -Galveston Brazoria CMSA Brazoria County Population (000's'l Total Population 41,980.0 220.1 %18-24 9.1 8.1 %25-34 18.3 17.4 %35-49 25.1 24.7 %50-Over 18.8 20.3 Number of Households 1,491.2 72.8 Retail Sales (000's) Food $ 6,852,850 $ 289,390 Eating and Drinking 4,004,572 107,739 General Merchandise 5,053,515 289,841 Furniture, Furnishings, Appliances 1,896,435 32,907 Automotive 11,040,961 493,053 Total Retail Sales $38,704,351 $1,523,763 Effective Buying Income (1993) Total Effective Buying Income ("EBI) (000's) $69,877,754 $3,053,019 Median Household EBI $ 39,397 $ 36,379 %Household EBI $20,000 - $34,999 21.9 23.5 $35,000 - $49,999 17.5 20.2 $50,000 and Over 34.5 31.8 (a) Statistical data from "Sales & Marketing Management - 1996 Survey of Buying Power", copyright in 1994 Sales Management Survey of Buying Power: Further reproduction is forbidden. Represents data as of December 31, 1996. APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY ©( p@cmikand 3519 liberty Drive • Pearland. Texas 77581-5416 (281) 485-2411 • Fox (281) 485-8764 To the Honorable Mayor, Members of City Council and Citizens of the City of Pearland Pearland, Texas: The comprehensive annual financial report of the City of Pearland, Texas (the "City") for the fiscal year ended September 30, 1996, is hereby submitted. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data are accurate in all material respects and are reported in a mariner designed to present fairly the financial position and results of operations of the various funds and account groups of the City. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included. The comprehensive annual financial report is presented in three sections: Introductory, Financial and Statistical Section. The Introductory Section includes this transmittal letter, the City's organizational chart and a list of principal officials. The Financial Section includes the general purpose financial statements and the combining and individual fund and account group financial statements and schedules, as well as the auditor's report on the financial statements and schedules. The Statistical Section includes selected financial and demographic information, generally presented on a multi -year basis. The financial reporting entity (the "City") includes all the funds and account groups of the primary government (i.e., the City of Pearland as legally defined), as well as all of its Component Units. Component Units are legally separate entities for which the primary government is financially accountable. The City provides the full range of municipal services contemplated by statute or charter. This includes police and fire protection, health and social services, public improvements, planning and zoning, and general administrative services. The City also provides water, sewer and sanitation services. Additionally, the City has an Economic Development Corporation, designed to attract and retain jobs and more fully develop the local ad valorem tax base. Discretely presented component units are reported in a separate column in the combined financial statements to emphasize that they are legally separate from the primary government and to differentiate their financial position, results of operations and cash flows from those of the primary government. The Economic Development Corporation is reported as discretely presented component unit. ECONOMIC CONDITION AND OUTLOOK The City of Pearland lies fifteen miles southeast of downtown Houston and ten miles from the Texas Medical Center in the northeast corner of Brazoria County, with a small area within Harris County. Pearland is accessible by way of four major highways and is six miles from Houston Hobby Airport; the World's 27th busiest airport. MAJOR INITIATIVES The Pearland City Council has in recent years worked diligently at anticipating and planning for future needs. Many of the Council goals developed in 1994 and 1995 continue to be worked on and enhanced. Some highlights are: o Implementation of the community -wide strategic planning process. r 0 Development of plans for Independence Park. O Continued strengthening of board, Commission and committee selections. O Continued annexation to improve the entrances to the City and ensure the integrity of the area. O Began implementation of the regional storm water detention. O Authorized expenditures and began engineering on Southwest Environmental Center. O Entered into agreement for first source of surface water. o Enhanced City -school cooperatives. o Implemented economic development program. DEPARTMENT FOCUS Economic Development Corporation The City Council established the Pearland Economic Development Corporation Board in the second quarter of 1995, after passage by a vote of the general public in January, 1995. The major departmental emphasis is on creation and retention of tax base, jobs, and visitorship. Major accomplishments include: o Opening of Best Western, Pearland's first motel. o Opening of Metallurgical Technologies - a world leader in thermal sprays. . o Expansions at Associated Profax, Solvents and Chemicals, Weatherford Enterra, Western Atlas and a host of others. o Relocation of a variety of businesses, including Layt Manufacturing and several other heavy industrials. o Announcement of Kemlon, a major manufacturer of high tech electrical conductors moving to Pearland. 4 L) FINANCIAL INFORMATION Management of the City is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse and to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the cost of controls should not exceed the benefits expected to be derived and .(2) the evaluation_ of. costs. and benefits requires estimates and judgements by management. Accounting Controls. We believe that the City's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned function. Budgeting Controls. In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City's governing body. Activities of the General, Debt Service and Enterprise Funds are included in the annual appropriated budget. The level of budgetary control (the level at which expenditures cannot legally exceed the appropriated amount) is the total approved budget for each department. As demonstrated by the statements and schedules included in the financial section of this report, the City continues to meet its responsibility for sound financial management. General Government Functions. The revenue from the general fund, special revenue funds and debt service fund and the amount and percentage of increases and decreases in relation to prior year revenue is summarized in the following schedule: Revenue Sources Property taxes and penalties Sales taxes Franchise and gross receipts taxes Licenses and pennits Fines and forfeitures Charges for services Interest Other 1996 1996 Percent of 1995 Increase Amount Total Amount (Decrease) $ 5,964,927 46.3% $ 5,354,512 $ 610,415 2,298,546 17.8 2,166,219 132,327 1,029,449 8.0 1,047,409 (17,960) 514,081 4.0 339,309 174,772 459,884 3.5 415,378 44,506 1,553,765 12.0 1,425,741 128,024 257,264 2.0 334,363 (77,099) 780 452 6.0 662,150 118,302 100.0% $ 11,745,081 $1,113,287 TOTAL $ 12,858,368 The most significant percentage increase in revenue was derived from sales tax. Percent of Increase (Decrease) 11.4 % 6.1 (1.7) 51.5 10.7 9.0 (23.1) 17.9 5 Allocations of property tax levy by purpose for..1995-96.fiscal.year and the preceding two fiscal years are as follows (amount per $100/assessed value): Purpose 1995-96 1994-95 1993-94 General Fund $ 0.4400 $ 0.43740 $ 0.40078 General Obligation Debt 0.2550 0.26000 0.39622 TOTAL TAX RATE $ 0.6950 $ 0.69740 $ 0.79700 The expenditures for the general fund, special revenue funds and debt service fund and the amount and percentage of increases and decreases in relation to the prior year expenditures are summarized in the following schedule. 1996 Increase Percent of 1996 Percent of 1995 (Decrease) Increase Function Amount Total Amount Over 1995-96 (Decrease) General governmental $ 2,316,013 16.6% $ 1,998,228 $ 317,785 15.9 % Public safety 3,865,449 27.7 3,429,016 436,433 12.7 Public works 4,112,939 29.5 3,735,368 377,571 10.1 Community service 1,185,426 8.5 881,211 304,215 34.5 Debt service 2,430,097 17.4 2,044,453 385,644 18.9 $ 13,909,924 100.0% $ 12,088,276 $1,821,648 The most significant increases were in Public Safety and Community Service. These increases were a result of a reallocation of resources to these areas from street maintenance in Public Works and Debt Service(decrease caused by prior year refunding). Enterprise Operations. The government's enterprise operations are comprised of the Water and Sewer System. Water and Sewer System. During the year ended September 30, 1996, the City's Water and Sewer System reported an increase of $419,090 in operating revenues or 11 percent from the prior year. Operating expenses remained stable during fiscal year 1995-96. Comparative data for the past two fiscal years are presented in the following schedule. 1995-96 1994-95 Operating revenue $ 4,428,252 $ 4,226,052 Operating expenses (before depreciation) 3,147,519 2,550,748 Operating income (before depreciation) $1,280,733 $1,675,304 Number of customers (water) 8,645 7,249 6 Debt Administration. Theratioofnet.debt:toassessed valuation.and the amount of bonded debt per capita are useful indicators of the City's debt position to municipal management, citizens, and investors. These data for the City of Pearland at September 30, 1996 were as follows: Total outstanding tax supported debt (general obligation bonds and certificates of obligation) at September 30, 1996 totaled $24,800,000. Debt service funds in the amount of $1,025,746 were available at September 30, 1996. The City's assigned bond ratings on its most recent issue were as follows: Moody's Standard & Poors Revenue Bonds Baa-1 A Tax Bonds Baa-1 A Cash Management. Cash temporarily idle during the year was invested in certificates of deposit ranging from 60 to 365 days to maturity. Certificate of deposit and cash amounts which exceed FDIC coverage are collateralized by securities owned by the City's depository. All investments held by the City during the year and at September 30, 1996, are classified in the category of lowest credit risk as defined by the Governmental Accounting Standards Board. OTHER INFORMATION Independent Audit. The City Charter requires an annual audit of the books of account, financial records and transactions of all administrative departments of the City by an independent certified public accountant. The accounting firm of Lairson, Stephens & Reimer, L.L.P., CPAs was selected by the City Council. This requirement has been complied with, and the auditors' opinion has been included in this report. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 1994. This was the eighteenth consecutive year that the City 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, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to conform to Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA's Award for Distinguished Budget Presentation, the 9th consecutive year for its annual appropriated budget dated July 28, 1996. In order to qualify for the Distinguished Budget Presentation Award, the government's budget document was judged to be proficient in several categories including policy documentation, financial planning and organization. 7 Acknowledgments. We would like to express our appreciation to all members of the Finance and Administration Department who assisted and contributed to its preparation. We would also like to thank the Mayor, members of the City Council and City Manager for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, Janet S. Eastburn Chief Accountant 8 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, 1995 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. \ �pNGE OffjCe, 4 OF THE V. ti UNITED STATES y W Am y Ex CANAUA i o E. CORPORATION a CHHICAGO Preside Y117 a/' Executive Director 9 c77v I Mia.1.17.,_GER CITY OF PEARLAND, TEXAS ORGANIZATION CHART MUNICIPAL COURT JUDGES GRANTS S.PLAN T ADMINISTRATIVE S ERV I CE S CITIZENS 1 Er1ERG MGMT CITY COUNCIL CITY MANAGER FIRE A Rs H. AL:, EIS CITY SECRETARY MUNICIPAL COURT cacoviiivThiJ FINANCE li FIRE I UTILITY BILLING COMMUNICATION CITY ATTORNEY' 1--1 LP.D. 11 ENG U EDC STREETS W&S LINE W&S TR/PROD AS ST CITY MANAGER ANIMAL CONTROL PERMITS PUBLIC WORKS HEALTH PARKS & RECREATION RECREATION CUSTODIAL PARKS / BLDG MAINT 1 0 PRINCIPAL OFFICIALS CITY OF PEARLAND, TEXAS September .30,1996 MAYOR Tom Reid Mayor Pro Tem Councilman Position No. 5 Kevin Cole Councilman Councilman Position No. 1 Position No. 2 Helen Beckman Richard Tetens Councilman Position No. 3 Larry Wilkins City Manager Paul W. Grohman Councilman Position No. 4 Jerry Richardson City Secretary City Attorney Yolanda Benitez Amy McCollough 11 LAIRSON•STEPHENS•REIMER, L.L.P. —� nit sled Business .I ilrizurs .1'ini a I') INDEPENDENT AUDITORS' REPORT Honorable Mayor and Members of City Council of the City of Pearland, Texas: We have audited the accompanying general purpose financial statements of the City of Pearland, Texas (the "City") as of and for the year ended September 30, 1996. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of Office of Management and Budget CircularA-128, Audits of State and Local Governments. 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 opinion. In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Pearland, Texas at September 30, 1996 and the results of its operations and the cash flows of its proprietary fund types for the year then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated November 8, 1996 on our consideration of the City of Pearland's internal control structure and a report dated November 8, 1996 on its compliance with laws and regulations. Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying individual funds, combining funds, account group financial statements, schedules and statistical sections as listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements of the City of Pearland, Texas. The information in these schedules has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. Houston, Texas November 8, 1996 stplvuA-Ran S_LP C.'erlified PublicAcomrlcrnls i Post Oak Park. Suite 250 llouslon. Text 770 7-3413 Tel. (' 131629-60(10 1F .(' 13 )629-6004 GENERAL PURPOSE FINANCIAL STATEMENTS CITY OF PEARLAND, TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES, ACCOUNT GROUPS AND DISCRETELY PRESENTED COMPONENT UNIT September 30,1996 GOVERNMENTAL FUND TYPES SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECTS ASSETS AND OTHER DEBITS ASSETS Cash and cash equivalents S 2,979,650 S 31,379 S 1,026,593 S 4,544,030 Receivables - less allowances for uncollectibles Taxes 141,097 Accounts 136,834 Accrued interest 2,913 Assessments Restricted asscts Cash and cash equivalents Fixed assets (nct where applicable of accumulated depreciation) OTHER DEBITS Amount available in debt service fund Amount to be provided for retirement of general long -tern debt 117,007 4,311 29,935 TOTAL ASSETS AND OTHER DEBITS $ 3,260,494 $ 31,379 $ 1,143,600 S 4,578,276 18 1 of 2 PROPRIETARY FUND TYPES ENTERPRISE $ 11,370,433 359,753 5,146 255,610 12,502,759 ACCOUNT GROUPS GENERAL FIXED ASSETS $ 32,223,482 GENERAL LONG - DEBT $ 1,025,746 24,181,242 5 24,493,701 $ 32,223,482 5 25,206,988 See notes to financial statements. TOTALS PRIMARY GOVERNMENT (MEMORANDUM ONLY) S 19,952,085 258,104 496,587 7,224 35,081 255,610 44,726,241 1,025,746 24,181,242 $ 90,937,920 COMPONENT UNIT P. E. D.C. TOTALS REPORTING ENTITY (MEMORANDUM ONLY) $ 486,583 5 20,438,668 13,500 $ 500,083 258,104 496,587 7.224 35,081 255,610 44,739,741 1,025,746 24,181,242 $ 91,438,003 19 CITY OF PEARLAND,.TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES, ACCOUNT GROUPS AND DISCRETELY PRESENTED COMPONENT UNIT September 30,1996 GOVERNMENTAL FUND TYPES SPECIAL DEBT CAPITAL GENERAL REVENUE SERVICE PROJECT LIABILITIES, EOUITY AND OTHER CREDITS LIABILITIES Accounts payable $ 377,716 S 250 S 847 S 57,148 Accrued expenses 126,082 Security deposits Accrued compensated absences 610,955 Payable from restricted assets Deferred revenues 141,097 117,007 29,935 Certificates of obligation Revenue bonds -less current portion General obligation bonds TOTAL LIABILITIES 1,255,850 250 117,854 87,083 . EQUITY AND OTIIER CREDITS Contributed capital Investment in general tined assets Retained earnings Unreserved Fund balances Reserved For encumbrances For dcbt service Unreserved Designated For future expenditures Undesignated 321,795 1,682,849 1,025,746 31,129 4,491,193 TOTAL EQUITY AND OTHER CREDITS 2,004,644 31,129 1,025,746 4,491,193 TOTAL LIABILITIES, EQUITY AND OTHER CREDITS $ 3.260,494 $ 31.379 $ 1.143.600 $ 4.578.276 20 2 of 2 • TOTALS TOTALS PROPRIETARY ACCOUNT GROUPS PRIMARY- COMPONENT REPORTING FUND TYPE GENERAL GENERAL GOVERNMENT UNIT ENTITY FIXED LONG-TERM (MEMORANDUM (MEMORANDUM ENTERPRISE ASSETS DEBT ONLY) P.E.D.C. ONLY) $ 178,562 S 614,523 S 12,851 S 627,374 151,817 277,899 277,899 294,494 294,494 294,494 150,522 S 406,988 1,168,465 11,107 1,179,572 240,000 240,000 240,000 288,039 288,039 6,670,000 6,670,000 6,670,000 9,536,991 9,536,991 9,536,991 18,130,000 18,130,000 18,130,000 10,552,386 0 25,206,988 37,220,411 23.958 37,244,369 12,380,545 1,560,770 13,941,315 S 32,223,482 12,380,545 9.214 12,389,759 32,223,482 32,223,482 1,560,770 466,911 32,223,482 0 46,164,797 476,125 321,795 1,025,746 2,027,681 46,640,922 321,795 . 1,025,746 4,522,322 4,522,322 1,682,849 1,682,849 13,941,315 32,223,482 0 53,717,509 476,125 54,193,634 $ 24,493,701 S 32,223,482 S 25,206,988 S 90,937,920 S 500,083 S 91,438,003 See notes to financial statements. 21 (This page intentionally left blank.) 22 CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year ended September 30, 1996 REVENUES Taxes - (including penalties and interest) Licenses and permits Interest on investments Fines and forfeitures Intergovernmental Charges for services Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Community services Capital outlay Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES AND USES Operating transfers in Operating transfers out REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES Fund balances at beginning of year GOVERNMENTAL FUND TYPES TOTAL SPECIAL DEBT CAPITAL (MEMORANDUM GENERAL REVENUE SERVICE PROJECTS ONLY) S 7,126,114 S 5,730 S 2,161,078 514,081 181,256 459,884 115,262 131,152 1,553,765 518,124 5,064 76,008 S 506,978 226,109 S 9,292,922 514,081 764,242 459,884 246,414 1,553,765 749,297 10,468,486 141,946 2,237,086 733,087 13,580,605 2,316,013 3,865,449 4,112,939 1,043,996 141,430 1,010,000 1,420,097 3,230,541 11.338.397 141,430 2,430.097 3230.541 (869,911) 1,002,000 (65,000) 2,316,013 3,865,449 4,1 12,939 1,185,426 3,230,541 1,010,000 1,420,097 17,140.465 516 (193,011) (2,497,454) (3,559,860) 1,002,000 (65,000) 67,089 516 (193,011) (2,497,454) (2,622,860) 1,937,555 30,613 1,218,757 6,988,647 10,175,572 FUND BALANCES AT END OF YEAR S 2,004,644 S 31,129 $ 1,025,746 $ 4,491,193 S 7,552,712 See notes to financial statements. 23 CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GOVERNMENTAL FUND TYPES Year ended September 30, 1996 REVENUES Taxes - (including penalties and interest) Licenses and permits Interest on investments Fines and forfeitures Charges for services Intergovernmental Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Community services Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES ( USES) Operating transfers out Operating transfers in REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES Fund balances at beginning of year FUND BALANCES AT END OF.YEAR GENERAL FUND BUDGET $ 7,165,425 433,700 162,650 427,500 1,410,000 45,700 599.175 10,244,150 VARIANCE FAVORABLE ACTUAL (UNFAVORABLE) $ 7,126,114 514,081 181,256 459,884 1,553,765 115,262 518.124 10,468,486 2,329,704 2,316,013 3,818,613 3,865,449 4,423,695 4,112,939 1,095,256 1,043,996 11.667,268 (1,423,118) 11,338,397 (869,911) (65,000) (65,000) 1,002,000 1,002,000 $ (486,118) 67,089 1.937.555 $ 2,004,644 $ (39,311) 80,381 18,606 32,384 143,765 69,562 (81.051) 224,336 13,691 (46,836) 310,756 51,260 328,871 553,207 0 0 $ 553,207 24 CITY OF PEARLAND, .TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Year ended September 30,1996 REVENUES Taxes - (including penalties and interest) Licenses and permits Interest on investme its Fines and forfeitures Intergovernmental Charges for services Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Community services Capital outlay Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES AND USES Operating transfers in Operating transfers out REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES Fund balances at beginning of year GOVERNMENTAL FUND TYPES TOTAL SPECIAL DEBT CAPITAL (MEMORANDUM GENERAL REVENUE SERVICE PROJECTS ONLY) S 7,126,114 S 5,730 S 2,161,078 S 9,292,922 514,081 514,081 181,256 76,008 S 506,978 764,242 459,884 459,884 115,262 131,152 246,414 1,553,765 1,553,765 518,124 5,064 226,109 749,297 10,468,486 141,946 2,237,086 733,087 13,580,605 2.316,013 3,865,449 4,112939 1,043 996 141,430 1,010,000 1,420,097 3,230,541 11.338.397 141.430 2,430.097 3230.541 2,316,013 3,865,449 4,112,939 1.185,426 3,230,541 1,010,000 1,420,097 17,140.465 (869,911) 516 (193,011) (2,497,454) (3,559,860) 1,002,000 (65,000) 1,002,000 (65,000) 67,089 516 (193,011) (2,497,454) (2,622,860) 1,937,555 30,613 1,218,757 6,988,647 10,175,572 FUND BALANCES AT END OF YEAR S 2,004,644 S 31,129 S 1,025,746 S 4,491,193 S 7,552,712 See notes to financial statements. 23 CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GOVERNMENTAL FUND TYPES • Year ended September 30,1996 REVENUES Taxes - (including penalties and interest) Licenses and permits Interest on investments Fines and forfeitures Charges for services Intergovernmental Other TOTAL REVENUES EXPENDITURES Current General government Public safety Public works Community services Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES ( USES) Operating transfers out Operating transfers in REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES Fund balances at beginning of year FUND BALANCES AT END OF.YEAR GENERAL FUND BUDGET $ 7,165,425 433,700 162,650 427,500 1,410,000 45,700 599,175 10,244,150 VARIANCE FAVORABLE ACTUAL (UNFAVORABLE) $ 7,126,114 514,081 181,256 459,884 1,553,765 115,262 518.124 10,468,486 2,329,704 2,316,013 3,818,613 3,865,449 4,423,695 4,112,939 1,095,256 1,043,996 11,667,268 (1,423,118) 11,338,397 (869,911) (65,000) (65,000) 1,002,000 1,002,000 $ (486,118) 67,089 1.937.555 $ 2,004,644 $ (39,311) 80,381 18,606 32,384 143,765 69,562 (81.051) 224,336 13,691 (46,836) 310,756 51.260 328.871 553,207 0 0 $ 553,207 DEBT SERVICE FUND BUDGET ACTUAL $ 2,272,815 $ 2,161,078 100,000 76,008 2,372,815 2,237,086 1,010,000 1,010,000 1,443,604 1.420.097 2,453,604 2,430,097 (80,789) (193,011) $ (80,789) (193,011) 1.218.757 $ 1,025,746 See notes to financial statements. VARIANCE FAVORABLE (UNFAVORABLE) $ (111,737) (23,992) (135,729) 0 23,507 23,507 (112,222) 0 0 $ (112,222) 25 CITY OF PEARLAND, TEXAS COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUND) AND DISCRETELY PRESENTED COMPONENT UNIT Year ended September 30,1996 PROPRIETARY COMPONENT FUND TYPE UNIT ENTERPRISE P.E.D.C. Operating revenues Water & sewer sales and services $ 4,418,321 Other revenue 9,931 $ 22 Sales tax 1.149.273 Operating expenses Treatment Distribution and collection Accounting Construction Other expenses OPERATING INCOME BEFORE DEPRECIATION Depreciation OPERATING INCOME Non -operating revenues (expenses) Interest revenue Interest expense INCOME BEFORE OPERATING TRANSFER Operating transfer in Operating transfer out 4,428,252 1,581,250 557,879 232,236 573,316 202,838 1,149,295 585,811 3,147,519 585,811 1,280,733 563,484 649.938 3.375 630,795 560,109 246,868 (206,521) 4,543 40,347 4,543 671,142 564,652 65,000 (881,000) (76,000) NET INCOME (144,858) 488,652 Retained earnings (deficit) at beginning of year 1,705,628 (21,741) RETAINED EARNINGS AT END OF YEAR $ 1,560,770 $ 466,911 See notes to financial statements 26 CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUND) AND DISCRETELY PRESENTED COMPONENT UNIT Year ended September 30,1996 CASH FLOWS FROM OPERATING ACTIVITIES Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities Depreciation expense (Increase) decrease in accounts receivable Increase in customer deposits Increase (decrease) in accounts payable Increase in accrued expenses CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Operating transfers in Operating transfers out CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Contributed capital Debt proceeds Purchase of fixed assets Principal payments - bonds Interest paid CASH FLOWS FROM INVESTING ACTIVITIES Interest received PROPRIETARY COMPONENT FUND TYPE UNIT ENTERPRISE P.E.D.C. $ 630,795 649,938 51,985 17,024 88,594 158,953 $ 560,109 3,375 11,431 1,597,289 574,915 65,000 (881,000) (76,000) (816,000) (76,000) 549,037 9,985,000 (1,878,665) (1,250,000) (206,521) 7,193,851 246,868 (16,875) (16,875) 4,543 246,868 4,543 Net increase (decrease) in cash 8,227,008 486,583 Cash balance at beginning of year 3,399,035 0 CASH BALANCE AT END OF YEAR $ 11,626,043 $ 486,583 Cash $ 11,370,433 Restricted cash 255,610 See notes to financial statements. 27 $ 11,626,043 (This page intentionally left blank.) 28 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY The City of Pearland, Texas (the City) was incorporated in December, 1959 and adopted a "Home Rule Charter" on February 6, 1971, which provides for a "Council -Manager" form of city government. The City's financial statements include the accounts of all City operations. The primary operations are general and administrative, public safety, culture and recreation, public works, sanitation and water and sewer services. As required by generally accepted accounting principles, these financial statements present the City of Pearland and its component units, entities for which the City is considered to be financially accountable. Blended component touts, although legally separate entities, are, in substance, part of the govenunent's operations and so data from these units would be combined with data of the City. Each discretely presented component unit, on the other hand, would be reported in a separate column in the combined financial statements to emphasize it is legally separate from the City. Discretely Presented Component Units. The Pearland Economic Development Corporation (PEDC) is responsible for economic development within the City's jurisdiction. The members of the PEDC governing board are appointed by City Council. However, the PEDC is fiscally dependent upon the government because the City Council approves the PEDC's budget and must approve any debt issuances. The PEDC is presented as a proprietary fund type. Financial statements for the PEDC may be obtained at PEDC administrative offices at the following address: Pearland Economic Development Corporation 3519 Liberty Drive Pearland, Texas 77581-5416 B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND BASIS OF PRESENTATION The City of Pearland's accounts are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self -balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. 29 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND BASIS OF PRESENTATION (continued) The City has the following fund types and account groups: Governmental funds are used to account for the City general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting revenues are recognized when susceptible to accrual (i.e. when they are "measurable and available"). "Measurable" means the amount of the transaction can be dctern-lined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred; except for umnatured interest on general long -teen debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Property taxes and interest are susceptible to accrual. Sales and use taxes and franchise revenue are recorded Nvhen received since normally they arc not measurable until received. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Governmental funds include the following fund types: The General Fund is the City's primary operating fund. It accounts for all financial resources of the City, except those to be accounted for in another fund. The Special Revenue Funds account for revenue sources that are legally restricted to expenditure for specific purposes (not including expendable trusts or major capital projects). The Debt Service Fund accounts for the servicing of general long-term debt not being financed by proprietary funds. The Capital Projects Fund accounts for the acquisition of fixed assets or construction of major capital facilities not being financed by proprietary funds. Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City applies all applicable FASB pronouncements in accounting and reporting for its proprietary operations. Proprietary funds include the following fund types: 30 CITY OF PEARLAND,. TEXAS_ NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND BASIS OF PRESENTATION (continued) The Enterprise Fund is used to account for those operations that are financed and operated in a manner similar to private business or where the Council has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The General Fixed Assets Account Group is used to account for fixed assets not accounted for in proprietary funds. The General Long -Term Debt Account Group is used to account for general long-term debt and certain other liabilities. that are not specific liabilities of proprietary funds. C. ASSETS, LIABILITIES AND EQUITY 1. DEPOSITS AND INVESTMENTS The City's cash and cash equivalent are considered to be cash on hand, demand deposits and short term investments with original maturities of three months or Less from the date of acquisition. Investments are stated at cost. In the Statements of Cash Flows, cash refers to cash and cash equivalents. Statutes authorize the City and the PEDC to invest in direct obligations of the U.S. Government, fully collateralized certificates of deposit and investment pools. 2. RECEIVABLES AND PAYABLES Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non -current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds". Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available financial resources. All trade receivables are shown net of an allowance for uncollectibles. 31 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. ASSETS, LIABILITIES AND EQUITY (continued) 2. RECEIVABLES AND PAYABLES (continued) General property taxes are recorded as revenue when levied for the current year and due, payable and collected in the current year. Uncollected amounts at year end are reported as deferred revenue. Property taxes collected within sixty days subsequent to September 30, 1995 were not considered material. The general property tax rate is required to be levied by September 15 each year. Taxes become due on October 1 and uncollected taxes are delinquent on February 1 following the tax year. The City's tax lien exists from January 1 (the assessment date) each year until the taxes are paid. The procedure for collection of delinquent taxes is to send to delinquent notices and a letter and then refer the delinquent accounts to the Tax Attorney for legal action. The Horne Rule Charter requires foreclosure proceedings no later than two years after taxes first become delinquent. A penalty. of 7% is added to delinquent taxes on February 1 and increases 2% each month through September. An additional penalty of 15% is added in July for attorney costs. There are no discounts allowed on taxes. 3. INVENTORIES AND PREPAIDS The costs of governmental fund -type inventories are recorded as expenditures when the related liability is incurred, i.e., the purchase method. Certain payments to vendors reflect costs applicable to future accounting periods are also recognized as an expenditure when purchased. 4. RESTRICTED ASSETS Certain proceeds of Enterprise Fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the combined balance sheet because their use is limited by applicable bond covenants. 5. FIXED ASSETS Property, plant and equipment are stated as original cost. Donated fixed assets are recorded at the _ fair market value on the date donated. Costs incurred for the purchase or construction of general fixed assets are recorded as capital outlay expenditures in the General, Special Revenue and Capital Projects Funds. All such costs are capitalized in the General Fixed Assets Account Group. Amounts expended for property, plant and equipment in the Enterprise Fund are capitalized in the fixed asset accounts within that fund. 32 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. ASSETS, LIABILITIES AND EQUITY (continued) 5. FIXED ASSETS (continued) Public domain fixed assets (roads, bridges, curbs and gutters, streets and sidewalks, lighting systems and similar assets that are immovable and of value only to the City) are capitalized when acquired. Depreciation is not recorded on general fixed assets. Depreciation has been recorded on plant and equipment of the Enterprise Fund using the straight-line method over the following estimated useful lives of the assets: Description Estimated Useful Lives Equipment Water and sewer systems 6. COMPENSATED ABSENCES 5 to 10 years 3 to 50 years It is the City's policy to permit employees to accumulate eamed but unused vacation and sick pay benefits. Vacation and sick pay is accrued when incurred in proprietary funds and reported as a fund liability. Vacation pay that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it. Amounts not expected to be liquidated with expendable available financial resources are reported in the general long-term debt account group. No expenditure is reported for these amounts. 7. LONG-TERM OBLIGATIONS The City reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. 33 CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. ASSETS, LIABILITIES AND EQUITY (continued) 7. LONG-TERM OBLIGATIONS (continued) For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method, if material. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. S. FUND EQUITY Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings are limited to outside third -party restrictions. Designations of fund balance represent tentative management plans that are subject to change. The proprietary fund's contributed capital represents equity acquired through capital grants. and capital contributions from developers, customers or other funds. 9. "MEMORANDUM ONLY" CAPTIONS The "Memorandum Only" captions on the columns of the combined statements mean totals are presented for overview informational purposes only and they do not fairly present financial position or results of operations for the City as a whole in conformity with GAAP. "Memorandum Only" columns do not include eliminations for interfund activity and consolidated financial inforniation is not presented. II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. BUDGETARY INFORMATION Annual budget's are adopted on a basis consistent with generally accepted accounting principles (GAAP) except the Capital Projects Fund, which adopts a project length budget. Budgets are not adopted for the Special Revenue Funds. The original budget is adopted by the City Council prior to the beginning of the fiscal year. The legal level of control is the total approved budget for each fund. The City may transfer funds within department categories without Council approval and between departments from one category to another within department budgets. All transfers from one fund to another must be approved by Council. The final amended budget is used in this report. Appropriations lapse at the end of the year. 34 CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (continued) A. BUDGETARY INFORMATION (continued) The City of Pearland has complied with all budget requirements for the year ended September 30, 1996. Supplemental budget appropriations were made for the year ended September 30, 1996. Encumbrances represent the estimated amount of expenditures ultimately to result when unperformed contracts (in progress at year-end) are completed. Such encumbrances are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. DEPOSITS AND INVESTMENTS The City's deposits and investments are categorized as either (1) Insured or collateralized with securities held by the entity or by its agent in the entity's name, (2) Collateralized Nvith securities held by the pledging financial institution's trust department or agent in the entity's name, or (3) Uncollateralized, including any bank balance that is collateralized with securities held by the pledging financial institution, or by its trust department or agent but not in the entity's name. Cash temporarily idle during the year was invested in Texas Local Government Investment Pool (TexPool). TexPool was established as a Trust Company with the Treasurer of the State of Texas as trustee, segregated from all other trustees, investments and activities of the Trust Company. This investment is not subject to categorization of credit risk since it is an investment pool managed by other governments. At year end, the City's deposits and investment balances were as follows: 1 Categories Carrying Market 2 3 Amount Value Deposits $ 17,754,156 $ 17,177,507 $17,754,156 Investments not subject to categorization: TexPool $ 3,453,914 $ 3,453,914 35 CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) D. LONG-TERM DEBT (continued) Dcscription Interest Principal Balance Rates Sept. 30, 1996 Certificates of Obligation 1991 Tax and Revenue Certificate of Obligation 6.3 to 7.8% $ 1,670,000 1996 Public Works Certificate of Obligation 5,000,000 TOTAL GENERAL LONG-TERM DEBT 24,800,000 Revenue Bonds 1996 A Water and Sewer System Revenue Bond 4.50 to 5.20% 1,115,000 1996 B Water and Sewer System Revenue Bonds 2.90 to 4.85% 8,870,000 9,985,000 TOTAL LONG-TERM DEBT $ 34,785,000 The annual requirements to amortize general obligation bonds, certificates of obligation and revenue bonds outstanding at September 30, 1996, are as follows: Year Ending General Long- Revenue Sept. 30 Term Debt Bonds Total 1997 $ 2,443,604 $ 779,198 $ 3,222,802 1998 2,451,441 782,522 3,233,963 1999 2,441,789 778,692 3,220,481 2000 2,437,314 778,848 3,216,162 2001 2,438,211 777,886 3,216,097 2002 and beyond 22,336,434 11,696,338 34,032,772 Less interest payments 34,548,793 15,593,484 50,142,277 9,748,793 5,608,484 15,357,277 $ 24,800,000 $ 9,985,000 $ 34,785,000 1 38 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS (continued) D. LONG-TERM DEBT (continued) During the year ended September 30, 1996, the following changes occurred in liabilities reported in the general long-term account group: Balance Balance Oct. 1,1995 Additions Reductions Sept. 30, 1996 Compensated absences $ 113,530 $ 293,458 $ 406,988 Certificates of obligation 6,785,000 $ 115,000 6,670,000 General obligation debt 19,025,000 895,000 18,130,000 TOTAL $ 25,923,530 $ 293,458 $ 1,010,000 $ 25,206,988 General obligation bonds are direct obligations of the City for which its full faith and credit arc pledged. Repayment of general obligation bonds are from taxes levied on all taxable property located \vithin the City. The City is not obligated in any manner for special assessment debt. E. CONTRIBUTED CAPITAL A summary of changes in contributed capital is as follows: ENTERPRISE P.E.D.C. Beginning balance $ 11,831,508 $ 9,214 Impact fees 549,037 Ending balance $ 12,380,545 $ 9,214 L, 39 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 IV. OTHER INFORMATION A. 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; and natural disasters for which the City participates in the Texas Municipal League's General Liability Fund. In addition the City participates in the Texas Municipal League's Workers Compensation Fund to insure the City for workers compensation claims. The City has not significantly reduced insurance coverage or had settlements which exceeded coverage amounts for the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of pay -outs and other economic and social factors. No claim liabilities are reported at September 30, 1996. B. 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 which may be disallowed by the grantor cannot be determined at this time although the City 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, it is the opinion of the City's counsel that resolution of these matters will not have a material adverse effect on the financial condition of the City. C. EMPLOYEE RETIREMENT SYSTEM Plan Description The City provides pension benefits for all of its full-time employees through a nontraditional, joint contributory, defined contribution plan in the state-wide Texas Municipal Retirement System (TMRS), one of over 670 administered by TMRS, an agent multiple -employer public employee retirement system. It is the opinion of the TMRS management that the plans in TMRS are substantially defined contribution plans, but they have elected to provide additional voluntary disclosure to help foster a better understanding of some of the nontraditional characteristics of the plan. CITY OF PEARLAND,.TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Plan Description (continued) Benefits depend upon the sum of the employee'ss contributions to the plan, with interest, and the city - financed monetary credits, 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 ages 60 and above with 10 or more years of service or %vith 25 years or more of service regardless of age. The plan also provides death and disability benefits. A member is vested after 20 years, but he must leave his accumulated contributions in the plan. If a member withdraws his own money, he is not entitled to the employer -financed monetary credits, even if he was vested. 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. Contributions The contribution rate for the employees is 5%, and the City matching percent is currently 10%, both as adopted by City Council. Under the state law governing TMRS, the City contribution rate is annually determined by the actuary. 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 City matching percent, which are 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 retirement becomes effective. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 25-year amortization period. 41 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Contributions (continued) Currently, the unfunded actuarial liability is being amortized over the 25-year period which began January, 1996. The unit credit actuarial cost method is used for determining the City contribution rate. Contributions are made monthly by both the employees and the City. Since the City needs to know its contribution rate in advance to budget for it, there is a one-year lag between the actuarial valuation that is the basis for the rate and the calendar year when the rate goes into effect. The City's total payroll in fiscal year 1996 was $5,058,304 and the City's contributions were based on a payroll of $4,806,786. Both the City and the covered employees made the required contributions, amounting to $349,364 (6.55% of covered payroll for the months in calendar year 1995 and 6.66% for the months in calendar year 1996) for the City and $264,881 (5%) for the employees. The normal cost contribution rates for 1995 and 1996 were 4.89% and 5.14%, and resulted in an actuarially determined contribution to cover normal cost of $240,339. The City adopted changes in the plan since the previous actuarial valuation, which had the effect of increasing the City's contribution rate for 1996 by 0.30% of payroll. There were no related -party transactions. Funding Status and Progress Even though the substance of the City's plan is not to provide a defined benefit in some form, some additional voluntary disclosure is appropriate due to the nontraditional nature of the defined contribution plan which had an initial unfunded pension benefit obligation due to the monetary credits granted by the City for services rendered before the plan began and which can have additions to the unfunded pension benefit obligation through the periodic adoption of increases in benefit credits and benefits. Statement No. 5 of the Governmental Accounting Standards Board (GASB 5) defines pension benefit obligation as a standardized disclosure measure of the actuarial present value of pension benefits, adjusted for the effects of projected salary increases, estimated to be payable in the future as a result of employee service to date. The measure is intended to help users assess the funding status of public employee pension plans, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among public employee pension plans. 42 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Funding Status and Progress (continued) The pension benefit obligation shown below is similar -in nature to the standardized disclosure measure required by GASB 5 for defined benefit plans except that there is no need to project salary increases since the benefit credits earned for service to date are not dependent upon future salaries. The calculations were made as part of the annual actuarial valuation as of December 31, 1995. Because of the money -purchase nature of the plan, the interest rate assumption, currently 8.5% per year, does not have as much impact on the results as it does for a defined benefit plan. Market value of assets is not determined for each City's plan, but the market value of assets for TMRS as a whole was 98.6% of book value as of December 31, 1995. Pension Benefit Obligation Annuitants currently receiving benefits $ 701,195 Terminated employees 1,750,849 Current employees Accumulated employee contributions including allocated invested earnings 2,058,036 Employer -financed vested 2,712,637 Employer -financed nonvested 494,937 Total Pension Benefit Obligation 7,717,654 Net Assets Available for Benefits, at Book Value Unfunded Pension Benefit Obligation 6,694,231 $ 1,023,423 The book value of assets is amortized cost for bonds and original cost for short-term securities and stocks. The actuarial assumptions used to compute the actuarially determined City contribution rate are the same as those used to compute the pension benefit obligation. The numbers above reflect the adoption of changes in the plan since the previous actuarial valuation, which had the effect of increasing the pension benefit obligation by $133,594. 43 CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30,1996 IV. OTHER INFORMATION (continued) C. EMPLOYEE RETIREMENT SYSTEM (continued) Trend Information CALENDAR YEAR NET ASSETS AVAILABLE FOR BENEFITS 1986 $ 1,719,378 1987 2,100,361 1988 2,440,324 1989 2,568,286 1990 3,074,658 1991 3,683,710 1992 4,304,890 1993 5,222,033 1994 5,968,333 1995 6,694,231 I PENSION BENEFIT OBLIGATION $ 2,572,328 3,040,489 3,272,289 3,445,280 3,983,159 4,638,085 5,341,726 6,400,037 7,137,329 7,717,654 PERCENTAGE FUNDED UNFUNDED PENSION BENEFIT OBLIGATION 66.84 % 69.08 74.58 74.55 77.19 79.42 80.59 81.59 69.61 86.74 $ 852,950 940,128 831,965 876,994 908,501 954,375 1,036,836 1,178,004 1,168,996 1,023,423 ANNUAL COVERED PAYROLL $ 2,713,924 2,841,130 2,866,658 2,871,853 3,092,103 3,530,891 3,862,727 4,018,940 4,130,206 4,806,786 UNFUNDED PENSION BENEFIT OBLIGATION AS A PERCENTAGE OF COVERED PAYROLL 31.46 % 33.09 29.02 30.54 29.38 27.03 26.84 29.31 28.30 21.29 7 APPENDIX C - FORM OF LEGAL OPINION MAYOR, DAY, CALDWELL 8 KEETON, L.L.P. 700 LOUISIANA, SUITE 1900 HOUSTON, TEXAS 77002-2778 17131225 -7000 TELECOPIER 17131225-7047 April _, 1997 100 CONGRESS AVENUE SUITE 1500 AUSTIN.TEXAS 78701-4042 (5121320-9200 TELECOPIER(5121320-9292 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 1997, dated April 1, 1997, in the aggregate principal amount of $6,250,000, maturing on March 1 in each year from 1999 through and including 2016. The Certificates are issuable in fully registered form only, in denomina- tions of $5,000 or integral multiples thereof, bear interest, are subject to redemption prior to maturity 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 con- tains 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 accor- dance with the terms and conditions thereof, except to the extent that the rights u 11 and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; and (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The revenues to be derived from the operation of the City's waterworks and sanitary 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. 2 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) or a real estate mortgage investment conduit (REMIC)) 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 and the environmental tax imposed by the Code are computed. Purchasers of Certificates are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. UNDER EXISTING LAW and based upon the assumptions stated in the Official Statement prepared for use in connection with the sale of the Certificates, it is also our opinion as follows: (1) the difference between (a) the stated redemption price at maturity of each Certificate maturing in the years, 2010 through 2016, inclusive (the "Discount Certificates"), and (b) the initial offering price at which a substantial amount of such Discount Certificates of the same maturity were sold to the public, as described in the Official Statement, constitutes original issue discount with respect to each such Discount Certificate in the hands of an owner who purchased such Discount Certificate at the initial offering price in the initial public offering of the Certificates; and (2) such initial owner is entitled to exclude from gross income for federal income tax purposes with respect to such Discount Certificate that portion of the original issue discount deemed to be earned for federal income tax purposes during the period that such Discount Certificate continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Discount Certificate prior to its stated maturity, however, any amount realized by such owner in excess of the basis of such Discount Certificate in the hands of such owner (adjusted upward by the portion of the original issue discount deemed to be earned during the period for which such Discount Certificate was held by such initial owner) is includable in gross income for federal income tax purposes. PURCHASERS OF DISCOUNT CERTIFICATES in the initial public offering are directed to the discussion entitled "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES" set forth in the Official Statement for purposes of determining the portion of the original issue discount which is deemed to be earned for federal income tax purposes during the period such Certificates are held by an initial owner. The federal income tax consequences of the purchase, ownership and redemption, sale or other taxable disposition of Discount Certificates which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those described above and in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences 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, 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 3 Security or Railroad Retirement benefits and taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. - 0366004.01 039710/0912 APPENDIX D SPECIMEN OF INSURER'S POLICY FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 Policy No. [NUMBER] MBIA Insurance Corporation(the "Insurer' in consideration of the payment of thepremium and subject to the terms of this policy, hereby � �, PaYm Po cY, unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment ' _ required to be made by or on behalf of the Issuer to [PAYING AGENT/IRUSTEE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acreleration of the due date of such principal by. reason of mandatory or optional redemption or acrr1eration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment; the payments guaranteed hereby shall be made in such amounts and at such _ times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an , avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the prig sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: . [PAR] [LFGAL NAME OF ISSUE] Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, NA., in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments .- being in a form satisfactory to State Street Bank and Trust Company, NA., State Street Bank and Trust Company, NA. shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such '— Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This -policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR]. COUNTERSIGNED: Resident Licensed Agent City, State Attest: MBIA Insurance Corporation "ePECI Assistant Secretary DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. STD-RCS-TX-6 4A5 L PAYING AGENT/REGISTRAR AGREEMENT THIS PAYING AGENT/REGISTRAR AGREEMENT dated as of March 3, 1997 (together with any amendments or supplements hereto, the "Agreement") is entered into by and between the CITY OF PEARLAND, TEXAS (the "Issuer"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, 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 1997 (the "Certificates") in the aggregate principal amount of $6,250,000 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. r Section 1.02. Compensation. In 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 agrees to abide by and accept the terms hereof and of the Ordinancerelating 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 Texas Commerce Bank National Association, 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 1997" authorized by the Ordinance. "Issuer" means the City of Pearland,, Texas. "Ordinance" means the ordinance of the Issuer approved by its City Council on March 3, 1997, 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 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 ARTICLE THREE DUTIES OF THE BANK Section 3.01. Initial Delivery of the Certificates. The Certificates will be initially registered and delivered by the 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 comply with the terms of Tex. Rev. Civ. Stat. Ann. art. 715b, § 4, as amended, and more specifically agrees also 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. 3 Section 3.05. Reports. 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 thatreasonable time is allowed the Bank to provide an up-to-date listing or to convert the information into written form. The Bank will not release or disclose the content of the books of registration to any person other than to, or at the written request of, an authorized officer or employee of the Issuer, except upon receipt of a subpoena, court order or as otherwise required by law. Upon receipt of a subpoena, court order or other lawful request, the Bank . will notify the Issuer immediately so that .the Issuer may contest the subpoena, court order or other request if it so chooses. Section 3.06. Canceled Certificates. All Certificates surrendered for payment, redemption, transfer, exchange or replacement, if surrendered to the Bank, shall be promptly canceled by it and, if surrendered to the Issuer, shall be delivered to the Bank and, if not already canceled, shall be promptly canceled by the Bank. The Issuer may at any time deliver to the Bank for cancellation any Certificates 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. (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. I J Section 3.08. Money Held by Bank. Money held by the Bank hereunder shall be held in trust for the benefit of the Registered Owners of the Certificates. 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 maynot 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 5 L�' L I or delivered to the Issuer or the Bank, respectively, at the addresses shown herein, or such other address as may have been given by one party to the other by 15 days' written notice. Section 4.05. 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. 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. 6 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTEST: (SEAL) ATTEST: By: Title: (SEAL) 0367747.01 029726/1556 Assistant Vioe PrRatcient Corporate Trust Officer 7 CITY OF PEARLAND. TEXAS By: Mayor ADDRESS: 3519 Liberty Drive Pearland, Texas 77581 TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: rya a' Title: Cerpo o-T-pust officer ADDRESS: 600 Travis, llth Floor Houston, Texas 77002 FEE SCHEDULE BOND REGISTRAR, TRANSFER AGENT, AND PAYING AGENT ACCEPTANCE For accepting appointment, execution of documents, attendance at closing, conferring with interested parties and setting up records 250.00 BOND REGISTRAR Annual Administrative Charge 600.00 Account Maintenance For each bondholder account maintained, based upon the number of accounts maintained at the beginning of each billing period, plus all new accounts added Annual Minimum Bondholder List For each account Minimum per List Mailing Services Preparation of labels - per account Minimum per set of labels Inserting enclosures - per enclosure Minimum per job TRANSFER AGENT ACTIVITY For each bond issue. Includes cancellation of surrendered bond(s), and posting to account Replacement of lost bonds PAYING AGENT ACTIVITY Interest Payment For each check issued including calculation, check register, replacement of checks, and reconcilement Minimum per payable date 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Principal Payment For each bond redeemed at maturity or call 0.00 INCOME TAX REPORTING REQUIREMENTS For preparation of forms required to report income to either state, federal or individuals - per form ADDITIONAL FEES AND EXPENSES Bond Calls Account Termination Fee (Minimum) Audit Confirmations (per issue) Out-of-pocket expenses incurred in rendering any service covered by this schedule are in addition to the fees quoted. Expenses for which we are regularly reimbursed include, but are not limited to, counsel fees, travel expenses, publications, printing cost, postage, wire charges, long distance telephone calls, stationery, and forms. Fees quoted are subject to change. 0.00 250.00 1,000.00 75.00 CERTIFICATION AS TO CORPORATE AUTHORITY The undersigned officer of Texas Commerce Bank National Association, a national banking association, serving as Vice President and Trust Officer, under the resolution authorizing the issuance of the $6,250,000.00 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, hereby certifies as follows: The Agreements were executed on behalf of the Texas Commerce Bank National Association by the persons named below whose offices appear set opposite their names, and said persons were at the time of executing the Agreements, and are now, duly elected, qualified, and acting incumbents of their respective offices; and the signature appearing after each of said person's names is the true and correct specimen of such person's genuine signature. Name Arla Scott Yolanda C. Garcia Office Corporate Trust Officer Assistant Vice President and Corporate Trust Officer Signature The foregoing officers of the Texas Commerce Bank National Association by virtue of the authority delegated to them by the Board of Directors of the Texas Commerce Bank National Association pursuant to resolution, a true and correct copy of which is attached hereto as Exhibit A, are authorized to execute and deliver on behalf of the Texas Commerce Bank National Association such other and further documents as may be necessary or incidental to the acceptance and performance of the trusts set forth in the Agreements to attest any of the foregoing, and to apply the seal of the Texas Commerce Bank National Association thereto. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the Texas Commerce Bank National Association this loth day of March , 1997. [SEAL] TEXAS COMMERCE BANK NATIONAL ASSOCIATION SECRETARY'S CERTIFICATE I, Pauline E. Higgins, Assistant Secretary of Texas Commerce Bank National Association (the "Bank") hereby certify that on January 15, 1997, at a meeting duly called and convened and at which a quorum was present, the Board of Directors of the Bank adopted the resolutions set forth below, and such resolutions are presently in full force and effect and have not been modified, revoked or rescinded: RESOLVED, that for the purposes of the following resolutions, the following words shall have these meanings ascribed to them: "Bank" shall mean Texas Commerce Bank National Association. "Officer" shall mean the Chairman of the Board, the President, any Vice Chairman, any Executive Vice President, any Managing Director, any Senior Vice President, any Vice President, any Assistant Vice President, any Officer, the General Counsel, the Chief Financial Officer, the Chief Administrative Officer, the Secretary, the Controller and the Cashier of the Bank, and any Chairman, any President, any Vice Chairman, any Executive Vice President, any Managing Director, any Senior Vice President, any Vice President, any Assistant Vice President and any Officer of any region of the Bank. "Senior Officer" shall mean the Chairman of the Board, the President, any Vice Chairman, any Executive Vice President, any Managing Director, any Senior Vice President, any Vice President, the General Counsel, the Chief Financial Officer, the Chief Administrative Officer, the Secretary, the Controller and the Cashier of the Bank, and any Chairman, any President, any Vice Chairman, any Executive Vice President, any Managing Director, any Senior Vice President and any Vice President of any region of the Bank. RESOLVED, that the Officers be, and each of them hereby is, authorized to execute and deliver for and on behalf of the Bank agreements (including, but not limited to, agency agreements, transfer agency agreements, paying agency agreements, exchange agreements, escrow agreements and other similar agreements), indentures, mortgages, deeds, releases, conveyances, assignments, transfers, leases, demands, proofs of debt, claims, discharges, satisfactions, settlements, petitions, affidavits, receipts, instruments or documents, powers of attorney, records, bonds, undertakings, proxies, other agency powers, authentication certificates appearing on bonds and debentures, registration certificates appearing on stock, bond or debentures certificates and such other documents and instruments, other than secretary's certificates or officer's certificates, as may be necessary and appropriate to carry out the fiduciary or agency powers of the Bank. RESOLVED, that the Senior Officers and any Assistant Secretary of the Bank be, and each of them hereby is, authorized to countersign, acknowledge or verify accounts, schedules, requisitions, certifications and declarations other than secretary's certificates or officer's certificates, in connection with the exercise of the fiduciary or agency powers of the Bank. RESOLVED, that the power and authority conferred to any person pursuant to these resolutions shall include, but not be limited to, the power to execute any other documents and to do and perform such other acts and things as may be necessary or appropriate to consummate the transactions so authorized or to carry out the purposes and intent of such resolutions. EXECUTED effective as of the 104 day of Meimi , 1997, at Houston, Texas. Texas Commerce Bank National Association By: p :`R•*�'' Hig istant Secretary GENERAL CERTIFICATE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § We, the undersigned officers of the City of Pearland, Texas (the "City"), do hereby 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 $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, dated April 1, 1997 (the "Certificates"), now in the process of issuance, as follows: (1) The City is a duly incorporated Home Rule City, having more than 5,000 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 or boundaries has not been changed since the approval by the Attorney General of the State of Texas of the City of Pearland, Texas Water and Sewer System Revenue Bonds, Series 1996B, dated June 1, 1996, which are the last bonds issued by or on behalf of the City. (2) The Certificates are being issued to provide funds to pay contractual obligations to be incurred (1) for land acquisition, replacement, renovations, improvements, materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearland, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and Independence Park located at the intersection of John Lizer Road and Liberty Drive, Pearland, Texas 77581, (2) for certain street projects located in the City including but not limited to: the acquisition of right-of-way and construction of a street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemont; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including drainage) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage and bridge work); acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City, (3) for the acquisition, construction, improvement, repair, materials, supplies, equipment and machinery for certain drainage facilities located in the City including but not limited to: flood control improvements within and in the vicinity of the Shadycrest, . Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willowcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clear Creek bridge (including street renovations and improvements); storm water detention at the David L. Smith Project on Clear Creek, at the Southwest Environmental Center on Mary's Creek and at a future site on Hickory Slough; and formulation of a jurisdiction -wide storm water drainage plan and analysis for a storm water utility, and (4) for professional services. (3) From January 1, 1997, 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: Tom Reid Mayor Richard Tetens Council Member Kevin Cole Council Member Helen Beckman Council Member Larry Wilkins Council Member Jerry Richardson . Mayor Pro Tem (4) From January 1, 1997, to the date hereof, the following individuals were the duly appointed and qualified officers of the City holding the positions opposite their names: Administration Paul Grohman Richard Burdine Wendy Standorf Billy Jo Knight Position City Administrator Assistant City Manager Interim City Secretary Tax Assessor/Collector (5) The Certificates were sold at a price equal to $6,250,000 (representing the principal amount of the Certificates plus accrued interest) by means of a competitive sale to Rauscher Pierce Refnes, Inc.. (6) Attached to this certificate as Exhibit A is a true, full and correct debt service schedule for the Certificates. Attached as Exhibit A-1 is a true, full and correct debt service schedule for all of the. City's outstanding tax supported debt. The principal amount of the City's total outstanding tax supported debt is $29,369,392. (7) 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 1996, 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 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 $912,597,870. . (8) The following is a true, full and current schedule of the City's waterworks and sewer. system (the "System") revenues, remaining after the payment of all operation and maintenance expenses thereof ("Net Revenues"), for the past three fiscal years: Fiscal Year Ended September 30 1994 1995 1996 $1,426,400 $1,705,627 $1,560,770 (9) Attached to this certificate as Exhibit 13 is a true, full and current resolution establishing the utility rates of the System that are currently in effect. (10) 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 Certificates now in the process of issuance, the City's Water and Sewer System Revenue Refunding Bonds, Series 1996A, the City's Water and Sewer System Revenue Bonds, Series 1996B, the City's Combination Tax and Revenue Certificates of Obligation, Series 1995 and the City's Combination Tax and Revenue Certificates of Obligation, Series 1991. (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. SIGNED AND SEALED this April 3 CITY OF PEARLAND, TEXAS City Secretes O Mayor (CITY SEAL) , 1997. swe Oat-4 '4701/97_- . ._ ..iiTY OF PEARLAND Series 1991-T'x Bo:ids Rauscher Pierce Refsnes Inc. Delivery Date: 4/03/97 OATES (Term) ' 3/01/98 9/01/98 3/01/99 9/01/99 3/01/00 9/01/00 3/01/01 9/01/01 3/01/02 9/01/02 3/01/03 9/01/03 3/01/04 9/01/04 3/01/05 9/01/05 3/01/06 9/01/06 3/01/07 9/01/07 3/01/08 9/01/08 3/01/09 9/01/09 3/01/10 9/01/10 3/01/11 9/01/11 3/01/12 9/01/12 3/01/13 9/01/13 3/01/14 9/01/14 3/01/15 .9/01/15 3/01/16 Accrued Interest Totals MATURING AM UNT 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 100,000.00 110,000.00 120,000.00 120,000.00 400,000.00 460,000.00 520,000.00 580,000.00 650,000.00 1,210,000.00 1,280,000.00 COUPON PROCEEDS RATE YIELD PRICE 105,823.00 105,270.00 110,321.00 111,991.00 113,573.00 114,576.00 115,607.00 116,405.00 128,681.30 133,387.20 120,000.00 398,124.00 455,501.20 514,690.80 573,846.20 642,863.00 1,196,302.80 1,265,113.60 S6,250,000.00 S6,325,076.10 $6,250,000.00 16,325,076.10 7.250 7.250 7.250 7.250 7.250 7.250 7.250 7.250 7.250 6.500 5.250 5.250 5.250 5.300 5.350 5.400 5.450 5.500 4.050000 4.200000 4.350000 4.500000 4.600000 4.750000 4.850000 4.950000 5.050000 5.150000 5.250000 5.300000 5.350000 5.400000 5.450000 5.500000 5.550000 5.600000 105.823000 108.270000 110.321000 111.991000 113.573000 114.576000 115.607000 116.405000 116.983000 111.156000 100.000000 99.531000 99.022000 98.979000 98.939000 98.902000 98.868000 98.537000 INTEREST TOTAL AMOUNT DEBT SERVICE 325,655.00 177,630.00 177,630.00 174,005.00 174,005.00 170,350.00 170,380.00 166,755.00 166,755.00 163,130.00 163,130.00 159,505.00 159,505.00 155,880.00 155,880.00 152,255.00 152,255.00 148,630.00 148,630.00 144,642.50 144,642.50 140,742.50 140,742.50 137,592.50 137,592.50 127,092.50 127,092.50 115,017.50 115,017.50 101,237.50 107,237.50 85,722.50 85,722.50 68,172.50 68,172.50 1 35,200.00 35,200.00 1 325,655.00 177,630.00 277,630.00 174,005.00 274,005.00 170,380.00 270,380.00 166,755.00 266,755.00 163,130.00 263,130.00 159,505.00 259,505.00 155,810.00 255,880.00 152,255.00 252,255.00 148,630.00 258,630.00 144,642.50 264,642.50 140,742.50 260,742.50 137,592.50 537,592.50 127,092.50 587,092.50 115,017.50 635,017.50 101,237.50 681,237.50 85,722.50 735,722.50 65,172.50 ,278,172.50 35,200.00 ,315,200.00 S5,172,835.00 S11.422,835.00 -1,973.67 -1,973.67 S5,170,861.33 $11,420,861.33 FISCAL YEAR DEBT SERVICE 503,285.00 451,635.00 444,385.00 437,135.00 429,885.00 422,635.00 415,385.00 408,135.00 400,855.00 403,272.50 405,385.00 398,335.00 664,685.00 702,110.00 736,255.00 766,960.00, 803,895.00 1,313,372.50 1,315,200.00 S11,422,835.00 TIC (Incl. all expenses) .... 5.54497256% TIC (Arbitrage TIC) 5.44509215X Bond Years 93,609.17 Average Coipon 5.52599193X Average Life (yrs) 14.98 WAN (yrs) 14.794971 NIC (Vernon's) = 5.445790X (with Adjstnnt of $0.00). IRS For 8038-6 NIC = 5.445418% (with Adjstmnt of $0.00). NIC = 5.445790X (with Adjstmnt of S0.00). EXHIBIT A DEBT SERVICE SCHEDULE The following sets forth the principal and interest requirements on the City's outstanding debt and the Certificates. fiscal Year Outstanding The Certificates Total New Ending Debt $6,250,000 Principal 9 30 Requirements Principal interest - & Interest 1997 $ 2,443,604 �1998 2,451,441 $ 503,285 $ 503,285 1999 2,441,789 $ 100,000 351,635 451,635 2000 2,437,314 100,000 344,385 444,385 1 2001 2,438,211 100,000 337,135 437,135 =2002 2,430,601 100,000 329,885 429,885 2003 2,423,879 100,000 322,635 422,635 2004 2,434,633 100,000 315,385 415,385 2005 2,433,559 100,000 308,135 408,135 2006 2,434,770 100,000 300,885 400,885 -, 2007 2,444,265 110,000 293,273 403,273 2008 2,445,638 120,000 285,385 405,385 2009 2,448,090 120,000 278,335 398,335 ,,2010 624,250 400,000 264,685 664,685 2011 596,500 460,000 242,110 702,110 2012 568,250 520,000 216,255 736,255 r2013 539,500 580,000 186,960 766,960 '2014 512,500 650,000 153,895 803,895 2015 1,210,000 103,373 1,313,373 i---, 2016 1,280,000 35.200 1.315:200 $34,548,794 $6,250,000 $5,172,836 $11,422,836 ;average Annual Debt Service Requirements (1997/2016) j aximum Annual Debt Service Requirement (1998) DEBT STATEMENT Total Debt Service $ 2,443,604 2,954,726 2,893,424 2,881,699 2,875,346 2,860,486 2,846,514 2,850,018 2,841,694• 2,835,655 2,847,538 2,851,023 2,846,425 1,288,935 1,298,610 1,304,505 1,306,460 1,316,395 1,313,373 1,315,200 $45,971,630 $2,298,582 $2,954,726 ^eneral: he following tables and calculations relate to the Certificates and to all other tax supported debt of the City. In addition *^ outstanding certificates and bonds the City has also issued revenue bonds and has incurred contractual and other debtedness and liabilities which are not included below. The City and various other political subdivisions of 5vernment 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 ad valorem taxation against all or a portion of property within the City. onded Indebtedness: 1996 Certified Assessed Valuation (100% of Estimated Market Value) $912,597,870(a) fAirect Debt Outstanding Debt (as of February 1, 1997) $ 23,119,392 The Certificates 6,250,000 _otal Direct Debt 29,369,392 aaterest & Sinking Fund Balance (as of February 1, 1997) 3 240 614 '1) Certified by the Brazoria County Appraisal District. EXHIBIT A-1 I ' CftLtiyj ©E p©©fll©(r18 3519 liberty Drive • Pearland, '3) 485-87� Texas 541 b (713) 485-2411 • CERTIFICATION. THE STATE OF TEXAS § COUNTIES OF BRAZORIA & HARRIS § I, Yolanda C. Benitez, City Secretary of the City of Pearland, Texas, hereby certify that the attached constitutes a true and correct copy of Ordinance No. 679, duly passed and approved by the City Council at a regular meeting held on the 26th day of September, 1994, at Pearland, Texas. Witness my hand and seal of the City of 'Pearland; Texas, this 13th day of May, 1996, at Pearland, Texas. (SEAL) Y'- da C. Beni City Secretary EXHIBIT B ProM RecyCd rage. ORDINANCE NO. 679 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 SAVINGS CLAUSE, PROVIDING A SEVERABILITY CLAUSE AND PROVIDING 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, THAT: 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. 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 All over 2000 gallons Multi -Unit Residence or Business: Up to and including first 2000 gallons All over 2000 gallons $8725 SRO minimum St5-2. SD] per 1000 gallons $7$: , 5minimum per unit $t3-7 $71i per 1000 gallon usage The rate of $.&2 $ t 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. All water that passes through the meter shall be charged for, whether used or not. 1 1 r Section 3. Sewer Rates. The following rates or charges for the use and service of the sewage system of the City of Pearland arc determined as follows: 1. Commercial and Industrial Users Having City Water Service: The monthly sewer service chap for all Commercial and Industrial Users having City Water Service will be $8:6 el minimum for 2000 gallons of water usage or less and $f71+ S 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 $ti-t el per 1000 gallons of comparable bill for City Water Service. The City will install, at its expense, a water meter in the private water supply and read the meter monthly to determine the amount of water consumption. $8765 $ i Monthly Minirnwn charge. 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. $8:65 $ Monthly Minimum Charge. Commercial and Industrial User&Who Use the Water That lu partsr Themproduct or Production Process and That is Not Discharged into the Sanitary Sewer System: If water is a part of a Commercial- or Industrial user's product or is used in his production process in such a manner that there is no discharge into the Sewer System, then, upon the user's request, the City Council will establish the amount of water used for such purpose and his monthly sewer charge will be figured accordingly. $8765 ON 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 Site SUN minimum for 2000 gallons of water usage or less and $-1-1t 1, per 1000 gallons for water usage over 2000 gallons. 6. Residential Users Having City Sewer Service but not having City Water Service; If a residential user is connected to the Sanitary Sewer System but not connected to the Water System, then the private system will be metered at City expense and the sewer rate will be $-1-1t gaper per 1000 gallons of the comparable bill for City Water Service. $8:63 SLR Monthly Minimum Charge. 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 $8 6 S for 2000 gallons of water usage or less and $1711- $ 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 $7776 $ minhnum for 2000 gallons of water usage or less and $t:ee el per 1000 gallons for water usage over2000 gallons (Multi -unit being .defined as being a building, residence or business consisting of two or more units.) ORDINANCE NO. 679 Section 4. Repealer. All previously adopted water and sewer rate schedules shall be and are hereby repealed. Section 5. Savings. All rights and remedies which have accrued in the -favor of the City under this Ordinance - and its amendments thereto shall be and are preserved for the benefit of the. City. Section 6. Severability. If any section, subsection, sentence, clause, phrase, or portion of this Ordinance is for any reason held invalid or unconstitutional by any Court of competent jurisdiction, such portion shall be deemed a separate, distinct and independent provision and such holding shall not effect the validity of the remaining portions thereof. Section 7. Effective Date. This ordinance shall become "effective on the Nvvai►Lbw , i99} 4 billing. PASSED and APPROVED on First Reading this / L day of A.D., 1994. C. V. Coppiner, Mayor ATTEST: Pat Jones, City5"ecretary PA SED a d APPROVED on Second and Final Reading thisa2 G day of A.D., 1994. ATTEST: Pat Jones, City; ' retary • APPROVED AS TO FORM: s-M Cullough, City AttorneyO 3 V." Copp ingeror r SIGNATURE IDENTIFICATION AND NO -LITIGATION CERTIFICATE THE 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: CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, dated April 1, 1997, and aggregating $6,250,000 (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 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 holdingthe official titles set forth below opposite such signatures. We further certify that no litigation is pending or, to our knowledge, threatened in any court 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 March 3, 1997, 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 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. r We further certify that Paul Grohman is the City Manager of the City and that his signature as set forth be w is genuine. , City Manager, City of Pearland, Texas We further certify that the information and data contained in the General Certificate dated April 3 , 1997 remain true and correct as of this date: WITNESS OUR HANDS AND THE SEAL OF THE CITY this April 3 , 1997. SIGNATURES , TITLE OF OFFICE Mayor, City of Pearland, Texas City Secretary, City of Pearland, Texas (CITY SEAL) Execute either I or II below: I. The signatures of the officers subscribed above are hereby certified to be true and genuine. Bank By: Authorized Officer (BANK SEAL) or (Initials of Authorized Officer if Bank has no seal on premises II. Before me, on this day personally apeared the foregoing individuals, known to me to be the persons whose names are subscribed to the foregoing instrument. Sr+IN dta M are, i99? Given under my hand and seal of office this .'';Y�; t. USA D. JONES •= NOTARY PUBLIC • STATE OF TEXAS � : ':: MY COMMISSION EXPIRES 1401,7 rX SEPTEMBER 21,1999 (Notary Seal) 0367773.01 029726/1901 S Notary Public Typed or Printed Name: bs& b. Jones My Commission Expires: 9/i/9 NO ARBITRAGE CERTIFICATE City of Pearland, Texas Certificates of Obligation, Series 1997 I, the undersigned officer of the City of Pearland, Texas, a political subdivision of the State of Texas located within Brazoria and Harris Counties (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 1997 (the "Obligations") in the aggregate principal amount of $6,250,000, 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 Obligations. 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 March 3, 1997, authorizing the issuance of the Obligations (the "Ordinance"), and particularly the provisions thereof relating to the treatment of the Obligations 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 1.148-0 through 1.148-11, 1.149(d)- 1, 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 l I Obligations, 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 Obligations and other matters relevant to the treatment of interest on the Obligations for federal income tax purposes are accurately and completely stated herein, that all of such expectations and estimates stated in this Certificate are accurate, and that there are no facts, estimates or 1 i circumstances which would indicate that any of the expectations stated herein are not reasonable. 3. Descriptions of Governmental Purpose. The City is issuing the Obligations pursuant to the Ordinance to provide funds which will be used for (i) land acquisition, replacement, renovations, improvements, materials, supplies, equipment and machinery for certain city buildings and facilities, as more fully described in the Ordinance; (ii) certain street projects located in the City, as described in the Ordinance; (iii) the acquisition, construction, improvement, repair, materials, supplies, equipment and machinery for certain drainage facilities located in. the City as described in the Ordinance, and (iv) payment of professional services including the cost of issuance associated with the Obligations. Collectively, the purposes for which the Obligations are being issued listed in paragraphs (i) through (iv) above will be referred to a as the "Project." 4. Proceeds of the Obligations. The sales proceeds from the sale of the Obligations will be $6,325,076.10 which represents the principal amount of the Obligations, plus net original issue premium in the amount of $75,076.10. 5. Use of Proceeds of the Obligations. The sales proceeds from the sale of the Obligations will be expended and applied by the City as follows: (a) Proceeds of the Obligations in an amount equal to $6,210,000.00 will be used by the City to pay the costs of the Project. (b) Proceeds of the Obligations in the amount of approximately $40,000.00 will be disbursed within one year of the date hereof to pay the costs of issuing the Obligations. (c) Proceeds of the Obligations in the amount of $61,576.10 represent the underwriter's discount. (d) Proceeds of the Obligations in the amount of $13,500.00 will be disbursed on the date hereof to pay the cost of insuring the Obligations. 6. Pre -Issuance Accrued Interest. In addition to the sale proceeds described in paragraph 5, the City will receive, upon the issuance of the Obligations, the amount of $1,973.67 representing interest on the Obligations accruing during the period from April 1, 1996, to the date hereof. Such amount will be deposited in the City's Certificates of Obligation, Series 1997 Debt Service Fund (the "Debt Service Fund") and, along with all investment earnings therefrom, will be disbursed to pay interest on the Obligations on March 1, 1998, the first interest payment date on the Obligations. Further, because the amount of $1,973.67 represents accrued interest on the Obligations for a period of less than one year and will be spent to pay interest on. the Obligations within one year from the Issue Date, such amount constitutes pre -issuance accrued interest on the Obligations and, as such, is not considered proceeds, but will, along with the earnings therefrom, constitute gross proceeds of the Obligations. Further, this amount and the earnings thereon will be received and spent for the payment of debt service on _ the Obligations within the same bond year (which begins on the Issue Date), and, consequently, will constitute a part of the Bona Fide Portion of the Debt Service Fund (as described in paragraph 15 below) and will be considered invested for temporary period, during which such amount and the earnings thereon may be invested at a yield materially higher than the yield on the Obligations. 7. Investment Proceeds. The . City has estimated the total amount of investment proceeds to be received with respect to the Obligations to be $350,000.00. Such earnings on 2 the investment of the proceeds of the Obligations described in paragraph 5(a) will be used in addition to the amounts described in paragraph 5(a) to pay the costs of the Project. The total cost of the Project is expected to equal or exceed the sum of the amount described in paragraph 5(a) and the investment earnings on the amount described in paragraph 5(a) which are used to pay costs of the Project. Earnings, if any, on the amounts described in paragraphs 5(b) through 5(d) will be used for the purposes described in paragraphs 5(b) through 5(d). S. Replacement Proceeds. There are no amounts on hand, and there are no amounts expected to be received, other than amounts to be held in the Interest and Sinking Fund (as defined in paragraph 15) for the payment of debt service on the Obligations which have or will have at any time a sufficiently direct nexus to the Obligationsor to any governmental purpose of the Obligations to conclude that such amounts would have been used for that governmental purpose if the proceeds of the Obligations were not used or to be used for that governmental purpose. More specifically -- (a) Sinking Funds and Pledged Funds. Other than the Interest and Sinking 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 Obligations 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 Obligations; and (ii) any fund, amount or investment that is directly or indirectly pledged to pay principal or interest on the issue. 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 benefit 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 Obligations. Based on the reasonable expectations of the City as of the date hereof, the term of the Obligations is not longer than, and the City will not allow the Obligations to remain outstanding longer than, is reasonably necessary for the governmental purposes for which the Obligations are being issued. The weighted average maturity of the Obligations does not exceed 120 percent of the reasonably expected economic life of the capital projects "being financed or refinanced by the Obligations, determined in the same manner as provided under Section 147(b) of the Code. In addition, none of the proceeds of the Obligations will be used to finance working capital expenditures. 9. No Overissuance. Based on the expectations set forth in the preceding paragraphs, the amount of the proceeds from the issuance of the Obligations, plus all investment 3 proceeds to be received with respect to the Obligations, does not exceed by any amount, the amount required for the governmental purposes for which the Obligations are being issued. 10. Temporary Period Requirements for the Obligations. (a) Time Test. The City has incurred or will incur within six months of the date hereof substantially binding obligations to one or more unrelated parties (not subject to contingencies within the City's or the third parry's control) to which the City is obligated to expend at least 5 percent of the net sale proceeds of the Obligations. (b) Expenditure Test. The City expects at least 85 percent of the original proceeds of the Obligations will have been expended prior to April 3, 2000 for costs of the Project. All original proceeds of the Obligations will be expended prior to April 3, 2000, will be invested on and after such dateuntil final expenditure at a yield (as defined in paragraph 14) which is not materially higher than the yield on the Obligations, except as set forth in paragraph 17 below. (c) Due Diligence. The City expects that the purchase of the Project will proceed with due diligence to completion and thatthe proceeds of the Obligations will be expended on the Project with reasonable dispatch. (d) Investment Proceeds. The City expects that all amounts derived from the investment of monies received from the sale of the Obligations and from the reinvestment of such investment proceeds will be expended within three years from the date hereof or within one year afterreceipt of such investment income, whichever is later. All investment proceeds of the Obligations 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 Obligations, except as provided in paragraph 17 below. 11. Flow of Funds. Under the Ordinance, the City is obligated to assess and collect revenues in an amount sufficient to pay debt service on the Obligations. All revenues levied, assessed and collected by the City for or on account of the Obligations will be deposited into the Debt Service Fund. 12. Issue Price. The term "Issue Price," with respect to the entire issue of Obligations, means the aggregate of the initial offering prices for all of the Obligations, plus pre - issuance accrued interest as of date of issue on the entire issue of Obligations (unless as otherwise indicated herein). For substantially identical Obligations, 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 of Initial Purchaser attached as Exhibit A and incorporated herein by reference, the Issue Price of the Obligations, including pre -issuance accrued interest, is $6,327,049.77. 13. Other Issues. There are no other obligations issued by the City or any related. party of the City, which (a) were sold at substantially the same time as the Obligations (within 15 days), (b) are payable from the same source of funds as the Obligations and (c) are or will be sold pursuant to the same plan of financing as the Obligations. 14. Yield on the Obligations. 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 Obligations, shall mean that interest rate which. when used asa discount factor to compute the present value as of the Issue Date of all scheduled payments of principal . of and interest on the Obligations produces an amount equal to (i) the present value (using the same discount rate) of the Issue Price of the Obligations, plus (ii) pre -issuance accrued interest on the Obligations as of the Issue Date. The yield on the Obligations shall not take into account or reflect any underwriters' discount or cost of issuance of the Obligations. For purposes hereof, yield is and shall be calculated on the basis of a 360- day year with interest compounded semi-annually. The yield on the Obligations is calculated on the basis of the final maturity date because, in the case of the Obligations subject to optional redemption, (i) the City has no present intention to call the Obligations for optional redemption, (ii) no Obligation is callable at any time for a price less than par plus accrued interest, and (iii) the Financial Advisor has represented on Exhibit A hereto that the Issue Price of each such callable Obligation is not greater than par plus accrued interest. No Obligation is subject to mandatory early redemption. The insurance premium _(the "Insurance Premium") paid to insure the Obligations, constitutes a fee for a qualified guarantee; thus the Insurance Premium in the amount of $13,500.00 will be treated as additional interest on the Obligations for the purpose of calculating the yield on the Obligations. The Insurance Premium represents a fee for a qualified guarantee based on the representations set forth below and included in the Certificate of Underwriters, Exhibit A 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 Obligations which results assuming recovery of the Insurance Premium. (b) Guarantee In Substance. The guarantee imposes secondary liability on MBIA Insurance Corporation ("MBIA") that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Obligations. MBIA is not a co -obligor and does not expect to make any payments other than payments for which it will be reimbursed immediately. MBIA and related parties thereto will not use more than ten percent of the gross proceeds of the Obligations that are guaranteed by MBIA. (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 County to MBIA for any other direct or indirect services other than the transfer credit risk. The Insurance Premium does not include payment for the cost of underwriting or remarketing the. Obligations or for the cost of casualty insurance for property financed or refinanced by 5 r j the Obligations. The Insurance Premium is not refundable upon redemption of the Obligations prior to maturity. The yield on the Obligations, calculated in the manner set forth above and based on the information set forth in the Certificate of Financial Advisor, attached hereto as Exhibit A, is 5.445092 percent. - - 15. The Debt Service Fund. The proceeds from all revenues assessed and collected for and on account of the Obligations and all investment earnings on amounts in the Interest and Sinking Fund will be deposited promptly into the Interest and Sinking Fund. The Interest and Sinking Fund will be used primarily to achieve a proper matching of revenues and debt service on the Obligations within each bond year. All amounts which will be used to pay principal of and interest on the Obligations with 13 months of the date of deposit in the Interest and Sinking Fund and which will be depleted annually, except for a reasonable carryover amount not to exceed the greater of (i) one year's earnings on the Interest and Sinking Fund or (ii) one -twelfth of the annual debt service on the Obligations, will constitute a bona fide debt service fund component of the Interest and Sinking Fund (the "Bona Fide Portion"). All amounts on deposit in the Interest and Sinking Fund from time to time in excess of the Bona Fide Portion thereof and all amounts in the Interest and Sinking Fund and not spent within 13 months of the date of deposit therein (the "Reserve Portion") shall be treated separately for purposes of this Certificate. The expenditure of money deposited in the Interest and .Sinking Fund shall be accounted for on the basis of such method of accounting as properly . adopted and consistently applied by the City for tax purposes. Amounts on deposit from time to time in the Bona Fide Portion and in the Reserve Portion are allocable between the Obligations and any other obligations of the City the payment of which may be secured by the Interest and Sinking Fund and shall be allocated under such method as properly adopted and consistently applied. by the City for tax purposes. So long as any of the Obligations are outstanding, the- portion of the Reserve Portion allocable to the Obligations is not expected to exceed the lesser of (i) ten percent of the Issue Price, (ii) the maximum annual debt service on the Obligations or (ili) 125 percent of the average annual debt service on the Obligations. If, however, the balance of the Reserve Portion should ever exceed the limitation specified in the preceding sentence, such excess shall be invested at a yield not in excess of the yield on the Obligations. 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 Obligations, or which are reserved or pledged as collateral for payment of debt service on the Obligations and (b) for which there is reasonable assurance that amounts therein will be available to pay debt service on the Obligations if the City encounters financial difficulties. Use of amounts in the Interest and Sinking Fund are 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 Obligations. . Use of amounts in the Interest and Sinking Fund are 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 Obligations. 6 17. Minor Portion. The City expects that the gross proceeds of the Obligations, including all proceeds received with respect to the Obligations 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 Obligations, other than amounts representing a portion of the Bona Fide Portion of the Interest and Sinking Fund, will be expended in accordance with paragraphs 10 and 15 above. To the extent that such amounts remain unexpended or are otherwise on hand following the periods set forth in paragraphs 10 and 15 above exceeds the amount specified in paragraph 15, the City will invest such amounts (other than a minor portion not exceeding the lesser of 5 percent of the proceeds of the Obligations or $100,000 in the aggregate) at a yield not materially higher than the yield on the Obligations. 18. Identification of Replacement Proceeds. Notwithstanding the expectations of the City as stated above in paragraph 8 above, the City will (at all times while the Obligations are outstanding) identify all replacement proceeds with respect to the Obligations, including any sinking fund created for repayment of the principal or interest on the Obligations or any other amounts held. in any fund of the City reasonably expected by the City to be used to pay principal or interest on the Obligations. If the City identifies any replacement proceeds and determines that a temporary period pursuant to Section 1.148-2(e) of the Regulations is not applicable to such replacement proceeds, the City will limit the yield on the investment of such replacement proceeds to the yield on the Obligations until such proceeds are treated as spent in accordance with the Regulations. The City acknowledges that failure to properly identify replacement proceeds and account for the investment and expenditure thereof as required by the Regulations may result in interest on the Obligations, being includable in the gross income of the holders of the Obligations. 19. Compliance with Rebate Requirements. The City has covenanted in the 'Ordinance that it will take all necessary steps to comply with the requirement that rebatable arbitrage earnings on the investment of the gross proceeds of the Obligations, 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 Obligations, (ii) maintain records regarding the investment of the gross proceeds of the Obligations as may be required to calculate the amount earned on the investment of the gross proceeds of the Obligations which are part of a reasonably required reserve or replacement fund separately from records of amounts in other funds or accounts maintained for the Obligations, 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 bonds 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 bonds 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 the Obligations which are part of a reasonably required reserve or replacement fund, and (iv) pay, not less often than every fifth anniversary date of the delivery of the Obligations 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 for purposes of compliance with Section 148 of the Code, gross, proceeds of the Obligations must be accounted for on the basis ofa reasonable, consistently applied method of accounting, not employed in whole or in part as an artifice or device. The City will employ 7 accountants or other persons with expertise in performing the rebate calculations as necessary to insure compliance with the Code. The City will employ legal counsel as necessary to resolve any 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 Obligations. 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 Obligations 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 Obligations pursuant to Section 148(0 of the Code in order to prevent the Obligations from constituting arbitrage bonds or being otherwise classified or treated such that interest on the Obligations 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. 20. Not a Refunding. No portion of the proceeds of the Obligations are expected to be used to pay any interest on or principal of any issue of governmental obligations other than the Obligations. 21. Not a Reimbursement. Except for certain preliminary expenditures (as defined in Section 1.150-2(0(2) of the Regulations) not exceeding 20 percent of the Issue Price of the Obligations, no portion of the proceeds of the Obligations will be allocated to, or otherwise used to reimburse, any expenditure paid by the City, either actually or constructively, prior to the Issue Date. 22. No Change in Use. The City does not expect to dispose of any portion of any project related to the Obligations, or to change the use of the proceeds of the Obligations while any of the Obligations are outstanding. 23. Not a Hedge Bond. Neither the Obligations nor the Refunded Obligations are "hedge bonds" within the meaning of Section 1.149(g) of the regulations. 24. No Abusive Arbitrage Device. The Obligations 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 Obligations 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 Obligations 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 Obligations in an amount higher than is reasonably necessary to 8 accomplish the governmental purposes of the Obligations, the City has not issued the Obligations earlier than is reasonably necessary to accomplish the governmental purposes of the Obligations and the City_ is not allowing the Obligations to remain outstanding longer than is reasonably necessary to accomplish the governmental purposes of the Obligations. The City would have issued the Obligations regardless of any arbitrage benefit which it may realize in connection with the Obligations. In fact, the City reasonably expects that even if the Obligations 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 Obligations are in fact now being issued, the City would have issued the Obligations, 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 Obligations has a maturity determined primarily for the purpose of creating a sinking fund with respect to the Obligations the yield on which will be blended with the yield on the investment of other proceeds of the Obligations to reduce the negative arbitrage related to such investment. (b) No Window Refunding. No portion of the Obligations has been structured with the purpose of making available released revenues that will allow the City to avoid transferred proceeds, to invest such released revenues at a yield materially higher than the yield on the Obligations or to pay principal and interest on another issue of obligations of the City. (c) No Sale of a Conduit Loan. No portion of the gross proceeds of the Obligations has been or will be used to acquire, finance or refinance a conduit loan. 25. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the proceeds of the Obligations will not be used in a manner that would cause any of the Obligations 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. 9 WITNESS MY HAND, this 3rd day of April, 1997. CITY OF PEARLAND, TEXAS By: David Castillo Director of Finance EXHIBIT A — Certificate of Initial Purchaser EXHIBIT B — Certificate of Financial Advisor 10 CERTIFICATE REGARDING ISSUE PRICE The undersigned hereby certifies with respect to the sale of $6,250,000 City of Pearland, Texas Certificates of Obligation, Series 1997 (individually, a "Certificate," and collectively, the "Certificates"), as follows: 1. The undersigned is a duly authorized representative of the underwriter or of the manager of the syndicate of underwriters that purchased the Certificates from the City of Pearland (the "City") pursuant to a competitive bid sale. (Such underwriter or syndicate of underwriters is referred to herein as the "Underwriters.") In this capacity, the undersigned is familiar with the facts stated herein. 2. The term "Initial Offering Prices" means the respective initial offering prices (exclusive of accrued interest) for the Certificates of each maturity (stated in term of dollars or as a percent of par) as set forth in the following table. Year of Maturity Principal Interest Initial (March 1) Amount Rate Offering Price 1999 $ 100,000 7. 2.r % f'I•0.r. 2000 100,000 7. 2. Y % V l0 2001 100,000 2, - % y 3 S- 2002 100,000 7. Z.1- % 5f Sb 2003 100,000 7. _f % S460 2004 100,000 7.2d' % y g- 2005 100,000 7. Z.i % 4. fr 2006 100,000 �2l % 444' 2007 110,000 ?. % . .0 S 2008 120,000 d;. So % .Sis' 2009 120,000 f Z$ % 52.r 2010 400,000 . . 2.1-- % S . 3o 2011 460,000 � % S.3S 2012 520,000 tr. 3a % .i = VO 2013 580,000 J'. 3.1' % .r'. ses 2014 650,000 n/LYU % J . CO 2015 1,210,000 t ,'(t % S. Sr 2016 1,280,000 tr. V % it Qo 3. Based on the actual facts and reasonable expectations in existence on the Sale Date, the Initial Offering Price for each Certificate: a. Represented as the price (payable in cash, with no other consideration being included, and exclusive of accrued interest), at which the Underwriters reasonably expected, as of the Sale Date, each such Certificate would be sold to the Public; and b. Did not exceed what the Underwriters believed to be the respective fair market value of each such Certificate as of the Sale Date. 4. The Underwriters have purchased the Certificates for contemporaneous sale to the Public and not for investment for their own account. Each of the Certificates has actually been offered to the Public at its respective Initial Offering Price in a bona fide offering of all the Certificates and, as of the Issue Date, a substantial amount of the Certificates (at least 10 percent) of each maturity has been sold to the Public in arm's length transactions for cash prices (with no other consideration being included). Of the Certificates sold, none were sold at prices other than the respective Initial Offering Prices for such Certificates, plus accrued interest. 5. The term "Public" shall not include bond houses, brokers, and similar persons or organizations acting in the capacity of wholesalers or underwriters. EDIT B CERTIFICATE OF FINANCIAL ADVISOR The undersigned hereby certifies with respect to the sale of the $6,250,000 City of Pearland, Texas Certificates of Obligation, Series 1997 (the "Obligations"), as follows: 1. The undersigned is a duly authorized representative of Rauscher Pierce Refsnes, Inc., the financial advisor ("Financial Advisor") to the City of Pearland, Texas (the "City") in connection with the sale and delivery of the Obligations. 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 in effect thereunder, and, when used with respect to the Obligations, 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 Obligations produces an amount equal to the present value, using the same discount rate, of the Issue Price of the Obligations. Yield on the Obligations shall not take into account or reflect any underwriters' discount, cost of issuance of the Obligations or costs of carrying or repaying the Obligations. For purposes hereof, yield is and shall be calculated on the basis of a 360-day year with interest compounded semi-annually. The yield with respectto that portion of the Obligations subject to optional redemption is computed by treating such Obligations 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 Obligations which are subject to optional redemption, (ii) no Obligation is subject to optional redemption at any time for a price less than the retirement price at final maturity plus accrued interest, (ili) no Obligation is subject to optional redemption within five years of the Issue Date, (iv) no Obligation subject to optional redemption is issued at an Issue Price that exceeds the stated redemption price at maturity of such Obligation by more than one-fourth of one percent multiplied by the product of the stated redemption price at maturity of such Obligation and the number of complete years to the first optional redemption date for such Obligation; and (v) no Obligation subject to optional redemption bears interest at a rate that increases during the term of the Obligation. No Obligation is subject to mandatory early redemption. As set forth in paragraphs 5 and 14 of the No Arbitrage Certificate to which this Certificate is attached, proceeds of the Obligations in the amount of $13,500.00 (collectively, the "Insurance Premium") will be used to purchase municipal bond insurance for the Certificates from MBIA Insurance Corporation ("MBIA"). The Insurance Premium paid to MBIA constitutes a fee for a qualified guarantee; thus, the Insurance Premium in the amount of $13,500.00 will be treated as additional interest in calculating the yield on the Obligations. In this regard: Page B-1 (a) 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 Obligation Insurance Premium. (b) The guarantee provided with the Obligation Insurance Premium imposes secondary liability on MBIA that unconditionally shifts substantially all of the credit risk for all or part of the payments on the Certificates. MBIA is not a co -obligor with respect to the Certificates and does not expect to make any payments other than payments for which it will be reimbursed immediately. MBIA and related parties thereto will not use more than ten percent of the gross proceeds of the Certificates that are guaranteed by MBIA. (c) 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 County to MBIA for any other direct or indirect services other than the transfer of credit risk. The Insurance Premium does not include payment for the cost of underwriting or remarketing the Obligations or for the cost of casualty insurance for property financed or refinanced by the Obligations. The Insurance Premium is not refundable upon redemption of the Obligations prior to maturity. The yield on the Obligations, calculated in the manner set forth above and based on the information set forth in the Certificate of Financial Advisor, attached hereto as Exhibit A, is 5.445092 percent. With respect to the issuance of the Obligations, the representations set forth in paragraph 24 of the No Arbitrage Certificate are, to the best of our knowledge, true, correct and complete. EXECUTED and DELIVERED as of and on April 3, 1997. Very truly yours, FINANCIAL ADVISOR RAUSCHER PIERCE REFSNES, INC. 0375718.01 049702/1655 By:VI ,C�-- Frank J. Ildebrando Senior Vice President Page B-2 ( .Form 8038-G --(Rev. May 1995) I l Information Return for Tax -Exempt Governmental Obligations ► Under Internal Revenue Code section 149(e) ► See separate Instructions. Internal Revenue Service Department of the Treasury (Note: Use Form 8038-GC ifthe lIssue/xfce Is under $100,000.) Reporting Authority Issuer's name CITY OF PEARLAND, TEXAS 3 Number and street (or P.O. box if mail is not delivered to street address) 3519 LIBERTY DRIVE 5 City, town, or post office, state, and ZIP code PEARLAND, TEXAS 77581 7 Name of issue $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 Type of Issue (check applicable box(es) and enter the issue price) Part 1I OMB No. 1545-0720 ' If Amended Return, check here ► ❑ 2 Issuer's employer identification number 74 6028909 4 Report number G19 97 - 1 6 Date of issue APRIL 3, 1997 Room/suite 8 CUSIP number 704862NE7 9 ❑ Education (attach schedule -see instructions) 10 ❑ Health and hospital (attach schedule -see instructions) 11 0 Transportation 12 0 Public safety 13 ❑ Environment (including sewage bonds) 14 0 Housing 15 0 Utilities . . . . . . . . . 16 ac Other. Describe (see instructions) ► $UILDING RENOVATIONS , STREET IMPROVEMENTS\ 17 If obligations are tax or other revenue anticipation bonds, check box ► 0 'AND DRAINAGE 18 If obligations are in the form of a lease or installment sale, check box ► ❑ Descri Part III tion of Obligations (a) Maturity date Interest rate 19 Final maturity. • 3 / 1 / 2016 20 Entire issue . Uses of Proceeds of Bond Issue Part IV 5.50 % (c) Issue price 1,265,113.60 6,325,076.10 Stated edception price at maturity 1,280,000.00 6,250,000.00 Weighted averaje matunty 14.795 years (including underwriters' discount) 21 Proceeds used for accrued interest 22 Issue price of entire issue (enter amount from line 20, column (c)) 23 Proceeds used for bond issuance costs (including underwriters' discount) 24 Proceeds used for credit enhancement 25 Proceeds allocated to reasonably required reserve or replacement fund 26 Proceeds used to currently refund prior issues 27 Proceeds used to advance refund prior issues 28 115 , 07 6.10 28 Total (add lines 23 through 27) 29 Nonrefundinq proceeds of the issue (subtract line 28 from line 22 and enter amount here) . . 29 6 210 000.00 Descri s tion of Refunded Bonds (Complete this part only for refunding bonds.) N/A 30 Enter the remaining weighted average maturity of the bonds to be currently refunded . . . ► years 31 Enter the remaining weighted average maturity of the bonds to be advance refunded . . ► years 32 Enter the last date on which the refunded bonds will be called ► 33 Enter the date(s) the refunded bonds were issued ► 23 101,576.10 9 10 11 12 13 14 15 16 ,325,076.10 Yield 5.445 % 092 21 22 Net Interest cost 5.445 56 408 1,973.67 6,325,076.10 24 13,500.00 25 0 26 0 Part V Part VI Miscellaneous 27 0 34 Enter the amount of the state volume cap allocated to the issue under section 141(b)(5) 35 Enter the amount of the bonds designated by the issuer under section 265(b)(3)(B)(0(II1) (small issuer exception) 36a Enter the amount of gross proceeds invested or to be invested in a guaranteed investment contract (see instructions) b Enter the final maturity date of the guaranteed investment contract . ► 37 Pooled financings: a Proceeds of this issue that are to be used to make loans to other governmental units b If this issue is a loan made from the proceeds of another tax-exempt issue, check box ► 0 and enter the name of the issuer ► and the date of the issue ► 38 If the issuer has elected to pay a penalty in lieu of arbitrage rebate, check box . . ► 0 39 If the issuer has identified a hedge, check box ► ❑ Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief. they are true. correct. and complete. 34 N/A Please Sign Here Signatureauthorized representative 4/3/97 Dale For Paperwork Reduction Act Notice, see page 1 of the Instructions. Cat. No 637735 DAVID CASTILLO DIRECTOR OF FINANCE Type or print name and title Form 8038-G (Rev 5.95) CERTIFICATE OF ASSESSED VALUATION THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS ' § CITY OF PEARLAND § I, Rubye Jo Knight, the duly appointed, qualified and acting Tax Assessor -Collector of the City of Pearland, Texas (the "City"), do hereby certify that the following is a true and correct statement of the assessed value of taxable property within the City, as shown by the duly approved tax rolls for the tax year 1996 as of the date shown below, which are the last approved tax rolls for the City on file in my office, to wit: $ 912,597,870 WITNESS MY HAND this j. day of Tax Assessoollector City of Pearland, Texas 0367780.01 029726/1624 , 1997. t CLOSING CERTIFICATE THE STATE OF TEXAS COUNTIES OF BRAZORIA AND HARRIS CITY OF PEARLAND We, the undersigned, Mayor and City Manager of the City of Pearland, Texas (the "City"), acting solely in our respective official capacities, hereby certify with respect to the $6,250,000 City of Pearland, Texas Certificates of Obligation, Series 1997 (the "Certificates"), as follows: 1. We certify that the ordinance of the City Council of the City authorizing the issuance of the Certificates, dated March 3, 1997 (the "Ordinance") and the Paying Agent/Registrar Agreement have not been amended, modified, supplemented or repealed, except as may have been agreed to by the Purchaser and are in full force and effect. 2. We further certify that: (i) the City has authorized, by all necessary action, the execution and delivery or receipt and due performance of the Ordinance, Paying Agent/Registrar Agreement, Certificates, Official Statement and any and all such other agreements and documents as may be required to be executed and delivered or received by the City in order to carry out, give effect to and consummate the transactions contemplated hereby and by the Ordinance and Official Statement and the City Council has authorized, by all necessary action, the adoption of the Ordinance; except to the extent disclosed in the Official Statement, no litigation is pending or, to the best of our knowledge, threatened in any court to restrain or enjoin the issuance, sale 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, or the Ordinance, or contesting the powers of the City or the authorization of the Certificates or the Ordinance, or contesting in any way the accuracy, completeness or fairness of the Official Statement; (iii) the adoption of the Ordinance by the City Council and the execution and delivery of the Certificates, the Official Statement and the other agreements contemplated by the Official Statement to be executed and delivered by the City or the City Council under the circumstances contemplated thereby, and the compliance by the City and the City Council with the provisions thereof will not conflict with or constitute on the part of the City or the City Council a breach of or a default under any existing law, court or administrative regulation, decree or ordinance or any agreement, indenture, mortgage, lease or other instrument to which the City or the City Council is subject or by which the City, the City Council or any of the City's properties is bound; (iv) the information set forth in the Official Statement is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (v) to the best of our knowledge, no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any respect. (vi) there has not been any material and adverse change in the affairs or financial condition of the City since September 30, 1996, the latest date as to which audited financial information is available. EXECUTED ON BEHALF OF THE CITY as of April 3 ,1997. CITY OF PEARLAND, TEXAS Mayor City Manager 0216673.01 029726/1627 CERTIFICATE OF CITY MANAGER CITY OF PEARLAND, TEXAS THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § This certificate is made for the benefit of all persons interested in the City of Pearland, Texas Certificates of Obligations, Series 1997, now in the process of issuance. I hereby certify as follows: 1. That I am City Manager for the City of Pearland, Texas (the "City") and as such am familiar with the matters and facts set out in this certificate. 2. Nothing has come to my attention that causes me to believe that during the period from September 30, 1996, to April 3, 1997 (the "Closing") there has been any material adverse change in the financial affairs of the City from that set forth in the audited financial statements of the City as of September 30, 1996, and included in the Official Statement dated as of March 3, 1997. WITNESS MY HAND, this April 3 , 1997. Paul Grohman, City Manager City of Pearland, Texas 0367785.01 029726/1631 MQIA CERTIFICATE OF MBIA INSURANCE CORPORATION I, Pauline M. Cullen, Assistant Secretary of MBIA Insurance Corporation, do hereby certify that the information concerning MBIA Insurance Corporation and its policies as set forth in the Official Statement, dated March 3, 1997 under the caption "The MBIA Insurance Corporation Insurance Policy", regarding $6,250,000 City of Pearland, Texas, Certificates of Obligation, Series 1997, is accurate. IN WITNESS WHEREOF, I hereunto set my hand and deliver this Certificate on this 3rd day of April, 1997. Assistant Secretary MAYOR, DAY, CALDWELL 8 KEETON,. L.L.P. 700 LOUISIANA, SUITE 1900 HOUSTON, TEXAS 77002-2778 (713) 225-7000 TELECOPIER (713) 225-7047 April 3, 1997 100 CONGRESS AVENUE SUITE 1500 AUSTIN, TEXAS 78701-4042 (5121320-9200 TE LECOPIER (5121320-9292 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 1997, dated April 1, 1997, in the aggregate principal amount of $6,250,000, maturing on March 1 in each year from 1999 through and including 2016. The Certificates are issuable in fully registered form only, in denomina- tions of $5,000 or integral multiples thereof, bear interest, are subject to redemption prior to maturity 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 con- tains 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 accor- dance with the terms and conditions thereof, except to the extent that the rights r i and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of political subdivisions and the exercise of judicial discretion in appropriate cases; and the Certificates have been authorized and delivered in accordance with law; and (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied, within the limits prescribed by law, upon taxable property located within the City, which taxes have been pledged irrevocably to pay the principal of and interest on the Certificates; and (3) The revenues to be derived from the operation of the City's waterworks and sanitary 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. 2 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) or a real estate mortgage investment conduit (REMIC)) 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 and the environmental tax imposed by the. Code are computed. Purchasers of Certificates are directed to the discussion entitled "TAX EXEMPTION" set forth in the Official Statement. UNDER EXISTING LAW and based upon the assumptions stated in the Official Statement prepared for use in connection with the sale of the Certificates, it is also our opinion as follows: (1) the difference between (a) the stated redemption price at maturity of each Certificate maturing in the years, 2010 through 2016, inclusive (the "Discount Certificates"), and (b) the initial offering price at which a substantial amount of such Discount Certificates of the same maturity were sold to the public, as described in the Official Statement, constitutes original issue discount with respect to each such Discount Certificate in the hands of an owner who purchased such Discount Certificate at the initial offering price in the initial public offering of the Certificates; and (2) such initial owner is entitled to exclude from gross income for federal income tax purposes with respect to such Discount Certificate that portion of the original issue discount deemed to be earned for federal income tax purposes during the period that such Discount Certificate continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Discount Certificate prior to its stated maturity, however, any amount realized by such owner in excess of the basis of such Discount Certificate in the hands of such owner (adjusted upward by the portion of the original issue discount deemed to be earned during the period for which such Discount Certificate was held by such initial owner) is includable in gross income for federal income tax purposes. PURCHASERS OF DISCOUNT CERTIFICATES in the initial public offering are directed to the discussion entitled "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES" set forth in the Official Statement for purposes of determining the portion of the original issue discount which is deemed to be earned for federal income tax purposes during the period such Certificates are held by an initial owner. The federal income tax consequences of the purchase, ownership and redemption, sale or other taxable disposition of Discount Certificates which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from those described above and in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express no opinion as to any federal, state or local tax consequences 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, 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 and taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. 0366004.01 039731/0928 4 1J: DAN MORALES ATTO ENERAL ffice of die Zlttornep *tate of Texa« enerat April 1, 1997 THIS IS TO CERTIFY that the City of Pearland, Texas (the "Issuer"), has submitted to me City of Pearland, Texas Certificates of Obligation, Series 1997 (the "Certificates") in the aggregate principal amount of $6,250,000 for approval. The Certificates are dated April 1, 1997, numbered R-1 through R-18 and were authorized by Ordinance No. 776 of the Issuer passed on March 3, 1997 (the "Ordinance"). 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, as 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, upon all taxable property within the Issuer and are additionally payable from and secured by a junior and subordinate pledge of the Net Revenues to be derived from the operation of the Issuer's System in an amount not to exceed $10,000. Therefore, the Certificates are approved. Attorney General of the State of Texas No. 31215 Book No.97-A kcw 512/463-2100 PRINTED ON RECYCLED PAPER P.O. BOX 12548 AUSTIN, TEXAS 78711-2548 AN EQUAL EMPLOYMENT OPPORTUNITY EMPLOYER OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, John Sharp, 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: City of Pearland. Texas Certificates of Obligation. Series 1997 numbered R-1/R-18, of the denomination of $ various, dated April 1, 1997, 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 1st Day of April, 1997, under Registration Number 59156. Given under my hand and seal of office, at Austin, Texas, the 1st Day of April, 1997. JOHN SHARP Comptroller of, Public Accounts of the State of Texas OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I, Melissa Guzman, Bond Clerk p Assistant Bond Clerk in the office of the Comptroller of the State of Texas, do hereby certify that, acting under the direction and authority of the Comptroller on the 1st Day of April. 1997, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Pearland, Texas Certificates of Obligation. Series 1997, numbered R-1/R-18, dated April 1, 1997, and that in signing the certificate of registration I used the following signature: IN WITNESS WHEREOF I have executed this certificate this the 1st Day of April. 1997. I, John Sharp, 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 TEX. REV. CIV. STAT. ANN. art. 4362 (1969), with authority to sign my 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 59156. GIVEN under my hand and seal of office at Austin, Texas, this the 1st Day of April. 1997. JOHN SHARP Comptroller of Public Accounts of the State of Texas April 3, 1997 City of Pearland, Texas City Hall 3519 Liberty Drive Pearland, Texas 77581 Rauscher Pierce Refsnes, Inc. 1001 Fannin, Suite 700 Houston, Texas 77002 $6,250,000 City of Pearland, Texas Certificates of Obligation Series 1997 Ladies and Gentlemen: MBIA Insurance Corporation 113 King Street Armonk, NY 10504 914 273 4545 I am Assistant General Counsel of the MBIA Insurance Corporation, a New York corporation (the "Corporation"), and have acted as counsel to the Corporation in connection with the issuance of Financial Guaranty Insurance Policy No. 23323 (the "Policy") relating to $6,250,000 City of Pearland, Texas, Certificates of Obligation, Series 1997. In so acting, I have examined a copy of the Policy and such other relevant documents as I have deemed necessary. Based upon the foregoing, I am of the following opinion: 1. The Corporation is a stock insurance corporation, duly incorporated and validly existing under the laws of the State of New York and is licensed and authorized to issue the Policy under the laws of the State of New York and the State of Texas. 1111BIA Page 2 2. The Policy has been duly executed and is a valid and binding obligation of the Corporation enforceable in accordance with its terms except that the enforcement of the Policy may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Very truly yours, e.eric efina Assistant General Counsel $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 RECEIPT AND CROSS RECEIPT April 3, 1997 I, the undersigned, a duly authorized representative of Texas Commerce Bank National Association, Houston, Texas, hereby acknowledge receipt on behalf of the City of Pearland, Texas (the "City") of the full purchase price for the City's Certificates of Obligation, Series 1997, in the total amount of $6,251,973.67, representing the par amount of the Certificates of $6,250,000 plus accrued interest of $1,973.67 on the date hereof. TEXAS COMMERCE BANK NATIONAL ASSOCIATION - Houston, Texas. By: Name: ARLA SCOTT Title: CORPORATE TRUST OFFICER I, the undersigned, a duly authorized representative of Rauscher Pierce Refnes, Inc., hereby acknowledge receipt from the City of (i) the initial bonds of its Certificates of Obligation, Series 1997, dated April 1, 1997, which have been delivered to the undersigned in proper form on the date hereof and (ii) our uncashed Good Faith Check in the amount of $125,000. RAUSCHER PIERCE REFNES, INC. By: Name: Title: 0367786.01 049703/1144 $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 RECEIPT AND CROSS RECEIPT April 3, 1997 I, the undersigned, a duly authorized representative of Texas Commerce Bank National Association, Houston, Texas, hereby acknowledge receipt on behalf of the City of Pearland, Texas (the "City") of the full purchase price for the City's Certificates of Obligation, Series 1997, in the total amount of $6,251,973.67, representing the par amount of the Certificates of $6,250,000 plus accrued interest of $1,973.67 on the date hereof. TEXAS COMMERCE BANK NATIONAL ASSOCIATION Houston, Texas By: Name: Title: I, the undersigned, a duly authorized representative of Rauscher Pierce Refnes, Inc., hereby acknowledge receipt from the City of (i) the initial bonds of its Certificates of Obligation, Series 1997, dated April 1, 1997, which have been delivered to the undersigned in proper form on the date hereof and (ii) our uncashed Good Faith Check in the amount of $125,000. RAUSCHER PIERCE REFNES, INC. By: Name: Title: 0367786.01 049703/1144 Frank Ildebrando Senior Vice President REGISTRAR'S RECEIPT THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § The undersigned duly authorized representative of Texas Commerce Bank National Association, Houston, Texas, the paying agent/registrar for the $6,250,000 City of Pearland, Texas Certificates of Obligation, Series 1997, certifies that said certificates have been duly registered in accordance with the Ordinance dated March 3, 1997, and have been delivered to the purchaser of said Certificates. Executed and delivered this l X �3 , 1997. TEXAS COMMERCE BANK NATIONAL ASSOCIATION Houston, Texas By: (.Y Name: ARIA SCO f A Title: CUi�F'Ui�P►I t I RUST OFFICER 0367791.01 049703/1343 AIB111 FINANCIAL GUARANTY INSURANCE POLICY MBIA Insurance Corporation Armonk, New York 10504 • Policy No. 23323 MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms 'of this policy, hereby , unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the fiill and complete payment required tobemade byoronbehalf oftheIssuer to . Texas Commerce Bank National Association, Houston, Texas or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fired payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not '' be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law.' The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: • $6,250,000 City of Pearland, Texas Certificates of Obligation Series 1997 Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice - ' of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Tnrst Company, NA, in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instniments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments. being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. • As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the . Issuer, or any designee of the Issuer for such purpose.. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations. Any service of process on the Insurer maybe made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is non -cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations.I - IN WTI'NESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this 3 r d day of April, 1997. COUNTERSIGNED: MBIA Insurance Corporation ALEXANDER & ALEXANDER of Texas, ins, Attest Assistant Secretary DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or certificateholder is not protected by an insurance guaranty fund or other solvency protection arrangement. S'ID-RCS-TX-6 4/95 Ra*tip SQsfas Ncv r04. IVY 10r104-1064 Td 212 208-1740 Fee 212 208.8262 Boat IRstowscs Public Fbwncc Rati►igs MBIA Insivance Corporation 113 King Street Armonk, NY 10504 $ andard & Poor's A PivisiortorlitereGrowifalavasier April 2,1997 Re: ,56,250,000 City.of Pearlara4 Torras, Girtijkates of Obligahoi,r, Seeley 1P97, dated: 'Apel11, 1997, dtoe: Marck 1,1998-2016;(POIJCY#233,73) Ladies and Gentlemen: This is to advise you that we have changed time raring to 'AAA' from 'A' on the subject bonds. The rating change reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. When using the Standard & Poor's rating, include the definition of the rating together with a statement that this may be changed, suspended or withdrawn as a result of changes in, or unavailability of, information. This rating is not a "market rating", because it is not a reconunendation to buy, bold or sell the obligations. If you have any questions, please contact us.. Very truly yam, 1 - oz.4 0 APR 24 '97 15:11 TOTAL P_01 9147653162 PAGE.02 1'11V1Y1 k/11V/V`t• L't JI IV.VV/w•' iv. WV/!IV. VVVVVIVIV . V • Moody'. Invoitorirgirtloi 9 Chinch Strwut New *rk, New York 1000T v rsmaadbs•com Ali'i12p 1997 . MBTA Insurance Corporation 113 King Street Armonk, New York 10504 Dear MB] A s Mood s Investors Service has assigned the rating of (MBIA Insured - Policy 23323) to the S6;250,000.00 City of 1'carland, Texas - Certificates of Obligation, Series 1997, dated April 1, 1997, which sold on March 3,1997. The rating is based upon an insurance policy provided by MBIA Insurance Corporation. Should you have any questions regarding the above, please do not hesitate to contact the assigned analyst, Margaret Kessler at (212) 553-7884. LL:mb Sincerely yours, Zama lepooteeit Laura Levenstein Vice President & Managing Director APR ?d ' 1 S:. 1 1 q1 d7P�-A1 P? PAf;P I717 1J It REGISTERED NUMBER R- INTEREST RATE: REGISTERED OWNER: PRINCIPAL AMOUNT: ITERIGA .• STATE OF TEXAS Titg of Pearlanb, Jexttn Tel -filtrate of (Obligation ISSUE DATE: April 1, 1997 SERIES 1997 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 payment office of Texas Commerce Bank National Association, Dallas, 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 Issue 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, 1998, and each MATURITY DATE: • REGISTERED DENOMINATION DOLLARS CUSIP: DOLLARS 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. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS CERTIFICATE SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. 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. CITY OF PEARLAND, TEXAS 1-1)1 E COUNTERSIGNE rRSIGNE _ 6r,,teet City Secretary * �k r L NI ......... ,,,rrrr i to - AUTHENTICATION CERTIFICATE This Certificate is one of the Certificates described in and delivered pursuant to the within -mentioned Ordinance; and, except for the Certificates initially delivered, this Certificate has been issued in exchange for or replacement of a Certificate, Certificates, or a portion of a Certificate or Certificates of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. Date of Authentication: TEXAS COMMERCE BANK NATIONAL ASSOCIATION as Paying Agent/Registrar By: Authorized Signature c* * * * * * * * * * * * * * * * * 1t * * *.* *mot rutit-'tom * * kt *,. * tit +t * * * * * NAL* 4-* *4 * * * El IBC *.4.)t4 *-* * **4-&ic * * * k.; * * * * * , 1, f i/ t THIS CERTIFICATE IS ONE OF A DULY AUTHORIZED SERIES OF CERTIFICATES (the "Certificates") in the aggregate principal amount of 56,250,00D issued pursuant o an ordinance adopted by the City Council of the City on March 3. 1997 (the "Ordinance") far the purpose of providing all or pan of the funds to pay contractual obligations to be incurred (i) for land acquisition. replacement, renovations, improvements, materials, supplies, equipment and machinery for certain City buildings and facilities including but not limited to the City's central public library located at 3523 Liberty Drive, Pearled, Texas 77581, the Public Safety Building and site located at 2703 Veterans Drive, Pearland, Texas 77581 and Independent Park located at the intenauon of John Lizer Road and Liberty Drive, Pearland, Texas 77581. (ii) for certain set projects located in the City including but not limited to: the acquisition of right-of-way and construction of street (including drainage and bridge work) from Broadway (FM 518) to Hughes Road in Sagemant; acquisition of right-of-way and construction of a street (including drainage) from Barry Rose Road to Plum Street; renovations and improvements to First Street (including daituge) from Main (SH 35) to the railroad; improvements to Centennial Boulevard (including drainage and bridge work) from Mary's Creek to Oiler Drive; renovations and improvements to Magnolia Drive (including drainage and bridge work): acquisition of right-of-way and construction of pedestrian hike & bikeways (including drainage) at various locations in the City. (iii) for the acquisition. construction, improvement, repair, materials, supplies. equipment and machinery for certain drainage facilities located in the City including but not limited o: flood control implements within and in the vicinity of the Shadycret, Parkview, Sunset Meadows, South Corrigan, North Corrigan, Willawcrest and Green Tee Terrace subdivision; expansion of the Country Club Drive at Clcer Creek bridge (including street renovations end improv mats); storm water detention at the David L. Smith Project on Clear Creek, et the Southwest Environmental Center on Mary's Creek and t a future on Hickory Slough; and formation of a jurisdiction -wide storm water drainage plan and analysis fora storm water utility, and (iv) for professional services. THIS CERTIFICATE shall nee be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Certi icee either (0 is registered by the Comptroller of Public Accounts of to 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 an and after March 1, 2008. in whole or in pan, on March L 20(17, or any damw thereafter, at par plus accrued interest to the date fixed for redemption. CERTIFICATES MAY BE REDEEMED IN PART only in integral multiples of 55,000. If a Certificate subject to redemption is n a denomination larger than $5,000, a portion of such Certificate may be redeemed, but only in integral multiples of $5,000. In selecting potions of Cenificetes for redemption, each Certificate shall be treated as representing that number of Certificates of o denomination which is obtained by dividing the principal amount of such Certificate by $5,000. Upon surrender of any Certificate forr redemption in part. the Paying Agent/Registrar, in aceordatce with the provisions of the Ordinance, shall authenticate late and deliver in exchange therefore Certificate or Certificates of like maturity and interest rate in an aggregate principal amount equal o 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 Sues mail, first class, postage prepaid, to the Regisered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar,witcartnot less than thirty (30) days before the date fixed for such redemption. By the date fixed for redemption, due provision shall be made h 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 mist 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. THIS CERTIFICATE IS EXCHANGEABLE at the principal corporate oust office of the Paying Agent/Registrar for a Certificate or Cenificaes of the same maturity and interest ram and in the principal amount of $5,000 or any integral multiple therm(, subject to the terra and condition 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 pan, during the forty-five (35) 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 pan. THE CITY OR PAYING AGENT/REGISTRAR may require the Registered Owner of any Certificate to pay a sum sufficient to cover any taxor other governmental charge that may be imposed in 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; dun 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 noun exceed any constitutional or memory 'Mutation; and that annual ad valoremsufficient to provide for the ceymet of the in and principal of this Certifies as comes such interest cos 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 waterworks and sanitary sewer system, after the payment of all operation and maintenance expenses thereof (the "Net Revenues"), in an amount net to exceed 510,000, are pledged to the payment of the principal of and interest on the Certificates to the extent that d valorem taxes may ever be insufficient or unavailable for such purpose, 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 pan 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 sabring the Certificates. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is filed with the Paying AgenRegistrar, for the mto full provisions thereof, ell of which the Registered Owners of Certificates assent by accepance of the Certifica,tes. MAYOR, DAY, CALDWELL & KEETON, L.L.P. 700 LOUISIANA. SUITE 1900 HOUSTON, TEXAS TT002-277a WE HAVE ACTED as Bond Counsel for the City of Pearland, Texas (the "City") in connection with co issue of certificates of obligation (the "Certificates") described as follows: Corp OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997. dated April 1, 1997, in the aggregate principal amount of 86,250,000, maturing an March 1 in each year from 1999 through and including 2016. The Certificates are issuable is fully registered form only. in denominations of55,000 or integral multiples thereof, bar interest, are object to redemption prior to maturity and may be transferred and exchanged as tat 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 ineome under federal income tax law. In such capacity we have examined the Constitution and laws of the State of Texas; federal income ex raw, and a transcript of certaincertified proceedings pertaining to the issuance of the Certificates, as described in the Ordinance The transcript co certified copies of certain proceedings of the City; certainacertificu s and representations and other material facts within the knowledge and control of the City, upon which we rely: d certain ceder 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 prceedings. We have not assumed any responsibility with respect to the financial condition or cepabilities 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 tau in connection with the sale of the Certificates h. 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 o the extent that to rights and remedies of the owners of the Certificates may be limited by laws heretofore or hereafter enacted relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors of politicel subdivisions and the exercise ofjdicial discretion in appropriate uses; and to Certificetes have been authorized and delivered in accordance with law; and (2) The Certificates are payable, both as to principal and interest, from the receipts of an annual ad valorem tax levied. within the limits prescribed by law, upon taxable property located within the City. which taxes have been pledged nrrevorably to pay the principal of and interest on the Certificaes, and (3) The revenues to be derived from the operation of the City's waterworks and sanitaryr system after the payment of all open[ an and maintenance expenses thereof (the "Nat Reveunues"). in an amount not to exceed SI0,000, are pledged to the payment of the principal of and in on the Certificate to the extent that ad valorem may ever be insufficientunavailable for said purposeeprovidd, 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 maybe prior and superior n 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 father opinion that, subject to the restrictions hereinafter described, in n the Cenifia excludable from grossme of the owners thereof for federal inc tax purposes under existing law ands not subject o the alternativeindividuals or, except as hereinafter described, corporations. The opinionet forth in the first a of this paragraph isnsubject 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 o the issuance of the Certificates in order that interest thereon be, ocontinue to be, excluded from grossme for federal income tax purposes. The City has covenanted in the Ordinance to comply with achsuch 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 Cade and the existing regulations, ruling and court decisions thereunder, upon which the foregoing opinions of Bond Counsel are baud, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Certif es in gross income of the owners thereof for federal income tax purposes. INTEREST ON all taxemmpt obligations, including the Certificates, owned by a coryotalnn (other than an S corporation, a regulated investment company, a real estate investment trust (REITI or real estate mortgage investment conduit IREMICB will he included in such corporation's adjusted current earnings for purposes of calculating such corpora alternative minimum taxable in me. A corporation's alternative sable income is the basis on which the alternative minimum tax and the environmental taxmposed by the Code ere computed. Purch sers of Certificates arc ddirectedto the discussion entitled "TAX EXEMPTION " set forth in the Official Statement. UNDER EXISTING LAW and based upon the assumptions stated in the Official Statement prepared for use in connection with the sale of the Certificates, it is also our opinion as follows: (I) the difference between (a) the stated redemption price at maturity of each Certificate maturing in the years. 2010 through 2016, inclusive (the "Discount Certificates"), and (b) the initial offering price at which a substantial amount of such Discount Cenificaes of the same maturity were sold to the public, as described in the Official Statement, constimtes original issue discount with respect to each such Discount Cenificae in the hands of an owner who purchased such Discount Certificate at the initial offering price is the initial public offering of the Certificates; and (2) such initial owner is entitled to exclude from gross income for federal income tax purposes with respect to such Discount Cenifcete that portion of the original issue discount deemed to be earned for federal income tax purposes during the period that such Discount Certif to continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Discount Certificate prior to its stated maturity, however, any amount realized by such owner in excess of the basis of such Discount Cenificae in the hands of such owner (adjusted upward by the portion of the original issue discount darned to be earned during the period for which such Discount Cenifhcee was held by such initial owner) is includable in gross income for federal income tax purposes. PURCHASERS OF DISCOUNT CERTIFICATES in the initial public offering are directed to the discussion entitled "TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM CERTIFICATES" set forth in the Official Statement for purposes of determining the portion of the original issue diuount which is deemed to be earned for federal income tax purposes during the period such Certif es are held by an initial owner. The federal income tax consequences of the purchase, ownership and redemption, sale or other taxable disposition of Discount Certificates which are not purchased in the initial public offering at the initial offering price may be determined according to rules which differ from these described above and in the Official Statement. EXCEPT AS DESCRIBED ABOVE, we express to opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Certificates. Prospective purchasers of the Certif should be aware that the ownership of tax-exempt obligations, such the Certificates, may remit in collateral federal incmhc toe consequences among s others, financial institutions, peninsurance pray and easualty insurancompanies, certain foreign can po. ors doing businessn he UnitUnitedS u rain S corporations with Subchapter C earnings and profits, individual recipients of Social Savory or Railroad Retirement benefits andtaxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Certificates. MAYOR. DAY, CALDWELL & KEETON. L.L.P. I hereby certify that the above and foregoing is a true and correct copy of the legal opinion on the certificates therein described which was manually signed by Mayor. Day, Caldwell & Keeton, L.L.P.. Houston. Texas, as Bond Counsel, and was dated as of the date of the delivery of and payment for aid certificates. City Secretary STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at TEXAS COMMERCE BANK NATIONAL ASSOCIATION, HOUSTON, TEXAS. The Insurer, in considentrionof the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, es hereinafter der d, of the following described obligations, the full and complete payment required to be made by or on behalf of the City to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, HOUSTON, TEXAS or its successor (the "Paying Agent") of en amount eq.' to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligati°. (as Nat term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of meturiry pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a foal judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any appliable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean. $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997 Upon receipt of telephonic or elepnphic nonce, such notice subsequently confirmed in writing by registered or cenifted mail. or upon receipt of written tce by registered or certified mall, by the Insurer from the Paying Agent any owner of an Obligation the payme t of an Insured Amount for which is tan due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank ad Trust Company. N.A., in New York, New York. or its successor, sufficient for the payment of any such Insured Amounts which are then des. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments o effect the appointment of the Insurer as agent far such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shell disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the arm "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the City, or any designee of the Issuer for such purpose. The term owner shall not include the City or any party whose agreement with the City constitutes the underlying security for the Obligations. Any service of process on the Insurer maybe made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. This policy is mncancelleble for any reason. The premium on this policy is not refundable for any ratan including the payment prior to maturity of the Obligations. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION: In the event the Insurer is unable to fulfill its contractual obligation under this policy or contract or application or certificate or evidence of coverage, the policyholder or eenificaeholder is nor protect. by an insurance guaranty fund or other solvency protection arrangement MBIA Insurance Corporation ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto (Please print or type name, address, and rip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within cemf0ate and all rights thereunder. and hereby irrevocably constitutes and appoints attorney to transfer such cenifimte on the books kepi for registration thereof, with full power of substitution in the premises. DATED' Somehow Guaranteed: NOTICE: Signature muss 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 Me registered owner as shown on the face of this certificate in everyparticu- lar. without any alteration, enlargement or change whatsoever. OFFICIAL BID FORM Mayor and City Council City of Pearland 3519 Liberty Drive Pearland, Texas 77581 March 3, 1997 Ladies and Gentlemen: Subject to the terms of your. Official Notice of Sale and Official Statement, dated February 17, 1997, which are incorporated herein by reference, we hereby submit the following bid for $6,250,000 CITY OF PEARLAND, TEXAS CERTIFICATES OF OBLIGATION, SERIES 1997, dated April 1, 1997. This offer is. being made for all of the 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 their date to the date of delivery to us, plus a cash premium of $ _o ' for Certificates of Obligation maturing and bearing interest per annum as follows: Maturity Date principal Amount Interest Rate March 1, 1999 $ 100,000 7.2 S % March 1, 2000 100,000 7. Z S" % March 1, 2001 100,000 '7.2. % March 1, 2002 100,000 7. 2..f % March 1, 2003 100,000 7. Z^ % March 1, 2004 100,000 7. Z-T % March 1, 2005 100,000 ?. Z.r % March 1, 2006 100,000 ?. 2 r % March 1, 2007 110,000 7 2 f % March 1, 2008 120,000 G . So 96 March 1, 2009 120,000 S• L.!' %+ March 1, 2010 _ 400,000 . 2 4-. % March 1, 2011 460,000 $7 2.1' % March 1, 2012 520,000 •/ 3o % March 1, 2013 580,000 " . 34' % March 1, 2014 650,000 c!o % March 1, 2015 1,210,000 6";'lr' % March 1, 2016 1,280,000 5` SO % Interest cost, in accordance with the above bid, is: Gross Interest Cost Less: Premium $ — 4 - NET INTEREST COST $ ,!"' /, 2 k3S J� EFFECTIVE INTEREST RATE rS2. S—r % $ S /72., P3J' The Initial Certificates shall be registered in the name of Rauscher Pierce Refsnes, Inc. (syndicate manager). We will advise Texas Commerce Bank National Association, Houston, Texas the Paying Agent/Registrar, on forms to be provided by the Paying Agent/Registrar of our registration instructions at least five business days prior to the date set for Initial Delivery. Cashier's Check of the Frost Bank, Austin , Texas, in the amount of $125,000, 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." Upon delivery of the Certificates, said check will be returned to the Purchaser of the Certificates on the date of delivery of the Certificates. We agree to accept delivery of and make payment for the Initial Certificates in immediately available funds at the Corporate Trust Office of Texas Commerce Bank National Association, Houston, Texas not later than 10:00 A.M.; on April 3, 1997, or thereafter on the date the Certificates are tendered for delivery, pursuant to the terms set forth in the Official Notice of Sale. 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. Respectfully submitted, RAUSCHER PIERCE REFSNES, INC. LEGG MASON WOOD WALKER, INC. PAINEWEBBER INC. SMITH BARNEY, INC. By Authorized Representative ACCEPTED this 3rd day of March, 1997, by the City Council, City of Pearland, Texas. ATTEST: City Secretary Return of Good Faith Check is hereby acknowledged: Mayor Firm: By:.. (For your information you will find attached a list of the group of underwriters associated with us in this proposal)