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Ord. 0653 04-08-93
ORDINANCE NO. 653 ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; AUTHORIZING THE ADVANCE REFUNDING OF CERTAIN OUTSTANDING OBLIGATIONS AND THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND THE SUBSCRIPTION FOR AND PURCHASE OF CERTAIN ESCROWED SECURITIES; AND DECLARING THAT AN IMMEDIATE PUBLIC EMERGENCY EXISTS BECAUSE THE PROCEEDS OF SUCH BONDS ARE NEEDED AS SOON AS POSSIBLE FOR THE PROTECTION OF LIFE, HEALTH, PROPERTY AND THE PUBLIC PEACE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § WHEREAS, the City of Pearland, Texas (the "City") has heretofore issued its Permanent Improvement Bonds, Series 1978, its Refunding Bonds, Series 1985, its Public Improvement Bonds, Series 1986, and its Public Improvement Bonds, Series 1988 (the "Outstanding Bonds"); and WHEREAS, the City desires to refund a portion of the Outstanding Bonds in advance of their maturities (the "Refunded Bonds"); and WHEREAS, Article 717k, Vernon's Texas Civil Statutes, as amended, authorizes the City to issue refunding bonds payable from taxes, without an election, for the purpose of refunding the Refunded Bonds in advance of their maturities, and to accomplish such refunding by depositing directly with any paying agent for the Refunded Bonds the proceeds of such refunding bonds, together with other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Bonds, and provides that such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; and WHEREAS, the City desires to authorize the execution of an escrow agreement and provide for the deposit of proceeds of the refunding bonds, together with other funds, to pay the Refunded Bonds; and WHEREAS, upon the issuance of the refunding bonds herein authorized and the deposit of funds referred to above, the Refunded Bonds shall no longer be regarded as being outstanding, except for the purpose of being paid pursuant to such deposit, and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the ordinances authorizing the issuance of the Refunded Bonds shall be, with respect to the Refunded Bonds, discharged, terminated and defeased; Now, Therefore BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND: 1. Recitals; Consideration. It is hereby found and determined that the matters and facts set out in the preamble to this Ordinance are true and correct. It is hereby found and determined that the transactions contemplated in this Ordinance will result in a present value savings in the debt service payable by the City, and that such benefit is sufficient consideration for the refunding of the Refunded Bonds. 2. Definitions. Throughout this Ordinance the following terms and expressions as used herein shall have the meanings set forth below: The term "Act" shall mean Article 717k, Vernon's Texas Civil Statutes, as amended. The term "Bonds" shall mean the $6,510,000 City of Pearland, Texas, Refunding Bonds, Series 1993, authorized in this Ordinance, unless the context clearly indicates otherwise. The term "Business Day" shall mean any day which is not a Saturday, Sunday, or a day on which the Registrar is authorized by law or executive order to close, or a legal holiday. The term "City" shall mean the City of Pearland, Texas. The term "Code" shall mean the Internal Revenue Code of 1986, as amended. The term "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. The term "Escrow Agent" shall mean Texas Commerce Bank National Association, Houston, Texas. The term "Escrow Agreement" shall mean the agreement between the City and the Escrow Agent relating to the escrow of funds to pay the Refunded Bonds. The term "Interest and Sinking Fund" shall mean the interest and sinking fund for payment of the Bonds established by the City in Section 19 of this Ordinance. -2- The term "Interest Payment Date", when used in connection with any Bond, shall mean September 1, 1993, and each March 1 and September 1 thereafter until maturity. The term "Ordinance" as used herein and in the Bonds shall mean this ordinance authorizing the Bonds. The term "Owner" shall mean any person who shall be the registered owner of any outstanding Bond. The term "Paying Agent" shall mean the Registrar. The term "Record Date" shall mean the close of business on the fifteenth calendar day of the month next preceding each Interest Payment Date. The term "Refunded Bonds" shall mean the City's Permanent Improvement Bonds, Series 1978, in the aggregate principal amount of $900,000, maturing on March 1 in the years 1994 through 1997, both inclusive, the outstanding bonds of the City's Refunding Bonds, Series 1985, in the aggregate principal amount of $800,000, maturing on March 1 in the year 1996 and in the years 1998 through 2001, both inclusive, the City's Public Improvement Bonds, Series 1986, in the aggregate principal amount of $2,850,000, maturing on March 1 in each of the years 1998 through 2003, both inclusive, the City's Public Improvement Bonds, Series 1988, in the aggregate principal amount of $1,250,000, maturing on March 1 in each of the years 1999 through 2003, both inclusive. The term "Register" shall mean the books of registration kept by the Registrar, in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. The term "Registrar" shall mean Ameritrust Texas, National Association, Houston, Texas, and its successors in that capacity. The term "Report" shall mean the report of RPMG Peat Marwick, Certified Public Accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the Refunded Bonds. The term "Underwriters" shall mean Masterson Moreland Sauer Whisman, Inc. and Coastal Securities Ltd. 3. Authorization. The Bonds shall be issued, pursuant to the Act, in fully registered form in the principal amount of Six Million Five Hundred Ten Thousand Dollars ($6,510,000) for the purpose of refunding the Refunded Bonds. -3- 4. Designation. Date. and Interest Payment Dates. The Bonds shall be designated as "CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993" and shall be dated May 1, 1993. The Bonds shall bear interest at the rates set forth in Section 5 of this Ordinance from the later of May 1, 1993, or the most recent Interest Payment Date to which such interest has been paid or duly provided for, calculated on the basis of a 360 day year of twelve 30 day months, interest payable on September 1, 1993, and semiannually thereafter on March 1 and September 1 of each year until maturity. 5. Initial Bonds; Numbers and Denominations. The Bonds 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 Bonds shall mature on the dates and in the amounts set out in such schedule. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Registrar, shall be in the denomination of $5,000 or integral multiples thereof, and shall mature on the same date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Principal Interest Number Date Amount Rate R- 1 September 1, 1993 $ 115,000 2.65% R- 2 March 1, 1994 95,000 3.00% R- 3 March 1, 1995 320,000 3.20% R- 4 March 1, 1996 465,000 3.50% R- 5 March 1, 1997 365,000 3.80% R- 6 March 1, 1998 655,000 4.00% R- 7 March 1, 1999 950,000 4.10% R- 8 March 1, 2000 990,000 4.25% R- 9 March 1, 2001 1,030,000 4.40% R-10 March 1, 2002 770,000 4.50% R-11 March 1, 2003 755,000 4.625% 6. Execution of Bonds; Seal. The Bonds shall be signed by the Mayor and countersigned by the City Secretary, by their manual, lithographed,or facsimile signatures, and the official seal of the City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or -4- facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. 7. Approval by Attorney General: Registration by Comptroller. The Bonds to be initially issued shall be delivered to the Attorney General of Texas for approval and shall be registered by the Comptroller. The manually executed registration certificate of the Comptroller substantially in the form provided in Section 17 of this Ordinance shall be attached or affixed to the Bonds to be initially issued. 8. Authentication. Except for the Bonds to be initially issued, which need not be authenticated by the Registrar, only such Bonds which bear thereon a certificate of authentication, substantially in the form provided in Section 17 of this Ordinance, manually executed by an authorized representative of the 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 Bonds so authenticated were delivered by the Registrar hereunder. 9. Payment of Principal and Interest. The Registrar is hereby appointed as the paying agent and registrar for the Bonds. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which on the date of payment is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable, at the principal corporate trust office of the Registrar. The interest on each Bond shall be payable on each Interest Payment Date, by check mailed by the Registrar on or before the Interest Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register. If the date for payment of the principal of or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day with the same force and effect as if made on the date payment was originally due. 10. Successor Registrars. The City covenants that at all times while any Bonds are outstanding it will provide a national or state banking corporation organized and doing business under the laws of the United States or any State, with trust powers and subject to supervision or examination by Federal or State authority to act as Registrar for the Bonds. The City reserves the right to change the Registrar for the Bonds on not less than 60 days written notice to the Registrar, so long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Bonds. Promptly upon the appointment of any successor Registrar, the previous Registrar shall deliver -5- the Register or copies thereof to the new Registrar, and the new Registrar shall notify each Owner, by United States mail, first class postage prepaid, of such change and of the address of the new Registrar. Each Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Section. 11. Special Record Date. If interest on any Bond is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Owner of record as of the close of business on the day prior to the mailing of such notice. 12. Ownership: Unclaimed Principal and Interest. The City, the Registrar and any other person may treat the person in whose name any Bond is registered as the absoluteuowner erre fsuch pBBond l dforfor the purpose of making and receiving paym Prsuc interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the City nor the Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this Section 12 shall be valid and effectual and shall discharge the liability of the City and the Registrar upon such Bond to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. 13. Registration. Transfer. and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal corporate trust office and, subject to such reasonalegtrar shall providebforrthe egulregistration and ations as it may prescribe of Bonds ein accordance with the terms of this Ordinance. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Registrar. Upon due presentation of any Bond for transfer, the Registrar shall authenticate and deliver in exchange therefor, within three Business Days after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Registrar for a Bond or Bonds of the same maturity and interest rate and in any authorized denomination, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section 13. Each Bond delivered in accordance with this Section 13 shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The City or the Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Registrar for such transfer or exchange shall be paid by the City. 14. }ttilated. Lost. or Stolen Bonds. Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. If any Bond is lost, apparently destroyed, or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authorize and the Registrar shall authenticate and deliver a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Registrar may require the Owner of a mutilated Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Registrar. The City or the Registrar may require the Owner of a lost, apparently destroyed or wrongfully taken Bond, before any replacement Bond is issued, to: (1) furnish to the City and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; nity be (2) furnish required bycthe h sRegistrar and ecurity or 1the mas y City tosavethem harmless; (3) pay all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Registrar and any tax or other governmental charge that may be imposed; and (4) meet any other reasonable requirements of the City and the Registrar. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section 14 shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. 15. Cancellation of Bonds. All Bonds paid in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be cancelled and destroyed upon the making of proper records regarding such payment. The Registrar shall furnish the City with appropriate certificates of destruction of such Bonds. 16. Optional Redemption. The Bonds are not subject to redemption prior to maturity. 17. Forms. The form of the Bonds, including the form of the Registrar's Authentication Certificate, the form of Assignment, -8- the form of bond insurance legend, and the form of Registration Certificate of the Comptroller, which shall be attached or affixed to the Bonds initially issued, shall be, respectively, substantially as follows, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Ordinance: FORM OF BONDS United States of America State of Texas NUMBER DENOMINATION $ R- REGISTERED REGISTERED CITY OF PEARLAND, TEXAS REFUNDING BOND SERIES 1993 INTEREST RATE: MATURITY DATE: ISSUE,D1TE: CUSIP: REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS The City of Pearland, Texas (the "City") promises to pay to the registered owner identified above, or registered assigns, on the date specified above, upon presentation and surrender of this Bond at the principal corporate trust office of Ameritrust Texas, National Association, Houston, Texas (the "Registrar"), the principal amount identified above, payable in any coin or currency of the United States of America which on the date of payment is legal tender for the payment of debts due the United States of America, and to pay interest thereon at the rate shown above, calculated on the basis of a 360 day year of twelve 30 day months, from the later of May 1, 1993, or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable by check on September 1 and March 1, beginning on September 1, 1993, mailed to the registered owner of record as of the fifteenth calendar day of the month next preceding each interest payment date. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. -9- IN WITNESS WHEREOF, this Bond has been signed with the manual or facsimile signature of the Mayor and countersigned with the manual or facsimile signature of the City Secretary, and the official seal of the City has been duly impressed, or placed in facsimile, on this Bond. (AUTHENTICATION (SEAL) CERTIFICATE) CITY OF PEARLAND, TEXAS (Back Panel of Bond) THIS BOND is one of a duly authorized issue of Bonds, aggregating $6,510,000 (the "Bonds"), issued for the purpose of refunding a portion of the City's outstanding bonds, pursuant to an ordinance adopted by the City Council on April 8, 1993 (the "Ordinance"). THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the registered owner or his authorized representative, subject to the terms and conditions of the Ordinance. THE BONDS ARE EXCHANGEABLE at the principal corporate trust office of the Registrar for Bonds in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is either (i) registered by the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto or (ii) authenticated by the Registrar by due execution of the authentication certificate endorsed hereon. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. THE CITY has covenanted in the Ordinance that it will at all times provide a legally qualified registrar for the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. -10- IT IS HEREBY certified, recited and covenanted that this Bond has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, to exist and to be done precedent to or in the issuance and delivery of this Bond have been performed, exist and have been done in accordance with law; and that annual ad valorem taxes, within the limits its prescribed by law, sufficient to provide for the payment of interest on and principal of this Bond, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the City, and have been pledged irrevocably for such payment. Form of Registration Certificate of Comptroller of Public Accounts COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this xxxxxxxxxx Comptroller of Public Accounts of the State of Texas (SEAL) Form of Registrar's Authentication Certificate AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Bond Ordinance described in the text of this Bond. Ameritrust Texas, National Association By Authorized Signature Date of Authentication Form of Assignment ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto -11- (Please print or type name, address, and zip code of Transferee) (Please insert Social Security or Taxpayer Identification Number of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: NOTICE: Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company. Registered Owner NOTICE: The signature above must correspond to the name of the registered owner as shown on the face of this Bond in every particular, without any alteration, enlargement or change whatsoever. Form of Statement of Insurance Financial Guaranty Insurance Company ("Financial Guaranty") has issued a policy containing the following provisions with respect to the City of Pearland, Texas, Refunding Bonds, Series 1993 (the "Bonds"), such policy being on file at the principal office of the Paying Agent, as paying agent (the "Paying Agent"): Ameritrust Texas, National Association Houston, Texas Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of the principal of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "issuer") shall have failed to provide. Due for payment means, with respect to the principal, the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption, but not any earlier date on which the payment of principal of and interest on the Bonds is due by reason of acceleration, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that a the required payment of principal or interest has not been -12- made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will made a deposit of funds, in an account with Citibank, N.A., or its successor as its agent (the "Fiscal Agent"), sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the issuer who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non -cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY 18. Legal Opinion; Cusin Numbers; Bond Insurance. The approving opinion of Vinson & Elkins L.L.P., Houston, Texas, and nds, ns SIP Numbers the printingofprinteduchopinion the orosuch numbers rshall haves or no inno effect on the validity of the Bonds. The purchase of and payment of the premium for municipal bond insurance by the City is hereby authorized. All officials and representatives of the City are authorized and directed to execute such documents and to do any and all things necessary or desirable insurance,to obtain such and on the Bonds of appropriate legend regarding such insprinting insurance is hereby approved.an 19. Interest and Sinkina Fund; Tax Levy. There is hereby established a separate fund of the City to be known as the City of Pearland, Texas, Refunding Bonds, Series 1993 hiterest shall and se nking Fund (the' "Interest and Sinking Fund"), t separate and apart from all other funds of the City. The proceeds from all taxes levied, assessed and collected for and on account of the Bonds authorized by this Ordinance shall be deposited, as collected, in the Interest and Sinking Fund. While the Bonds or any part of the principal thereof or interest thereon remain outstanding and unpaid, there is hereby levied and there shall be annually assessed and collected in due time, form and manner, and at the same time as other City taxes are assessed, levied and collected, in each year, beginning with the current year, a continuing direct annual ad valorem tax, withinn thee e limits ufcint blaw,heucurr cuon rrent interest onrthe Bonds as the same sufficientmto pay becomes due and to provide and maintain a sinking fund of not less -13- than two percent of the principal amount of the Bonds or the amount required to pay each installment of principal of the Bonds as the same matures, whichever is greater, full allowance being made for delinquencies and costs of collection, and said taxes are hereby irrevocably pledged to the payment of the interest on and principal of the Bonds and to no other purpose. To pay the debt service coming due on the Bonds prior to receipt of the taxes levied to pay . such debt service, there is hereby appropriated from current funds on hand, which are hereby certified to be on hand and available for such purpose, an amount sufficient to pay such debt service, and such amount shall be used for no other purpose. 20. Further Proceedings. After the Bonds to be initially issued have been executed, it shall be the duty of the Mayor and other appropriate officials and agents of the City to deliver the Bonds to be initially issued and all pertinent records and proceedings to the Attorney General of the State of Texas, for examination and approval. After the Bonds to be initially issued have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Bonds to be initially issued, the Comptroller (or the Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 21. Sale; Bond Purchase Agreement. The Bonds are hereby sold and shall be delivered to the Underwriters at a price of $6,418,537.95 plus accrued interest to the date of delivery, in accordance with the terms of a bond purchase agreement of even date herewith, presented to and hereby approved by the City Council, which price and terms are hereby found and determined to be the most advantageous reasonably obtainable by the City. The Mayor and other appropriate officials of the City are hereby authorized and directed to execute such bond purchase agreement on behalf of the City, and the Mayor and all other officers, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Bonds. 22. Tax Exemption. (a) General Tax Covenant. The City intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income taxation pursuant to sections 103 and 141 through 150 of the Code, and applicable regulations. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the -14- Bonds to be includable in gross income, as defined in section 61 of the Code, of the Owners thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of this Section 22; provided, however, that the City shall not be required to comply with any particular requirement of this Section 22 if the City has received an opinion of nationally recognized bond counsel ("Counsel's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received a Counsels Opinion to the effect that compliance with some other requirement set forth in this Section 22 will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel's Opinion shall constitute compliance with the corresponding requirement specified in this Section 22. (b) Use of Proceeds. The City covenants and agrees that its use of the Net Proceeds of the Bonds and the Refunded Bonds. will at all times satisfy the following requirements: (i) The City will use all of the Net Proceeds of the Bonds to (A) acquire Escrowed Securities (as hereinafter defined) sufficient to pay the principal of and interest on the Refunded Bonds, and (B) to pay the costs of issuingthe ithe Bonds, except for amounts, if any, in the Report as the rounding amount and the ending cash balance in the Escrow Fund (as hereinafter defined). The City has limited and will limit the amount of original or investment proceeds of each issue of the Refunded Bonds to be used (other than use as a member of the general public) in the trade or business of any person other than a governmental unit to an amount aggregating no more than ten percent of the Net Proceeds of such issue of the Refunded Bonds ("private -use proceeds"). For purposes of this Section, the term "person" includes any individual, corporation, partnership, unincorporated association, or any other entity capable of carrying on a trade or business; and the term "trade or business" means, with respect to any natural person, any activity regularly carried on for profit and, with respect to persons other than natural persons, any activity other than an activity carried on by a governmental unit. Any use of proceeds of the Refunded Bonds or the Bonds in any manner contrary to the guidelines set forth in Revenue Procedure -15- 93-19, including any revisions or amendments thereto, shall constitute the use of such proceeds in the trade or business of one who is not a governmental unit; (ii) The City has not permitted and will not permit more than five percent of the Net Proceeds of any issue of the Refunded Bonds to be used in the trade or business of any person other than a governmental unit if such use is unrelated to the governmental purpose of such issue of Refunded Bonds. Further, the amount of private -use proceeds of any issue of the Refunded Bonds in excess of five percent of the Net Proceeds of such issue of Refunded Bonds ("excess private -use proceeds") did not and will not exceed the proceeds of such issue of Refunded Bonds expended for the governmental purpose of such issue of Refunded Bonds to which such excess private -use proceeds relate; (iii) The City has not permitted and will not permit an amount of proceeds of any issue of the Refunded Bonds exceeding the lesser of (a) $5,000,000 or (b) five percent of the Net Proceeds of such issue of Refunded Bonds to be used, directly or indirectly, to finance loans to persons other than governmental units. When used in this Section 22, and the Refunded Bonds shall each issue of the Bonds and including investment earnings accrued interest with respect the term Net Proceeds of the Bonds mean the proceeds from the sale of the Refunded Bonds, respectively, on the proceeds of such issue, less to such issue. (c) No Federal Guaranty. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code and applicable regulations thereunder, except as permitted by section 149(b)(3) of the Code and such regulations. (d) Bonds are not Hedge Bonds. The City represents that not more than 50 percent of the proceeds of any issue of the Refunded Bonds was invested in nonpurpose investments (as defined in section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of section 149(g)(3)(A)(ii) of the Code, and the City reasonably expected at the time the Refunded Bonds were issued that at least 85 percent -16- of the spendable proceeds of each issue of the Refunded Bonds would be used to carry out the governmental purposes of such Refunded Bonds within the corresponding three-year period beginning on the respective dates of such Refunded Bonds. (e) No -Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148(a) of the Code and applicable regulations thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148(a) of the Code and applicable regulations thereunder. (f) Arbitrage Rebate. The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of section 148(f)(6)(8) of the Code), be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City, (ii) calculate at such times as are required by applicable regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted by applicable regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or larger loss than would have resulted if the arrangement had been at arm's length and had the yield on the issue not been relevant to either party. (g) Tnformation Reporting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the -17- close of the calendar quarter in information statement concerning accordance with section 149(e) regulations thereunder. which the Bonds are issued, an the Bonds, all under and in of the Code and applicable 23. Qualified Tax -Exempt Obligations. The City hereby designates the Bonds as "qualified tax-exempt obligations" for purposes of section 265(b) of the Code. In connection therewith, the City represents (a) that the aggregate amount of tax-exempt obligations issued by the City during calendar year 1993, including the Bonds, which have been designated as "qualified tax-exempt obligations" under section 265(b)(3) of the Code does not exceed $10,000,000, and (b) that the reasonably anticipated amount of tax-exempt obligations which will be issued by the City during calendar year 1993, including the Bonds, will not exceed $10,000,000. For purposes of this Section 23, the term "tax-exempt obligation" does not include "private activity bonds" within the meaning of section 141 of the Code, other than "qualified 501(c)(3) bonds" within the meaning of section 145 of the Code. In addition, for purposes of this Section 23, the City includes all governmental units which are aggregated with the City under the Code. 24. Use of Proceeds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the City, be applied as follows: Accrued interest shall be deposited into the Interest and Sinking Fund and invested in direct obligations of the United States of America. The balance of the proceeds from the sale of the Bonds shall be applied, together with other lawfully available funds of the City, to establish an escrow fund to refund the Refunded Bonds, as more fully provided below, and, to the extent not otherwise provided for, to pay all expenses arising in connection with the issuance of the Bonds, the establishment of such escrow fund and the refunding of the Refunded Bonds. Any proceeds of the Bonds remaining after making all such deposits and payments shall be deposited into the Interest and Sinking Fund and constitute a reserve in such fund. 25. Escrow Agreement. The discharge and defeasance of the Refunded Bonds shall be effectuated pursuant to the terms and provisions of an Escrow Agreement to be entered into by and between the City and Texas Commerce Bank National Association, Houston, Texas, as Escrow Agent, which shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, subject to such insertions, additions and modifications as shall be necessary (a) to carry out the program -18- designed for the City by the Underwriters, which shall be certified as to mathematical accuracy by KPMG Peat Marwick, Certified Public Accountants, whose Report shall be attached to the Escrow Agreement (b) to maximize the City's present value savings and/or to minimize the City's costs of refunding, (c) to comply with all applicable laws and regulations relating to the refunding of the Refunded Bonds and (d) to carry out the other intents and purposes of this Ordinance, and the Mayor or Mayor Pro Tem is hereby authorized to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary or an Assistant City Secretary is hereby authorized to attest thereto and affix the City's seal. 26. Redemption of Refunded Bonds. The City hereby irrevocably calls the following Refunded Bonds for redemption prior to maturity on the dates set forth below, at a price of par plus accrued interest to the dates fixed for redemption, and authorizes and directs notice of such redemption to be given in accordance with the ordinances authorizing the issuance of such bonds: Bonds to be Redeemed Permanent Improvement Bonds, Series 1978 Maturities 1994 through 1997 Refunding Bonds, Series 1985 Maturity 1996 and Maturities 1998 through 2001 Public Improvement Bonds, Series 1986 Maturities 1998 through 2003 Public Improvement Bonds, Series 1988 Maturities 1999 through 2003 Redemption Date September 1, 1993 March 1, 1995 March 1, 1997 March 1, 1998 27. Purchase of United States Treasury Obligations. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Mayor or Mayor Pro Tem, the Director of Finance, and the Escrow Agent are hereby authorized to subscribe for, agree to purchase, and purchase non -callable obligations of the United States of America, in such amounts and maturities and bearing interest at such rates as may be provided for in the Report, and to execute any and all subscriptions, purchase agreements, commitments, letters of authorization and other documents necessary to effectuate the foregoing, and any actions heretofore taken for such purpose are hereby ratified and approved. -19- 28. Related Matters. To satisfy in a timely manner all of the City's obligations under this Ordinance, the bond purchase agreement, and the Escrow Agreement, the Mayor or Mayor Pro Tem, the Director of Finance, the City Secretary or an Assistant City Secretary, and all other appropriate officers and agents of the City are hereby authorized and directed to take all other actions that are reasonably necessary to provide for the refunding of the Refunded Bonds, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, and other documents as may be reasonably necessary to satisfy the City's obligations under the Escrow Agreement, the bond purchase agreement, and this Ordinance and to direct the application of funds of the City consistent with the provisions of such Escrow Agreement and this Ordinance. 29. Registrar. The form of agreement setting forth the duties of the Registrar is hereby approved, and the appropriate officials of the City are hereby authorized to execute such agreement for and on behalf of the City. 30. Official Statement. The City Council ratifies and confirms its prior approval of the form and content of the Preliminary Official Statement prepared in the initial offering and sale of the Bonds and hereby authorizes the preparation of a final Official Statement reflecting the terms of the bond purchase agreement with the Underwriters and other relevant matters. The use of such official Statement in the reoffering of the Bonds by the Underwriters is hereby approved and authorized. The proper officials of the City are hereby authorized to execute and deliver a certificate pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds. 31. No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Ordinance, against any official or employee of the City or any person executing any Bonds. 32. Onen Meeting. It is hereby officially found and determined that the meeting at which this Ordinance was adopted was open to the public, and that public notice of the time, place and purpose of said meeting was given, all as required by Article 6252-17, Vernon's Texas Civil Statutes, as amended. 33. Effective Date. This Ordinance shall become effective immediately upon passage by this City Council and signature of the Mayor. 34. Emergency. It is hereby officially found and determined that this Ordinance relates to an immediate public emergency -20- 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 Bonds are required as soon as possible to reduce the City's debt service requirements, and that this Ordinance be passed and approved on the date of its introduction. PASSED AND APPROVED on first reading pursuant to Section 3.10 of the City Charter this 8th day of April, 1993. ATTEST: (SEAL) Mayor CITY OF PEARLAND, TEXAS -21- EXHIBIT A ESCROW AGREEMENT THIS ESCROW AGREEMENT (the "Escrow Agreement") dated for convenience April 8, 1993, but effective on the Escrow Funding Date described herein, is made and entered into by and between the City of Pearland, Texas, an incorporated city of the State of Texas (the "City"), and Texas Commerce Bank National Association, Houston, Texas, as escrow agent (together with any successor or assign in such capacity, the "Escrow Agent") . WHEREAS, the City has heretofore issued and there remain outstanding the City's Permanent Improvement Bonds, Series 1978, dated September 1, 1978, the City's Refunding Bonds, Series 1985, dated August 15, 1985, the City's Public Improvement Bonds, Series 1986, dated April 1, 1986, and the City's Public Improvement Bonds, Series 1988, dated May 1, 1988 (the "Outstanding Bonds"); and WHEREAS, the City desires to refund in advance of maturity a portion of such Outstanding Bonds in the aggregate principal amount of $5,800,000 (the "Refunded Bonds"); and WHEREAS, Article 717k, Vernon's Texas Civil Statutes, as amended, authorizes and empowers the City to deposit the proceeds of refunding bonds payable from ad valorem taxes of the City, together with other available funds or resourceswith any place of payment for the Refunded Bonds in an amount which is sufficient to provide for the payment or redemption of the principal of and interest on the Refunded Bonds; and WHEREAS, the City Council of the City has adopted an ordinance authorizing the issuance of the City's Refunding Bonds, Series 1993, in the aggregate principal amount of $6,510,000 (the "Refunding Bonds"), for the purpose of providing the funds necessary to refund the Refunded Bonds, to provide a savings in debt service; and WHEREAS, the City Council of the City has further determined to effectuate the advance refunding of the Refunded Bonds pursuant to this Escrow Agreement, under which provision is made for the safekeeping, investment, reinvestment, administration and disposition of the proceeds of the Refunding Bonds, so as to provide firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to secure the full and timely payment of the principal of and the interest on the Refunded Bonds, the City and the Escrow Agent agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1.01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, the following terms shall have the respective meanings specified below for all purposes of this Escrow Agreement: "City" shall mean the City of Pearland, Texas, and any successor to its duties and functions. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder and under the Internal Revenue Code of 1954. "Escrow Agent" shall mean Texas Commerce Bank National Association, Houston, Texas, in its capacity as escrow agent hereunder, and any successor or assign in such capacity. "Escrow Agreement" shall mean this escrow agreement by and between the City and the Escrow Agent. "Escrow Fund" shall mean the fund created in Section 3.01 of this Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of this Escrow Agreement. "Escrow Funding Date" shall mean the date on which the City deposits with the Escrow Agent the cash and Escrowed Securities described in Section 2.01. "Escrowed Securities" shall mean the United States Treasury Obligations -State and Local Government Series for deposit into the Escrow Fund, purchased with proceeds of the Refunding Bonds and other funds, all as more fully described in the Report. "Paying Agents for the Refunded Bonds" shall mean Texas Commerce Bank National Association, Houston, Texas, successor to First City National Bank of Houston, Houston, Texas, for the Series 1978, Series 1985, and Series 1986 Bonds, and Ameritrust Texas National Association, Houston, Texas (formerly MTrust Corp, National Association, Houston, Texas) for the Series 1988 Bonds. "Refunded Bond Ordinances" shall mean the City's ordinances authorizing the issuance, sale and delivery of the Refunded Bonds. -2- "Refunded Bonds" shall mean the City's Permanent Improvement Bonds, Series 1978, in the aggregate principal amount of $900,000, maturing on March 1 in the years 1994 through 1997, both inclusive, the outstanding bonds of the City's Refunding Bonds, Series 1985, in the aggregate principal amount of $800,000, maturing on March 1 in the year 1996 and in each of the years 1998 through 2001, both inclusive, the City's Public Improvement Bonds, Series 1986, in the aggregate principal amount of $2,850,000, maturing on March 1 in each of the years 1998 through 2003, both inclusive, the City's Public Improvement Bonds, Series 1988, in the aggregate principal amount of $1,250,000, maturing on March 1 in each of the years 1999 through 2003, both inclusive. "Refunding Bonds" shall mean the City's Refunding Bonds, Series 1993, dated May 1, 1993, in the initial aggregate principal amount of $6,510,000. "Refunding Bond Ordinance" shall mean the City's Ordinance adopted April 8, 1993, authorizing the issuance, sale and delivery of the Refunding Bonds. "Report" shall mean the verification report prepared by KPMG Peat Marwick relating to the advance refunding of the Refunded Bonds, a copy of which is attached hereto as Exhibit A, and any subsequent report required by Section 5.02. Section 1.02. Interpretations. The titles and headings of the articles and sections of this Escrow Agreement have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict the terms hereof. This Escrow Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Bonds in accordance with applicable law. ARTICLE II DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2.01. penosits with Escrow Agent; Acquisition of Escrowed Securities. On the Escrow Funding Date the City will deposit, or cause to be deposited, with the Escrow Agent the following: (a) Escrowed Securities in the principal amount of $ , purchased with proceeds of the Refunding Bonds and other funds: and (b) A beginning cash balance of $ -3- ARTICLE III CREATION AND OPERATION OF ESCROW FUND Section 3.01. Escrow Fund. On the Escrow Funding Date the Escrow Agent will create on its books a special fund and irrevocable escrow to be known as the City of Pearland, Texas, Refunding Bonds, Series 1993 Escrow Fund, into which will be deposited the cash and Escrowed Securities described in Section 2.01. The Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund shall be the property of the Escrow Fund, and shall be applied only in strict conformity with the terms and conditions hereof. The Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund are hereby irrevocably pledged to the payment of the principal of and interest on the Refunded Bonds, which payment shall be made by timely transfers to the Paying Agents for the Refunded Bonds of such amounts at such times as are provided in Section 3.02 hereof. When the final transfers have been made to the Paying Agents for the Refunded Bonds for the payment of such principal of and interest on the Refunded Bonds, any balance then remaining in the Escrow Fund shall be transferred to the City, and the Escrow Agent shall. thereupon be discharged from any further duties hereunder. Section 3.02. Payment of Principal of and Interest on Refunded Bonds. (a) The Escrow Agent is hereby irrevocably instructed to transfer to the Paying Agents for the Refunded Bonds from the cash balance from time to time on deposit in the Escrow Fund the amounts required to pay the principal of and interest on the Refunded Bonds as the same become due and payable, all as provided in the Report. (b) Money transferred to and held by the Paying Agents for the Refunded Bonds in accordance with the provisions hereof shall be held by the Paying Agents for the Refunded Bonds as a separate trust fund for the account of the respective Owners of the Refunded Bonds in connection with which such money is held; provided, however, that money so held remaining unclaimed by the Owners of such Refunded Bonds for three (3) years after the dates on which payment thereon was due, shall be reported and disposed of in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. r$ection 3.03. Sufficiency of Escrow Fund. The City represents (based solely upon the Report) that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to -4- provide money for transfer to the Paying Agents for the Refunded Bonds at the times and in the amounts required to pay the interest on the Refunded Bonds as such interest comes due and to pay the principal of the Refunded Bonds as the Refunded Bonds macure or are redeemed. If any deficiency results from any error in the calculations set forth in the Report, the City shall transfer to the Escrow Agent for deposit to the Escrow Fund to be held pursuant to this Escrow Agreement an additional amount of cash or securities sufficientto provide for such deficiency. Section 3.04. Security of Escrow Fund. The Escrow Agent at all times shall hold the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; it shall hold and dispose of the assets of the Escrow Fund only as set forth herein, and the Escrow Agent shall at all times provide at its expense a surety bond or insurance policy covering theft or defalcation sufficient to protect the City and the Owners of the Refunded Bonds. The Escrowed Securities and other assets of the Escrow Fund always shall be maintained by the Escrow Agent for the benefit of the Owners of the Refunded Bonds; and a special account therefor evidencing such fact shall be maintained at all times on the books of the Escrow Agent. The Owners of the Refunded Bonds shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof and all other assets of the Escrow Fund as are enjoyed by other beneficiaries of similar accounts. The amounts received by the Escrow Agent under this Escrow Agreement shall not be considered as a banking deposit by the City, and the Escrow Agent shall have no right or title with respect thereto except as escrow agent under the terms hereof. The amounts received by the Escrow Agent hereunder shall not be subject to warrants, drafts or checks drawn by the City. Section 3.05. Security for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, shall be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. -5- ARTICLE IV REDEMPTION OF CERTAIN REFUNDED BONDS PRIOR TO MATURITY Section 4.01. Optional Redemption. The City has irrevocably exercised its option to call the following Refunded Bonds of the City for redemption prior to maturity on the dates set forth below, at a price of par plus accrued interest to the dates fixed for redemption, and has authorized and directed notice of such redemption to be given in accordance with the ordinances authorizing the issuance of such bonds: Bonds to be Redeemed Redemption Date Permanent Improvement Bonds, Series 1978 Maturities 1994 through 1997 September 1, 1993 Refunding Bonds, Series 1985 Maturity 1996 and Maturities 1998 through 2001 March 1, 1995 Public Improvement Bonds, Series 1986 Maturities 1998 through 2003 March 1, 1997 Public Improvement Bonds, Series 1988 Maturities 1999 through 2003 March 1, 1998 ARTICLE V ;,IMITATION ON INVESTMENTS Section 5.01. General. Except as herein otherwise expressly provided, the Escrow Agent shall not have any power or duty to invest any money held hereunder; or to make substitutions of the Escrowed Securities; or to sell, transfer or otherwise dispose of the Escrowed Securities. Section 5.02. Substitution of Securities. At the written request of the City, and upon compliance with the conditions hereinafter stated, the Escrow Agent shall sell, transfer, otherwise dispose of or request the redemption of all or any portion of the Escrowed Securities and apply the proceeds therefrom to purchase Refunded Bonds or direct, non -callable obligations of, or direct, non -callable, non -prepayable obligations the principal of and interest on which are unconditionally guaranteed for all and timely payment by, the United States of America and which do -6- not permit the redemption thereof at the option of the obligor. Any such transaction may be effected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a nationally recognized firm of independent certified public accountants acceptable to the City and the Escrow Agent that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient, when added to the interest to accrue thereon, to provide for the payment of principal and interest on the remaining Refunded Bonds as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the City and the Escrow Agent to the effect that (i) such transaction will not cause any of the Refunding Bonds to be an "arbitrage bond" within the meaning of the Code, and (ii) that such transaction complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Bonds and the Refunding Bonds. ARTICLE VI RECORDS AND REPORTS Section 6.01. Records. The Escrow Agent shall keep books of record and account in which complete and correct entries shall be made of all transactions relating to thereceipt, disbursement, allocation and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the City and the owners of the Refunded Bonds. Section 6.02. Reports. For the period beginning on the Escrow Funding Date and ending on August 31, 1993, and for each twelve (12) month period thereafter while this Agreement remains in effect, the Escrow Agent shall prepare and send to the City, at the City's request, within thirty (30) days following the end of such period a written report summarizing all transactions relating to the Escrow Fund during such period, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund to the Paying Agents for the Refunded Bonds, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. Section 6.03. Notification. The Escrow Agent shall notify the City immediately if at any time during the term of this agreement it determines that the cash and Escrowed Securities in the Escrow Fund are not sufficient to provide for the transfer to -7- the Paying Agents for the Refunded Bonds for timely payment of all interest on and principal of the Refunded Bonds. ARTICLE VII CONCERNING THE ESCROW AGENT Section 7.01. Representations of Escrow Agent. Texas Commerce Bank National Association hereby represents that it is a Paying Agent for the Refunded Bonds with all necessary power and authority to enter into this Escrow Agreement and undertake the obligations and responsibilities imposed upon it herein, and that it will carry out all of its obligations hereunder. Section 7.02. Limitation on Liability. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Escrow Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable except for its own neglect or default, nor for any loss unless the same shall have been through its negligence or want of good faith. The liability of the Escrow Agent to transfer funds to the Paying Agents for the Refunded Bonds for the payments of the principal of and interest on the Refunded Bonds shall be limited to the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, the Escrow Agent shall have no liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligor of the Escrowed Securities to make timely payment thereon, except for its obligation to notify the City promptly of any such occurrence. The recitals herein and in the proceedings authorizing the Refunding Bonds shall be taken as the statements of the City and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Escrow Agreement. The Escrow Agent makes no representation as to the accuracy of the Report, the value, condition or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the City thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall incur no liability or responsibility with respect to any of such matters. -8- In the absence of bad faith, the Escrow Agent may rely conclusively upon the truth, completeness and accuracy of the statements, certificates, opinions, resolutions and other documents conforming to the requirements of this Escrow Agreement, and shall not be obligated to make any independent investigation with respect thereto. It is the intention of the City and the Escrow Agent that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. Unless it is specifically provided otherwise herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the City with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund and to dispose of and deliver the same in accordance with this Escrow Agreement. If, however, the Escrow Agent is called upon by the terms of this Escrow Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence. In determining the occurrence of any such event or contingency the Escrow Agent may request from the City or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with the City, among others, at any time. The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith. To the full extent permitted by law, the City agrees to indemnify, defend and hold the Escrow Agent harmless from and against any and all loss, damage, tax, liability and expense that may be incurred by the Escrow Agent arising out of or in connection with its acceptance or appointment as Escrow Agent hereunder, including attorneys fees and expenses of defending itself against any claim or liability in connection with its performance hereunder, except that the Escrow Agent shall not be indemnified -9- for any loss, damage, tax, liability, or expense resulting from its own negligence. Section 7.03. Compensation. On the Escrow Funding Date, the City will pay the Escrow Agent, as a fee for performing the services hereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administration of this Escrow Agreement the sum of $ , and for payment of the paying agency fees of the Paying Agents for the Refunded Bonds, the sum of $ This sum does not include the cost of publication, printing costs, or reasonable out-of-pocket expenses of the Escrow Agent. If the Escrow Agent is requested to perform any extraordinary services hereunder, the City hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services. It is expressly provided that the Escrow Agent shall look only to the City for the payment of such additional fees and reimbursement of such additional expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular, additional or extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. Section 7.04. Successor Escrow Aaents. This agreement may be terminated by the City or the Escrow Agent on 60 days written notice, but no such termination .shall be effective until a successor Escrow Agent has been appointed and has accepted such appointment. Any successor Escrow Agent appointed by the City shall succeed, without further act, to all the rights, immunities, powers and trusts of the predecessor Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the City shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such immunities, rights, powers and duties. The Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee hereunder equal to the portion of such fee attributable to duties to be performed after the date of succession. ARTICLE VIII MISCELLANEOUS Section 8.01. Notices. Any notice, authorization, request, or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: -10- To the Escrow Agent: Texas Commerce Bank National Association P. 0. Box 4717 Houston, TX 77210 Attention: Corporate Trust Department, Tax Exempt and Agency Division Refunding Escrow To the City: City of Pearland Attention: Mayor P. 0. Box 2068 Pearland, TX 77588 The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Either party hereto may change the address to which notices are to be delivered by giving to the other party not less than ten days prior notice thereof. Section 8.02. Termination of Escrow Aaent's Obligations. Upon the taking by the Escrow Agent of all the actions as described herein, the Escrow Agent shall have no further obligations or responsibilities hereunder to the City, the Owners of the Refunded Bonds or to any other person or persons in connection with this Escrow Agreement. Section 8.03. Binding Agreement. This Escrow Agreement shall be binding upon the City and the Escrow Agent and their respective successors and legal representatives, and shall inure solely to the benefit of. the Owners of the Refunded Bonds, the City, the Escrow Agent and their respective successors and legal representatives. Section 8.04. Severability. If any one or more of the provisions contained in this Escrow Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Escrow Agreement, but this Escrow Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Section 8.05. Amendment. Except as provided in this Section, this Escrow Agreement may not be amended without the prior written consent of the Owners of all Refunded Bonds then outstanding. No consent of any Owner shall be required for amendments limited to: (a) the insertion of unintentionally omitted material or the correction of mistakes or clarification of ambiguities; (b) the pledging of additional security to the refunded bondholders; or (c) the deposit of additional cash or securities to the escrow account. -11- Section 8.06. Governing Law. This Escrow Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 8.07. Time of Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Escrow Agreement. Executed as of April 8, 1993, but effective as set forth herein. -12- ATTEST: (SEAL) ATTEST: By: Title: (SEAL) CITY OF PEARLAND, TEXAS Mayor" jJ L -7 TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Escrow Agent By: Title: -13- FILE COPY f CITY � p0 NCROT REMOVE ETARY'S OFFICE r CITY OF PEARLAND, TEXAS r r $6,510,000 r REFUNDING BONDS SERIFS 1993 r r r BOND COUNSEL: VINSON & ELKINS L.L.P. ;rn r r I I PCITY OF PEARLAND, TEXAS REFUNDING BONDS SERIES 1993 $6,510,000 1. Vinson & Elkins L.L.P.Opinion 2. General Certificate 3. Certificate of Assessed Valuation 4. Bond Purchase Agreement 5. Ordinance Authorizing Issuance of Bonds 6. Waivers of Coppinger and Miller 7. Escrow Agreement with Report Attached 8. Certificate of Escrow Agent 9. Subscription for U.S. Treasury Obligations State and Local Government Series 10. Notice of Bond Redemption-Ameritrust Texas, National Association 11. Notices of Bond Redemption-Texas Commerce Bank National Association 12. Letter to Texas Bond Reporter 13. Affidavit of Publication 14. Signature Identification and No-Litigation Certificate 15. Attorney General's Opinion and Comptroller's Registration Certificate 16. Receipt and No-Litigation Certificate 17. No Arbitrage Certificate and Form 8038-G 18. Closing Certificate 19. Paying Agent/Registrar Agreement 20. Paying Agent/Registrar's Receipt 21. Supplemental Opinion of Vinson & Elkins 22. Escrow Agent's Receipt 23. Underwriter's Receipt 24. Official Statement Certificate 25. Preliminary Official Statement 26. Final Official Statement 27. FGIC Insurance Policy; Opinion Letter; Rating Agency Letters 28. Specimen Bond w . VINSON & ELKINS L. L.P. THE WILLARD OFFICE BUILDING ATTORNEYS AT LAW ONE AMERICAN CENTER 1455 PENNSYLVANIA AVE.,N.W. 600 CONGRESS AVENUE WASHINGTON, D.C.20004-1008 AUSTIN,TEXAS 78701-3200 TELEPHONE 12021 639-6500 2500 FIRST CITY TOWER TELEPHONE 15121 495-8400 FAX 12021 639-6604 1001 FANNIN FAX 1512)495-8612 HUNGARIAN EXPORT BUILDING HOUSTON, TEXAS 77002-6760 3700 TRAMMELL CROW CENTER UL.POVARSKAYA(FORMERLY VOROVSKOGO1,21 TELEPHONE 17131 758-2222 2001 ROSS AVENUE 121069 MOSCOW, RUSSIAN FEDERATION FAX 1713)758-2346 DALLAS,TEXAS 75201-2975 TELEPHONE 011 170-951 202-8416 TELEPHONE 12141 2 2 0-7700 FAX 011170-95)202-0295 FAX 12141 220-7716 WRITER'S DIRECT DIAL 47 CHARLES ST, BERKELEY SQUARE BAGATELA 12 LONDON W1X 7PB, ENGLAND 00-585 WARSAW, POLAND OR TELEPHONE OII 144-711 491-723 6 TELEPHONE OII 14B-21625-33-33 FAX 011 144-71)499-5320 FAX 011 148-2)625-22-45 May 11, 1993 gm WE HAVE ACTED as bond counsel for the City of Pearland, Texas (the "City") , in connection with an issue of bonds (the "Bonds") described as follows: CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993, dated May 1, 1993 , in the total authorized amount of $6, 510, 000. The Bonds mature, bear interest and may be transferred and exchanged as set out in the Bonds and in the ordinance adopted by the City Council of the City authorizing their issuance (the "Ordinance") . WE HAVE ACTED as bond counsel for the sole purpose of rendering an opinion with respect to the legality and validity of the Bonds under the Constitution and laws of the State of Texas, under which the City is acting as a home-rule city of the State of Texas, and with respect to the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of certified proceedings described in the following paragraph. 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 Bonds. Our role in connection with the City's Official Statement prepared for use in connection with the sale of the Bonds has been limited as described therein. IN OUR CAPACITY as bond counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the Bonds, and the obligations being refunded, on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the City, Texas Commerce Bank National Association, Houston, Texas (the "Escrow Agent") ; the report of KPMG Peat Marwick, Certified Public Accountants, verifying the sufficiency of the deposits made with the Escrow Agent for defeasance of the obligations being refunded Page 1 of 3 pages p and the mathematical accuracy of certain computations of the yield on the Bonds and obligations acquired with the proceeds of the Bonds; customary certificates of officers, agents and representatives of the Escrow Agent, the City, and other public officials; and other certified showings relating to the authorization and issuance of the Bonds and the firm banking and financial arrangements for the discharge and final payment of the obligations being refunded. We have also examined executed Bond No. R-1 of this issue. BASED ON SUCH EXAMINATION, IT IS OUR OPINION that: (1) The transcript of certified proceedings evidences complete legal authority for the issuance of the Bonds in full compliance with the Constitution and laws of the State of Texas presently effective and that therefore the Bonds constitute valid and legally binding obligations of the City; (2) Firm banking and financial arrangements have been made for the discharge and final payment of the obligations being refunded pursuant to an Escrow Agreement entered into between the City and the Escrow Agent on the date of delivery of the Bonds, and that therefore such obligations are deemed to be fully paid and no longer outstanding except for the purpose of being paid from the funds provided therefor in such Escrow Agreement; and (3) Taxable property in the City is subject to the levy of ad valorem taxes, within the limits prescribed by law, to pay the Bonds and the interest thereon. THE RIGHTS OF THE OWNERS of the Bonds are subject to the applicable provisions of the federal bankruptcy laws and any other similar laws affecting the rights of creditors of political subdivisions generally, and may be limited by general principles of equity which permit the exercise of judicial discretion. IT IS OUR FURTHER OPINION that: (1) Interest on the Bonds is excludable from gross income of the owners for federal income tax purposes under existing law; and (2) The Bonds are not "private activity bonds" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code") , and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations except that interest on the Bonds will be Page 2 of 3 pages included in the "adjusted current earnings" of a corporation (other than an S corporation, regulated investment company, REIT, or REMIC) for purposes of computing its alternative minimum tax and its Superfund "environmental tax" liability. In providing such opinions, we have relied on representations of the City with respect to matters solely within the knowledge of the City which we have not independently verified, and have assumed continuing compliance with the covenants in the Ordinance pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes. If such representations are determined to be inaccurate or incomplete or the City fails to comply with the foregoing provisions of the Ordinance, interest on the Bonds could become includable in gross income from the date of original delivery, regardless of the date on which the event causing such inclusion occurs. In the Ordinance the City has designated the Bonds as "qualified tax-exempt obligations" under the Code and has made the representations, which we have not independently verified, necessary to qualify the Bonds as "qualified tax-exempt obligations" . Based on such representations, it is our opinion that the Bonds are "qualified tax-exempt obligations" under existing law. Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of the Bonds. Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. In addition, certain foreign corporations doing business in the U.S. may be subject to the "branch profits tax" on their effectively-connected earnings and profits (including tax-exempt interest such as interest on the Bonds) . Page 3 of 3 pages GENERAL CERTIFICATE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF BRAZORIA § We, the undersigned, Mayor and City Secretary of the City of Pearland, Texas (the "City") , hereby make and execute this certificate for the benefit of all persons interested in the City' s $6, 510 , 000 REFUNDING BONDS , SERIES 1993 (the "Bonds") , dated May 1, 1993 , now in process of issuance. We certify that: 1. The following persons are the members of the City Council of the City: C. V. Coppinger Mayor D. A. Miller, Jr. Mayor Pro Tem Joy Colson Council Member Benny Frank Council Member David L. Smith Council Member Randy K. Weber Council Member 2 . Pat Jones is City Secretary, Paul Grohman is the City Manager, Janet S . Eastburn is the Director of Finance and Barbara J. Lenamon is Tax Assessor-Collector of the City. 3 . The Home-Rule Charter of the City has not been amended, altered, changed or repealed since the issuance of the City ' s Street Improvement Bonds, Series 1992 , dated May 1, 1992 . 4 . None of the bonds being refunded by the Bonds have ever been held in or purchased by the account of any of the interest and sinking funds created and maintained for the payment and security of said Refunded Bonds and, none of the Refunded Bonds are currently owned nor have any of the same ever been purchased or held for any account or fund of the City. 5. A true and correct copy of the Debt Service Schedule for the Bonds now in process of issuance as well as the outstanding obligations is attached hereto as Exhibit A. 6 . The following is a true, correct and complete statement of all indebtedness of the City payable from taxation: r r r r Purpose Date Interest Maturities Amt. Outst. WW & San. SS Imp. , Ser. ' 64 12-1-64 3 . 90% $ 55M 6-1-1993/94 $ 110, 000 WW & San. SS Imp. , Ser. ' 66 6-1-66 4 . 40% 35M 6-1-1993 40M 1994 100M 1995 175,000 G. O. , Ser. ' 68 8-1-68 5. 25% 50M 2-1-1994/95 100,000 Perm. Imp. , Ser. ' 78 9-1-78 5. 30% 200M 3-1-1994 5 . 40% 200M 1995 5. 50% 250M 1996/97 900, 000 Ref. , Ser. ' 85 8-15-85 8 . 00% 570M 3-1-1994 8 . 10% 70M 1995 8 . 25% 95M 1996 8 . 50% 95M 1998 8 . 60% 155M 1999 8 . 70% 195M 2000 8 . 80% 260M 2001 1, 440, 000 Pub. Imp. , Ser. ' 86 4-1-86 8 . 50% 150M 3-1-1994 175M 1995 300M 1996 6. 50% 425M 1997 6. 60% 450M 1998/99 6. 70% 475M 2000 6. 75% 475M 2001 6. 80% 500M 2002 6 . 50% 500M 2003 3 , 900 , 000 Pub. Imp. , Ser. ' 88 5-1-88 8 . 80% 50M 3-1-1994/96 8% 100M 1997 6. 80% 250M 1998 6.90% 250M 1999 7% 250M 2000 7 . 10% 250M 2001 7 . 25% 250M 2002/03 1, 750, 000 Purpose Date Interest Maturities Amt. Outst. REFUNDING BONDS, SERIES 1990 Current 10-1-90 7 . 10% $ 315M 3-1-2002 Interest 7 . 15% 390M 2003 Bonds 7 . 20% 1220M 2004 7 . 25% 1315M 2005 7 . 30% 1415M 2006 7 . 35% 1760M 2007 $ 6, 415, 000 Principal Purpose Date Interest Maturities Amount Capital 10-11-90 7 . 55% $1820M 3-1-2008 $501, 646. 60 Apprec. 7 . 60% 1765M 3-1-2009 447 , 745 . 20 Bonds Total Capital Appreciation Bonds: $949 , 391. 80 Purpose Date Interest Maturities Amt. Outst. Com. Tax & Rev. CO'S, Ser. ' 91 5-1-91 7 . 80% $ 90M 3-1-1994 110M 1995 115M 1996 100M 1997 135M 1998 7 . 375% 140M 1999 6. 30% 150M 2000 6. 40% 165M 2001 6 . 50% 170M 2002 180M 2003 200M 2004 210M 2005 220M 2006 1, 985, 000 Purpose Date Interest Maturities Amt. Outst. St. Imp. Bds. , Ser. ' 92 5-1-92 7. 95% $ 80M 3-1-1995 8 . 00% 80M 1996 80M 1997 100M 1998 100M 1999 110M 2000 120M 2001 6. 30% 125M 2002 6. 00% 130M 2003 140M 2004 150M 2005 160M 2006 175M 2007 190M 2008 260M 2009 $ 2 , 000, 000 BONDS IN PROCESS OF ISSUANCE Ref. , Ser. ' 93 5-1-93 2 . 65% 115M 9-1-1993 3 . 00% 95M 3-1-1994 3 . 20% 320M 3-1-1995 3 . 50% 465M 3-1-1996 3 .80% 365M 3-1-1997 4 . 00% 655M 3-1-1998 4 . 10% 950M 3-1-1999 4. 25% 990M 3-1-2000 4 .40% 1030M 3-1-2001 4 . 50% 770M 3-1-2002 4 . 625% 755M 3-1-2003 6, 510, 000 WITNESS OUR HANDS AND THE OFFICIAL SEAL OF THE CITY, this 8th .. day of April, 1993 . 'ems 1/ d- G1/ Mayor / CITY OF PEARLAND, TEXAS City Secr ,: ary CITY OF PEARLAND, TEXAS (SEAL) EXHIBIT A MATURING PROCEEDS B INTEREST TOTAL DATES AMOUNT ISSUE DATE COUPON YIELD AMOUNT NEW D/S PRIOR DEBT 5/11/93 9/01/93 115,000 115,000.00 2.650 2.650000 89,465.41 204,465.41 196,262.50 3/01/94 95,000 95,000.00 3.000 3.000000 132,674.38 227,674.38 396,262.50 9/01/94 131,249.38 131,249.38 192,962.50 3/01/95 320,000 320,000.00 3.200 3.200000 131,249.38 451,249.38 392,962.50 9/01/95 126,129.38 126,129.38 187,562.50 3/01/96 465,000 465,000.00 3.500 3.500000 126,129.38 591,129.38 532,562.50 9/01/96 117,991.88 117,991.88 176,768.75 3/01/97 365,000 365,000.00 3.800 3.800000 117,991.88 482,991.88 426,768.75 9/01/97 111,056.88 111,056.88 169,893.75 3/01/98 655,000 655,000.00 4.000 4.000000 111,056.88 766,056.88 714,893.75 9/01/98 97,956.88 97,956.68 151,006.25 3/01/99 950,000 945,098.00 4.100 4.200000 97,956.88 1,047,956.88 1,006,006.25 9/01/99 78,481.88 78,481.88 120,866.25 3/01/00 990,000 984,159.00 4.250 4.350000 78,481.88 1,068,481.88 1,040,866.25 9/01/00 57,444.38 57,444.38 87,721.25 3/01/01 1,030,000 1,023,222.60 4.400 4.500000 57,444.38 1,087,444.38 1,072,721.25 9/01/01 34,784.38 34,784.38 51,375.00 3/01/02 770,000 761,684.00 4.500 4.650000 34,784.38 804,784.33 801,375.00 9/01/02 17,459.38 17,459.38 25,312.50 3/01/03 755,000 744,709.35 4.625 4.800000 17,459.38 772,459.38 775,312.50 311a2==n== a=cxsn==as_ a=r_zs====a a .= S-fl r. aaaa.aaan:: 6,510,000 6,473,872.95 1,767.:43.63 8,277,248.63 8,523,462.50 CERTIFICATE OF ASSESSED VALUATION THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS §. CITY OF PEARLAND § = I, the undersigned, the duly appointed, qualified, and acting Tax Assessor-Collector of the City of Pearland Df Brazoria and Harris Counties, Texas (the "City") , do hereby certify that the following is a true and correct statement of the assessed valuation of taxable property in the City as shown by the duly approved tax rolls for the year 1992, which are the last approved tax rolls for the City on file in my office, to wit: $654, 804,750 WITNESS MY HAND AND THE OFFICIAL SEAL OF THE CITY, this k✓ day of April, 1993 . Tax As sso -Colle to CITY 0 PEARLAND, TEXAS (SEAL) a CITY OF PEARLAND (A political subdivision of the State of Texas, located within Brazoria and Harris Counties, Texas) $6,510,000 Refunding Bonds, Series 1993 BOND PURCHASE AGREEMENT •. April 8, 1983 -• CITY OF PEARLAND P.O. Box 2068 Pearland, Texas 77588-2068 The undersigned, Masterson Moreland Sauer Whisman, Inc., as representative of a group of Underwriters that includes Coastal Securities, Ltd. (referred to herein as the "Underwriters"), offers to enter into this Bond Purchase Agreement with the City of Pearland (the "City"). This offer is made subject to the City's acceptance of this Bond Purchase Agreement on or before 7:00 p.m., on the date set out above. 1. Purchase and Sale of the Bonds. Upon the terms and conditions and upon the basis of the representations set forth herein, the Underwriters hereby agree to purchase from the City, and the City hereby agrees to sell and deliver to the Underwriters on the closing date, May 11, 1993, and as further defined in Paragraph 6 (the "Closing"), $6,510,000 principal amount of the City of Pearland Refunding Bonds, Series 1993 (the "Bonds,"). The Bonds shall be dated May 1, 1993, and shall have the maturities and bear interest from the date thereof at the rate or rates per annum as shown on the maturity schedule on the cover page of the Official Statement, a copy of which is attached hereto as Attachment "A". The purchase price for all of the Bonds will be $6,418,537.95, (which reflects the aggregate principal amount of the Bonds less an Underwriters' discount of $55,335.00 on the Bonds, and less an original issue discount of$36,127.05) plus accrued interest to closing. The Bonds are not subject to redemption prior to their scheduled maturities. a:Vmbl bondr#1lpearlandcty -1- 2. Ordinance. The Bonds shall be as described in and shall be issued and secured under the provisions of an ordinance to be adopted by the City as further described in the Official Statement (the "Ordinance"). 3. Public Offering. It is a condition of the obligation of the City to sell and deliver the Bonds to the Underwriters, and of the obligation of the Underwriters to purchase and accept delivery of the Bonds, that the entire principal amount of the Bonds authorized by the Ordinance shall be sold and delivered by the City and accepted and paid for by the Underwriters at the Closing. The Underwriters agree to make a bona fide public offering of all of the Bonds, at not in excess of the initial public offering prices, as set forth on the cover page of the Official Statement, plus accrued interest on the Bonds from the date of the Bonds, and to confirm in writing to the City the principal amount (or percentage of principal amount) of each maturity and the corresponding price for each maturity (or yield from each maturity resulting from such price) at which the Bonds were sold pursuant to such bona fide public offering. 4. Official Statement. The Preliminary Official Statement, dated March 29, 1993 (the "Preliminary Official Statement") and the Official Statement, dated April 8, 1983, including the cover page and Appendices thereto, as further amended only in the manner hereinafter provided, are hereinafter called the "Official Statement." The City hereby authorizes the Escrow Agreement, hereinafter defined, the Ordinance and the Official Statement and the information therein contained to be used by the Underwriters in connection with the public offering and sale of the Bonds. The City hereby ratifies the use by the Underwriters in the offering of the Bonds prior to the date hereof of the Preliminary Official Statement. The City agrees to cooperate with the Underwriters to provide a supply of final Official Statements within seven business days of the date hereof in sufficient quantities to comply, and the Underwriters agree to comply, with the Underwriters' obligations under applicable MSRB Rules and Rule 15c2-12 of the Securities Exchange Commission (the "Rule"). The Underwriters will use its best efforts to assist the City in the preparation of the final Official Statement in order to comply with the aforementioned rules. 5. Representation, Warranties and Agreements of City. On the date hereof, the City represents, warrants and agrees as follows: sr A. The City is a municipal corporation and body politic of the State of Texas, and has full legal right, power and authority (i) to issue the Bonds and to enter into this Bond Purchase Agreement and the Escrow Agreement between the City and the Escrow Agent described in the Ordinance (the "Escrow Agreement"), (ii) to authorize and approve the Preliminary Official Statement and the Official Statement and to authorize their distribution by the Underwriters, (iii) to adopt the Ordinance, and to issue and deliver the Bonds to the Underwriters as provided herein, and (iv) to carry out and consummate all other transactions contemplated by the Ordinance, the Escrow Agreement and this Bond Purchase Agreement; a:ljmblbonds#1{pearlandcry -2- a B. By official action of the City prior to or concurrently with the acceptance ,s hereof, the City has duly adopted the Ordinance, has duly authorized and approved the execution and delivery of the Bonds, the Escrow Agreement and this Bond Purchase Agreement, and has duly authorized and approved the performance by the City of its obligations contained in the Ordinance, the Bonds, the Escrow Agreement and in this Bond Purchase Agreement; C. The City has complied, and will be at the date of closing in compliance, in all material respects, with the Constitution and laws of the State of Texas in connection with the authorization, issuance and sale of the Bonds; D. The City is not in breach of or default under any applicable law or administrative regulation of the State of Texas or the United States or any applicable judgment or decree or any loan agreement, note, resolution, agreement or other instrument, except as may be disclosed in the Official Statement, to which the City is a party or is otherwise subject, which would have a material and adverse effect upon the business or financial condition of the City; and the execution and delivery of the Escrow Agreement and this Bond Purchase Agreement by the City, and the execution and delivery of the Bonds and the adoption of the Ordinance by the City and compliance with the provisions of each thereof will not violate or constitute a breach of or default under any existing law, administrative regulation, decree or any agreement or other instrument to which the City is a party or is otherwise subject; E. All approvals, consents and orders of any governmental authority or agency having jurisdiction of any matter which would constitute a condition precedent to the performance by the City of its obligations to sell and deliver the Bonds hereunder will have been obtained prior to the Closing; F. At the time of the City's acceptance hereof and the time of the Closing, the Official Statement does not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; G. The audited financial statements of the City contained in the Official Statement present fairly the financial position of the City as of September 30, 1992, and the results of its operations for the year then ended, in conformity with generally accepted accounting principles; H. Between the date of this Bond Purchase Agreement and Closing, the City will not, without the prior written consent of the Underwriters, issue any additional bonds or other obligations for borrowed money payable in whole or in part from taxes, and the City will not incur any material liabilities, direct or contingent, relating to, nor will there be any adverse change of a material nature in the financial position of, the City; r a:Vmblbonds#1lpeartand.cty "3- I F. At or prior to the Closing, the Underwriters shall have received one (1) copy of each of the following documents: (1) The Official Statement of the City executed on behalf of the City by the Mayor and Secretary of the City; (2) The Ordinance, certified by the City Secretary under the City's seal as having been duly adopted by the City and as being in effect, with such changes or amendments as may have been agreed to by the Underwriters; (3) An opinion, dated the date of Closing, of Vinson & Elkins, L.L.P., Houston, Texas, Bond Counsel to the City, in the form and substance attached to the Preliminary Official Statement; (4) An opinion or certificate, dated on or prior to the date of Closing, of the Attorney General of Texas, approving the Bonds as required by law and a certificate of the Comptroller of Public Accounts of the State of Texas regarding the registration of the Bonds as required by law; (5) A supplemental opinion, dated the date of Closing, of Vinson &Elkins, L.L.P., Houston, Texas, Bond Counsel to the City, addressed to the City and the Underwriters, to the effect that (a) in its capacity as Bond Counsel, such firm has reviewed the information in the Official Statement under the captions, "THE BONDS", and "LEGAL MATTERS--Legal Opinions" (insofar as such sections relate to the opinion of Bond Counsel), and such firm is of the opinion that the information relating to the Bonds and the Ordinance contained under such captions in all respects accurately and fairly reflects the provisions thereof and, insofar as such information relates to matters of law, is true, accurate, and complete for the purpose of the Official Statement; and (b) the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended, and the Ordinance is exempt from qualification _ as an indenture pursuant to the Trust Indenture Act of 1939, as amended; (c) in the performance of their duties as Bond Counsel for the City without having undertaken to determine independently the accuracy and completeness of all the statements contained in the Official Statement, nothing has come to the attention of such counsel which lead them to believe that the Official Statement (excluding the financial statements and other financial and statistical data included therein, as to all of which no view need be expressed) contains any untrue statement of a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; C r i a:Vmb l bonds#11 pearland cry -6- r.. r (10) Evidence of the FGIC Municipal Bond New Issue Insurance on the Bonds, and evidence of the rating of Moody's Investor's Service, Inc., of "Aaa" and Standard and Poor's Corporation of "AAA" on the Bonds delivered in a form acceptable to the Underwriters; (11) Verification of the accuracy of certain arithmetical computations by KPMG Peat Marwick, Certified Public Accountants as described in the Official Statement; and (12) Such additional legal opinions, certificates, instruments and other documents as Bond Counsel or the Underwriters may reasonably request to evidence the truth, accuracy and completeness, as of the date hereof and as of the date of Closing, of the City's representations and warranties contained herein and of the statements and information contained in the Official Statement and the due performance and satisfaction by the City at or prior to the date of Closing of all agreements then to be performed and all conditions then to be satisfied by the City. All of the opinions, letters, certificates, instruments and other documents mentioned above or elsewhere in this Bond Purchase Agreement shall be deemed to be in compliance with the provisions hereof if, but only if, they are satisfactory to the Underwriters. 8. Termination. A. If the City shall be unable to satisfy the conditions to the obligations of the Underwriters to purchase, to accept delivery of, and to pay for the Bonds as set forth in this Bond Purchase Agreement, or if the obligations of the Underwriters to purchase, to accept delivery of, and to pay for the Bonds shall be terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase Agreement shall terminate, and neither the Underwriters nor the City shall be under further obligation hereunder, except that the respective obligations of the City and the Underwriters set forth in Paragraphs 9. and 11. shall continue in full force and effect. B. The Underwriters may terminate their obligation to purchase at any time before the Closing if any of the following should occur: (1) (a) Legislation (including any amendment thereto) shall have been introduced in or adopted by either House of the Congress of the United States, or recommended to the Congress for passage by the President of the United States or favorably reported for passage to either House of the Congress by a committee of • such House, or (b) a decision shall have been rendered by a court established under Article III of the Constitution of the United States or by the United States Tax Court, or (c) an order, ruling or regulation shall have been issued or proposed by or on behalf of the Treasury Department of the United States, or by the Internal Revenue Service, the effect of which, in any such case described in clause (a), (b) or (c), would a:Vmbl bonds#1lpearland cty -8- a be to impose, directly or indirectly, federal income taxation upon gross income for interest received on obligations of the general character of the Bonds or upon income of the general character to be derived by the City, other than as imposed on the Bonds and gross income therefrom under the federal tax laws in effect on the date hereof, in such a manner as in the judgment of the Underwriters would materially impair the marketability of materially reduce the market price of obligations of the general character of the Bonds. (2) Any action shall have been taken by the Securities and Exchange Commission or by a court which would require registration of any security under the Securities Act of 1933, as amended, or qualification of any indenture under the Trust Indenture Act of 1939, as amended, in connection with the public offering of the Bonds, or any action shall have been taken by any court or by any governmental authority suspending the use of the Official Statement or any amendment or supplement thereto, or any proceeding for that purpose shall have been initiated or threatened in any such court or by any such authority. (3) (a) The Constitution of the State of Texas shall be amended or an amendment shall be proposed, or (b) legislation shall be enacted, or (c) a decision shall have been rendered as to matters of Texas law, or (d) any order, ruling or regulation shall have been issued or proposed by or on behalf of the State of Texas by an official, agency or department thereof, affecting the tax status of the City, its property or income, its bonds (including the Bonds) or the interest thereon, which in the judgment of the Underwriters would materially affect the market price of the Bonds. (4) (a) A general suspension of trading in securities shall have occurred on the New York Stock Exchange, or (b) the United States shall have become engaged in hostilities which have resulted in the declaration, on or after the date of this Bond Purchase Agreement, of a national emergency or war, the effect of which, in either case described in clause (a) and (b), is, in the judgment of the Underwriters, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Bonds on the terms and in the manner • contemplated in this Bond Purchase Agreement and the Official Statement. (5) An event described in Paragraph 5.L. hereof occurs which, in the opinion of the Underwriters, requires a supplement or amendment to the Official Statement. (6) A general banking moratorium shall have been declared by authorities of the United States, the State of New York or the State of Texas. iorn a:Ijmbibonds#1\pearlandcry -9- (7) A lowering of the rating of "Aaa" initially assigned to the Bonds by Moody's Investors Service, Inc. shall occur prior to Closing. (8) Any event occurs which prevents the United States Treasury Department from delivering on the Closing Date the State and Local Government Securities subscribed for by the City to fund the Escrow Fund pursuant to the Escrow Agreement in connection with the issuance of the Bonds. (9) Failure to provide, within seven business days of the date hereof, an Official Statement in form and substance satisfactory to the Underwriters. 9. Expenses. A. The Underwriters shall be under no obligation to pay, and the City shall pay, any expenses incident to the performance of the City's obligations hereunder, including but not limited to: (1) the cost of the preparation, printing and distribution of the Official Statement; (2) the cost of the preparation and printing of the Bonds; (3) the fees and expenses of Bond Counsel to the City; (4) the fees and disbursements of the City's accountants, advisors, and of any other experts or consultants retained by the City; and (5) fees for bond ratings and any travel or other expenses incurred incident thereto. B. The Underwriters shall pay: (1) all advertising expenses of the Underwriters in connection with the offering of the Bonds; (2) the cost of the preparation and printing of all the underwriting documents, including this Bond Purchase Agreement, and (3) all other expenses incurred by them in connection with their offering and distribution of the Bonds and the fees of Counsel to the Underwriters. 10. Notices. Any notice of other communication to be given to the City under this Bond Purchase Agreement may be given by delivering the same in writing at the address for the City set forth above, and any notice or other communication to be given to the Underwriters under this Bond Purchase Agreement may be given by delivering the same in writing to Masterson, Moreland Sauer Whisman, Inc., 333 Clay Street, Suite 4000, Houston, Texas 77002, Attention: Roy Tucker. 11. Parties in Interest. This Bond Purchase Agreement is made solely for the benefit of the City and the Underwriters (including the successors or assigns of any Underwriters), and no other person shall acquire or have any right hereunder or by virtue hereof. The City's representations, warranties and agreements contained in this Bond Purchase Agreement shall remain operative and in full force and effect, regardless of(a) any investigations made by or on behalf of the Underwriters and (b) delivery of any payment for the Bonds hereunder; and the City's representations and warranties contained in Paragraph 6. of this Bond Purchase Agreement shall remain operative and in full force and effect, regardless of any termination of this Bond Purchase Agreement. a:jmblbonds#llpearlandcry -10- a 12. Effective Date. This Bond Purchase Agreement shall become effective upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance. Very truly yours, MASTERSON MORELAND SAUER WHISMAN, INC. COASTAL SECURITIES, LTD. /41, 4 Title: Accepted: This 8th day of April, 1993 CITY OF PEARLAND By: MAYOR (SEAL) Attest: — l1� City Secretary / a:Vmbl bonds#1lpearlandcry -11- • OFFICIAL STATEMENT DATED APRIL 8, 1993 IP Ratings: Standard & Poor's Corporation (FGIC) ... "AAA" Moody's Investors Service, Inc. (FGIC) ... "Aaa" See "Municipal Bond Insurance" herein The Preliminary Official Statement is subject to completion and amendment. Upon the sale of the Bonds, this Official Statement will be completed and delivered to the Underwriter. f IN THE OPINION OF BOND COUNSEL,INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS. SEE "TAX MATTERS" FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSEQUENCES FOR CORPORATIONS. PiNEW ISSUE $6,510,000 CITY OF PEARLAND (Brazoria and Harris Counties, Texas) REFUNDING BONDS, SERIES 1993 The City will designate the Bonds as "Qualified Tax-Exempt Obligations" for financial institutions. Dated: May 1, 1993 Interest on the Bonds maturing in the years 1993 through 2003,both inclusive(the "Bonds") will accrue from May 1, 1993, and will be payable March 1 and September 1 of each year, commencing September 1, 1993. The Bonds are referred to herein as the "Bonds" or the "Series 1993 Refunding Bonds". Principal of the Bonds is payable at the principal corporate trust office of Ameritrust Texas,National Association,Houston,Texas, the paying agent/registrar (the "Registrar"), upon surrender of the Bonds for payment. Interest on the Bonds is 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 on the close of business as of the 15th day of the calendar month next preceding each interest payment date(the "Record Date"). The Bonds will be issued only in fully registered form, in denominations of$5,000 of principal amount or any integral multiple thereof. The Bonds are not subject to redemption prior to w., their scheduled maturities. A Municipal Bond Guaranty Insurance Policy guaranteeing payment of the principal of and interest on the Bonds on the stated payment dates will be issued by Financial Guaranty Insurance Company. PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES Initial Initial Principal Interest offering Principal Interest Offering Amount Maturity Rate Yield(a) Amour Maturity Rate Yield(a) $ 115,000 9/01/93 2.65% 2.65% $ 950,000 3/01/99 4.100% 4.20% 95,000 3/01/94 3.00 3.00 990,000 3/01/00 4.250 4.35 320,000 3/01/95 3.20 3.20 1,030,000 3/01/01 4.400 4.50 465,000 3/01/96 3.50 3.50 770,000 3/01/02 4.500 4.65 365,000 3/01/97 3.80 3.80 755,000 3/01/03 4.625 4.80 655,000 3/01/98 4.00 4.00 (a) The initial yields and prices are established by, and are the sole responsibility of the Underwriter (hereinafter defined) and may subsequently be changed. p r The proceMs of the Bonds will be applied to refund certain outstanding bonds of the City of Pearland, Texas (the "City"), and to pay certain costs incurred in connection with the issuance of the Bonds (See "THE BONDS - MB Sources and Uses of Funds"). The Bonds,when issued,will constitute valid and binding obligations of the City and will be payable solely from the proceeds of an annual ad valorem tax, levied within the limits prescribed by law against taxable property within the City. 4. The Bonds are offered when, as and if issued by the City and accepted by the Underwriter, subject to the approval of the Attorney General of Texas and the approval of certain legal matters by Vinson & Elkins L.L.P., Houston,Texas, Bond Counsel. Certain legal matters will be passed upon for the Underwriter by Taylor, Solomon &Benson, L.L.P., Houston, Texas. See "LEGAL MATTERS." Delivery of the Bonds is anticipated to be on or about May 11, 1993. f MASTERSON MORELAND SAUER WHISMAN, INC. ma COASTAL SECURITIES LTD. a em a 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 the 8th day of April, 1993 , 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: C. V. Coppinger Mayor D. A. Miller, Jr. Mayor Pro Tem Joy Colson Council Member Benny Frank Council Member David L. Smith Council Member Randy K. Weber Council Member Pat Jones City Secretary and all of said persons were present, except the following absentee(s) : C. V. COPPINGER AND D. A. MILLER, JR. constituing a quorum. Whereupon, among other business, the following was transacted at said meeting: a written ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993 ; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; AUTHORIZING THE ADVANCE REFUNDING OF CERTAIN OUTSTANDING OBLIGATIONS AND THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND THE SUBSCRIPTION FOR AND PURCHASE OF CERTAIN ESCROWED SECURITIES; AND DECLARING THAT AN IMMEDIATE PUBLIC EMERGENCY EXISTS BECAUSE THE PROCEEDS OF SUCH BONDS ARE NEEDED AS SOON AS POSSIBLE FOR THE PROTECTION OF LIFE, HEALTH, PROPERTY AND THE PUBLIC PEACE (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, said motion, carrying with it the adoption of the resolution, prevailed and carried by the following vote: AYES: All members of the City Council shown present above voted "Aye. " NAYS: None. 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 said meeting; that the above and foregoing paragraph is a true, full and correct excerpt from the City Council ' s minutes of said 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 said meeting, and each of said officers and members consented, in advance, to the holding of such meeting for such purpose; that said meeting was open to the public as required by law; and that public notice of the date, hour, place and subject of said meeting was given as required by Vernon's Article 6252-17 , as amended. SIGNED AND SEALED this 8th day of April, 1993 . 141771'--7 City Sec tart' Mayor (SEAL) ORDINANCE AUTHORIZING THE ISSUANCE OF CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993 ; AUTHORIZING THE REDEMPTION PRIOR TO MATURITY OF CERTAIN OUTSTANDING BONDS; AUTHORIZING THE ADVANCE REFUNDING OF CERTAIN OUTSTANDING OBLIGATIONS AND THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT AND THE SUBSCRIPTION FOR AND PURCHASE OF CERTAIN ESCROWED SECURITIES; AND DECLARING THAT AN IMMEDIATE PUBLIC EMERGENCY EXISTS BECAUSE THE PROCEEDS OF SUCH BONDS ARE NEEDED AS SOON AS POSSIBLE FOR THE PROTECTION OF LIFE, HEALTH, PROPERTY AND THE PUBLIC PEACE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § CITY OF PEARLAND § WHEREAS, the City of Pearland, Texas (the "City") has heretofore issued its Permanent Improvement Bonds, Series 1978, its Refunding Bonds, Series 1985, its Public Improvement Bonds, Series 1986, and its Public Improvement Bonds, Series 1988 (the "Outstanding Bonds") ; and WHEREAS, the City desires to refund a portion of the Outstanding Bonds in advance of their maturities (the "Refunded Bonds") ; and WHEREAS, Article 717k, Vernon's Texas Civil Statutes, as amended, authorizes the City to issue refunding bonds payable from taxes, without an election, for the purpose of refunding the Refunded Bonds in advance of their maturities, and to accomplish such refunding by depositing directly with any paying agent for the Refunded Bonds the proceeds of such refunding bonds, together with other available funds, in an amount sufficient to provide for the payment or redemption of the Refunded Bonds, and provides that such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; and WHEREAS, the City desires to authorize the execution of an escrow agreement and provide for the deposit of proceeds of the refunding bonds, together with other funds, to pay the Refunded Bonds; and WHEREAS, upon the issuance of the refunding bonds herein authorized and the deposit of funds referred to above, the Refunded Bonds shall no longer be regarded as being outstanding, except for the purpose of being paid pursuant to such deposit, and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the ordinances authorizing the issuance of the - Refunded Bonds shall be, with respect to the Refunded Bonds, discharged, terminated and defeased; Now, Therefore a BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND: 1. Recitals; Consideration. It is hereby found and - determined that the matters and facts set out in the preamble to this Ordinance are true and correct. It is hereby found and determined that the transactions contemplated in this Ordinance will result in a present value savings in the debt service payable by the City, and that such benefit is sufficient consideration for the refunding of the Refunded Bonds. 2 . Definitions. Throughout this Ordinance the following - terms and expressions as used herein shall have the meanings set forth below: The term "Act" shall mean Article 717k, Vernon's Texas Civil Statutes, as amended. The term "Bonds" shall mean the $6, 510, 000 City of Pearland, Texas, Refunding Bonds, Series 1993, authorized in this Ordinance, unless the context clearly indicates otherwise. The term "Business Day" shall mean any day which is not a Saturday, Sunday, or a day on which the Registrar is authorized by law or executive order to close, or a legal holiday. The term "City" shall mean the City of Pearland, Texas. The term "Code" shall mean the Internal Revenue Code of 1986, - as amended. The term "Comptroller" shall mean the Comptroller of Public Accounts of the State of Texas. - The term "Escrow Agent" shall mean Texas Commerce Bank National Association, Houston, Texas. The term "Escrow Agreement" shall mean the agreement between the City and the Escrow Agent relating to the escrow of funds to pay the Refunded Bonds. The term "Interest and Sinking Fund" shall mean the interest and sinking fund for payment of the Bonds established by the City _ in Section 19 of this Ordinance. -2- The term "Interest Payment Date", when used in connection with any Bond, shall mean September 1, 1993, and each March 1 and September 1 thereafter until maturity. The term "Ordinance" as used herein and in the Bonds shall mean this ordinance authorizing the Bonds. The term "Owner" shall mean any person who shall be the registered owner of any outstanding Bond. The term "Paying Agent" shall mean the Registrar. The term "Record Date" shall mean the close of business on the fifteenth calendar day of the month next preceding each Interest Payment Date. The term "Refunded Bonds" shall mean the City's Permanent Improvement Bonds, Series 1978, in the aggregate principal amount of $900, 000, maturing on March 1 in the years 1994 through 1997, both inclusive, the outstanding bonds of the City's Refunding Bonds, Series 1985, in the aggregate principal amount of $800,000, maturing on March 1 in the year 1996 and in the years 1998 through 2001, both inclusive, the City's Public Improvement Bonds, Series 1986, in the aggregate principal amount of $2, 850, 000, maturing on March 1 in each of the years 1998 through 2003, both inclusive, the City's Public Improvement Bonds, Series 1988, in the aggregate principal amount of $1, 250, 000, maturing on March 1 in each of the years 1999 through 2003 , both inclusive. The term "Register" shall mean the books of registration kept by the Registrar, in which are maintained the names and addresses of, and the principal amounts of the Bonds registered to, each Owner. The term "Registrar" shall mean Ameritrust Texas, National Association, Houston, Texas, and its successors in that capacity. The term "Report" shall mean the report of KPMG Peat Marwick, Certified Public Accountants, verifying the accuracy of certain mathematical computations relating to the Bonds and the Refunded Bonds. The term "Underwriters" shall mean Masterson Moreland Sauer Whisman, Inc. and Coastal Securities Ltd. 3. Authorization. The Bonds shall be issued, pursuant to the Act, in fully registered form in the principal amount of Six Million Five Hundred Ten Thousand Dollars ($6, 510, 000) for the purpose of refunding the Refunded Bonds. -3- r - 4. Designation, Date, and Interest Payment Dates. The Bonds shall be designated as "CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993" and shall be dated May 1, 1993. The Bonds shall bear interest at the rates set forth in Section 5 of this Ordinance from the later of May 1, 1993, or the most recent Interest Payment Date to which such interest has been paid or duly provided for, calculated on the basis of a 360 day year of twelve 30 day months, interest payable on September 1, 1993, and semiannually thereafter on March 1 and September 1 of each year until maturity. 5. Initial Bonds; Numbers and Denominations. The Bonds 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 Bonds shall mature on the dates and in the amounts set out in such schedule. Bonds delivered on transfer of or in exchange for other Bonds shall be numbered in order of their authentication by the Registrar, shall be in the denomination of $5, 000 or integral multiples thereof, and shall mature on the same IP date and bear interest at the same rate as the Bond or Bonds in lieu of which they are delivered. Principal Interest Number Date Amount Rate R- 1 September 1, 1993 $ 115,000 2 . 65% R- 2 March 1, 1994 95,000 3 . 00% R- 3 March 1, 1995 320,000 3 .20% R- 4 March 1, 1996 465,000 3 .50% R- 5 March 1, 1997 365,000 3 . 80% R- 6 March 1, 1998 655, 000 4 . 00% R- 7 March 1, 1999 950, 000 4 . 10% R- 8 March 1, 2000 990, 000 4 . 25% R- 9 March 1, 2001 1, 030, 000 4 .40% R-10 March 1, 2002 770,000 4 . 50% R-11 March 1, 2003 755, 000 4 . 625% 6. Execution of Bonds; Seal. The Bonds shall be signed by the Mayor and countersigned by the City Secretary, by their manual, lithographed, or facsimile signatures, and the official seal of the I' City shall be impressed or placed in facsimile thereon. Such facsimile signatures on the Bonds shall have the same effect as if each of the Bonds had been signed manually and in person by each of said officers, and such facsimile seal on the Bonds shall have the same effect as if the official seal of the City had been manually impressed upon each of the Bonds. If any officer of the City whose manual or facsimile signature shall appear on the Bonds shall cease to be such officer before the authentication of such Bonds or before the delivery of such Bonds, such manual or P' .. -4- facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. 7. Approval by Attorney General; Registration by Comptroller. The Bonds to be initially issued shall be delivered to the Attorney General of Texas for approval and shall be registered by the Comptroller. The manually executed registration certificate of the Comptroller substantially in the form provided in Section 17 of this Ordinance shall be attached or affixed to the Bonds to be initially issued. 8. Authentication. Except for the Bonds to be initially issued, which need not be authenticated by the Registrar, only such Bonds which bear thereon a certificate of authentication, substantially in the form provided in Section 17 of this Ordinance, manually executed by an authorized representative of the 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 Bonds so authenticated were delivered by the Registrar hereunder. 9. Payment of Principal and Interest. The Registrar is hereby appointed as the paying agent and registrar for the Bonds. The principal of the Bonds shall be payable, without exchange or collection charges, in any coin or currency of the United States of America which on the date of payment is legal tender for the payment of debts due the United States of America, upon their presentation and surrender as they respectively become due and payable, at the principal corporate trust office of the Registrar. The interest on each Bond shall be payable on each Interest Payment Date, by check mailed by the Registrar on or before the Interest Payment Date to the Owner of record as of the Record Date, to the address of such Owner as shown on the Register. If the date for payment of the principal of or interest on any Bond is not a Business Day, then the date for such payment shall be the next succeeding Business Day with the same force and effect as if made on the date payment was originally due. 10. Successor Registrars. The City covenants that at all times while any Bonds are outstanding it will provide a national or state banking corporation organized and doing business under the laws of the United States or any State, with trust powers and subject to supervision or examination by Federal or State authority to act as Registrar for the Bonds. The City reserves the right to change the Registrar for the Bonds on not less than 60 days written notice to the Registrar, so long as any such notice is effective not less than 60 days prior to the next succeeding principal or interest payment date on the Bonds. Promptly upon the appointment of any successor Registrar, the previous Registrar shall deliver -5- the Register or copies thereof to the new Registrar, and the new Registrar shall notify each Owner, by United States mail, first class postage prepaid, of such change and of the address of the new Registrar. Each Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Section. 11. Special Record Date. If interest on any Bond is not paid on any Interest Payment Date and continues unpaid for thirty (30) days thereafter, the Registrar shall establish a new record date for the payment of such interest, to be known as a Special Record Date. The Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each affected Owner of record as of the close of business on the day prior to the mailing of such notice. 12 . Ownership; Unclaimed Principal and Interest. The City, the Registrar and any other person may treat the person in whose name any Bond is registered as the absolute owner of such Bond for the purpose of making and receiving payment of the principal of or interest on such Bond, and for all other purposes, whether or not such Bond is overdue, and neither the City nor the Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Bond in accordance with this Section 12 shall be valid and effectual and shall discharge the liability of the City and the Registrar upon such Bond to the extent of the sums paid. Amounts held by the Registrar which represent principal of and interest on the Bonds remaining unclaimed by the Owner after the expiration of three years from the date such amounts have become due and payable shall be reported and disposed of by the Registrar in accordance with the applicable provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. 13 . Registration, Transfer, and Exchange. So long as any Bonds remain outstanding, the Registrar shall keep the Register at its principal corporate trust office and, subject to such reasonable regulations as it may prescribe, the Registrar shall provide for the registration and transfer of Bonds in accordance with the terms of this Ordinance. Each Bond shall be transferable only upon the presentation and surrender thereof at the principal corporate trust office of the Registrar, duly endorsed for transfer, or accompanied by an -6- assignment duly executed by the registered Owner or his authorized representative in form satisfactory to the Registrar. Upon due presentation of any Bond for transfer, the Registrar shall authenticate and deliver in exchange therefor, within three Business Days after such presentation, a new Bond or Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount and bearing interest at the same rate as the Bond or Bonds so presented. All Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Registrar for a Bond or Bonds of the same maturity and interest rate and in any authorized denomination, in an aggregate amount equal to the unpaid principal amount of the Bond or Bonds presented for exchange. The Registrar shall be and is hereby authorized to authenticate and deliver exchange Bonds in accordance with the provisions of this Section 13 . Each Bond delivered in accordance with this Section 13 shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such Bond is delivered. The City or the Registrar may require the Owner of any Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange of such Bond. Any fee or charge of the Registrar for such transfer or exchange shall be paid by the City. 14 . Mutilated, Lost, or Stolen Bonds. Upon the presentation and surrender to the Registrar of a mutilated Bond, the Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. If any Bond is lost, apparently destroyed, or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Bond has been acquired by a bona fide purchaser, shall authorize and the Registrar shall authenticate and deliver a replacement Bond of like maturity, interest rate and principal amount, bearing a number not contemporaneously outstanding. The City or the Registrar may require the Owner of a mutilated Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Registrar. The City or the Registrar may require the Owner of a lost, apparently destroyed or wrongfully taken Bond, before any replacement Bond is issued, to: \ -• _ r r (1) furnish to the City and the Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Bond; (2) furnish such security or indemnity as may be required by the Registrar and the City to save them harmless; (3) pay all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Registrar and any tax or other governmental charge that may be imposed; and (4) meet any other reasonable requirements of the City and the Registrar. If, after the delivery of such replacement Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Bond, the City and the Registrar shall be entitled to recover such replacement Bond from the person to whom it was delivered or any person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the City or the Registrar in connection therewith. If any such mutilated, lost, apparently destroyed or wrongfully taken Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Bond, authorize the Registrar to pay such Bond. Each replacement Bond delivered in accordance with this Section 14 shall be entitled to the benefits and security of this Ordinance to the same extent as the Bond or Bonds in lieu of which such replacement Bond is delivered. IPA 15. Cancellation of Bonds. All Bonds paid in accordance with this Ordinance, and all Bonds in lieu of which exchange Bonds or replacement Bonds are authenticated and delivered in accordance herewith, shall be cancelled and destroyed upon the making of proper records regarding such payment. The Registrar shall furnish the City with appropriate certificates of destruction of such Bonds. 16. Optional Redemption. The Bonds are not subject to redemption prior to maturity. 17. Forms. The form of the Bonds, including the form of the Registrar's Authentication Certificate, the form of Assignment, r -8- the form of bond insurance legend, and the form of Registration Certificate of the Comptroller, which shall be attached or affixed to the Bonds initially issued, shall be, respectively, substantially as follows, with such additions, deletions and variations as may be necessary or desirable and not prohibited by this Ordinance: FORM OF BONDS United States of America State of Texas NUMBER DENOMINATION R- $ REGISTERED REGISTERED CITY OF PEARLAND, TEXAS REFUNDING BOND SERIES 1993 INTEREST RATE: MATURITY DATE: ISSUE DATE: CUSIP: May 1, 1993 REGISTERED OWNER: PRINCIPAL AMOUNT: DOLLARS The City of Pearland, Texas (the "City") promises to pay to the registered owner identified above, or registered assigns, on the date specified above, upon presentation and surrender of this Bond at the principal corporate trust office of Ameritrust Texas, National Association, Houston, Texas (the "Registrar") , the principal amount identified above, payable in any coin or currency of the United States of America which on the date of payment is legal tender for the payment of debts due the United States of America, and to pay interest thereon at the rate shown above, calculated on the basis of a 360 day year of twelve 30 day months, from the later of May 1, 1993, or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Bond is payable by check on September 1 and March 1, beginning on September 1, 1993, mailed to the registered -• owner of record as of the fifteenth calendar day of the month next preceding each interest payment date. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF, WHICH PROVISIONS SHALL HAVE THE SAME FORCE AND EFFECT AS IF SET FORTH AT THIS PLACE. a -9- IN WITNESS WHEREOF, this Bond has been signed with the manual or facsimile signature of the Mayor and countersigned with the manual or facsimile signature of the City Secretary, and the official seal of the City has been duly impressed, or placed in facsimile, on this Bond. (AUTHENTICATION CERTIFICATE) (SEAL) CITY OF PEARLAND, TEXAS r Mayor City Secretary (Back Panel of Bond) Aft THIS BOND is one of a duly authorized issue of Bonds, aggregating $6, 510, 000 (the "Bonds") , issued for the purpose of refunding a portion of the City's outstanding bonds, pursuant to an ordinance adopted by the City Council on April 8, 1993 (the "Ordinance") . P' THIS BOND IS TRANSFERABLE only upon presentation and surrender at the principal corporate trust office of the Registrar, duly endorsed for transfer or accompanied by an assignment duly executed BO by the registered owner or his authorized representative, subject to the terms and conditions of the Ordinance. THE BONDS ARE EXCHANGEABLE at the principal corporate trust office of the Registrar for Bonds in the principal amount of $5, 000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is either (i) registered by the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto or (ii) authenticated by the Registrar by due execution of the authentication certificate endorsed hereon. THE REGISTERED OWNER of this Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. THE CITY has covenanted in the Ordinance that it will at all times provide a legally qualified registrar for the Bonds and will cause notice of any change of registrar to be mailed to each registered owner. -10- a IT IS HEREBY certified, recited and covenanted that this Bond has been duly and validly issued and delivered; that all acts, conditions and things required or proper to be performed, to exist and to be done precedent to or in the issuance and delivery of this Bond have been performed, exist and have been done in accordance with law; and that annual ad valorem taxes, within the limits prescribed by law, sufficient to provide for the payment of the interest on and principal of this Bond, as such interest comes due and such principal matures, have been levied and ordered to be levied against all taxable property in the City, and have been pledged irrevocably for such payment. Form of Registration Certificate of Comptroller of Public Accounts COMPTROLLER'S REGISTRATION CERTIFICATE: REGISTER NO. I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas. WITNESS MY SIGNATURE AND SEAL this xxxxxxxxxx Comptroller of Public Accounts of the State of Texas (SEAL) Form of Registrar's Authentication Certificate AUTHENTICATION CERTIFICATE It is hereby certified that this Bond has been delivered pursuant to the Bond Ordinance described in the text of this Bond. Ameritrust Texas, National Association By Authorized Signature Date of Authentication a Form of Assignment ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto -11- P, (Please print or type name, address, and zip code of Transferee) 1r (Please insert Social Security or Taxpayer Identification Number of Transferee) the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints attorney to transfer said Bond on the books kept for registration thereof, with full power of substitution in the premises. DATED: Signature Guaranteed: Registered Owner NOTICE: The signature above must correspond to the name of the registered owner as shown NOTICE: Signature must be on the face of this Bond in guaranteed by a member firm every particular, without any of the New York Stock alteration, enlargement or Exchange or a commercial change whatsoever. bank or trust company. Form of Statement of Insurance Financial Guaranty Insurance Company ("Financial Guaranty") .• has issued a policy containing the following provisions with respect to the City of Pearland, Texas, Refunding Bonds, Series 1993 (the "Bonds") , such policy being on file at the principal office of the Paying Agent, as paying agent (the "Paying Agent") : Pa Ameritrust Texas, National Association Houston, Texas p Financial Guaranty hereby unconditionally and irrevocably agrees to pay for disbursement to the Bondholders that portion of .• the principal of and interest on the Bonds which is then due for payment and which the issuer of the Bonds (the "Issuer") shall have failed to provide. Due for payment means, with respect to the principal, the stated maturity date thereof, or the date on which the same shall have been duly called for mandatory sinking fund redemption, but not any earlier date on which the payment of principal of and interest on the Bonds is due by reason of �r acceleration, and with respect to interest, the stated date for payment of such interest. Upon receipt of telephonic or telegraphic notice, subsequently confirmed in writing, or written notice by registered or certified mail, from a Bondholder or the Paying Agent to Financial Guaranty that a the required payment of principal or interest has not been t -12- made by the Issuer to the Paying Agent, Financial Guaranty on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will made a deposit of funds, in an account with Citibank, N.A. , or its successor as its agent (the "Fiscal Agent") , sufficient to make the portion of such payment not paid by the Issuer. Upon presentation to the Fiscal Agent of evidence satisfactory to it of the Bondholder's right to receive such payment and any appropriate instruments of assignment required to vest all of such Bondholder's right to such payment in Financial Guaranty, the Fiscal Agent will disburse such amount to the Bondholder. As used herein the term "Bondholder" means the person other than the Issuer who at the time of nonpayment of a Bond is entitled under the terms of such Bond to payment thereof. The policy is non-cancellable for any reason. FINANCIAL GUARANTY INSURANCE COMPANY 18. Legal Opinion; Cusip Numbers; Bond Insurance. The approving opinion of Vinson & Elkins L.L.P. , Houston, Texas, and CUSIP Numbers may be printed on the Bonds, but errors or omissions in the printing of such opinion or such numbers shall have no effect on the validity of the Bonds. The purchase of and payment of the premium for municipal bond insurance by the City is hereby authorized. All officials and representatives of the City are authorized and directed to execute such documents and to do any and all things necessary or desirable to obtain such insurance, and the printing on the Bonds of an appropriate legend regarding such insurance is hereby approved. 19. Interest and Sinking Fund; Tax Levy. There is hereby established a separate fund of the City to be known as the City of Pearland, Texas, Refunding Bonds, Series 1993 Interest and Sinking Fund (the "Interest and Sinking Fund") , which shall be kept separate and apart from all other funds of the City. The proceeds from all taxes levied, assessed and collected for and on account of the Bonds authorized by this Ordinance shall be deposited, as collected, in the Interest and Sinking Fund. While the Bonds or any part of the principal thereof or interest thereon remain outstanding and unpaid, there is hereby levied and there shall be annually assessed and collected in due time, form and manner, and at the same time as other City taxes are assessed, levied and collected, in each year, beginning with the current year, a continuing direct annual ad valorem tax, within the limits prescribed by law, upon all taxable property in the City, sufficient to pay the current interest on the Bonds as the same becomes due and to provide and maintain a sinking fund of not less -13- a than two percent of the principal amount of the Bonds or the amount required to pay each installment of principal of the Bonds as the same matures, whichever is greater, full allowance being made for delinquencies and costs of collection, and said taxes are hereby irrevocably pledged to the payment of the interest on and principal of the Bonds and to no other purpose. To pay the debt service coming due on the Bonds prior to receipt of the taxes levied to pay such debt service, there is hereby appropriated from current funds on hand, which are hereby certified to be on hand and available for such purpose, an amount sufficient to pay such debt service, and such amount shall be used for no other purpose. 20. Further Proceedings. After the Bonds to be initially issued have been executed, it shall be the duty of the Mayor and other appropriate officials and agents of the City to deliver the Bonds to be initially issued and all pertinent records and proceedings to the Attorney General of the State of Texas, for examination and approval. After the Bonds to be initially issued have been approved by the Attorney General, they shall be delivered to the Comptroller for registration. Upon registration of the Bonds to be initially issued, the Comptroller (or the Comptroller's bond clerk or an assistant bond clerk lawfully designated in writing to act for the Comptroller) shall manually sign the Comptroller's Registration Certificate prescribed herein and the seal of said Comptroller shall be impressed, or placed in facsimile, thereon. 21. Sale; Bond Purchase Agreement. The Bonds are hereby sold and shall be delivered to the Underwriters at a price of $6,418,537.95 plus accrued interest to the date of delivery, in accordance with the terms of a bond purchase agreement of even date herewith, presented to and hereby approved by the City Council, which price and terms are hereby found and determined to be the most advantageous reasonably obtainable by the City. The Mayor and other appropriate officials of the City are hereby authorized and directed to execute such bond purchase agreement on behalf of the City, and the Mayor and all other officers, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to satisfy the conditions set out therein and to provide for the issuance and delivery of the Bonds. 22. Tax Exemption. (a) General Tax Covenant. The City intends that the interest on the Bonds shall be excludable from gross income for purposes of federal income taxation pursuant to sections 103 and 141 through 150 of the Code, and applicable regulations. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the -14- a Bonds to be includable in gross income, as defined in section 61 of the Code, of the Owners thereof for purposes of federal income taxation. In particular, the City covenants and agrees to comply with each requirement of this Section 22 ; provided, however, that the City shall not be required to comply with any particular requirement of this Section 22 if the City has received an opinion of nationally recognized bond counsel ("Counsel 's Opinion") that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the City has received a Counsel 's Opinion to the effect that compliance with some other requirement set forth in this Section 22 will satisfy the applicable requirements of the Code, in which case compliance with such other requirement specified in such Counsel 's Opinion shall constitute compliance with the corresponding requirement specified in this Section 22. (b) Use of Proceeds. The City covenants and agrees that its use of the Net Proceeds of the Bonds and the Refunded Bonds will at all times satisfy the following requirements: (i) The City will use all of the Net Proceeds of the Bonds to (A) acquire Escrowed Securities (as hereinafter defined) sufficient to pay the principal of and interest on the Refunded Bonds, and (B) to pay the costs of issuing the Bonds, except for amounts, if any, described in the Report as the rounding amount and the ending cash balance in the Escrow Fund (as hereinafter defined) . The City has limited and will limit the amount of original or investment proceeds of each issue of the Refunded Bonds to be used (other than use as a member of the general public) in the trade or business of any person other than a governmental unit to an amount aggregating no more than ten percent of the Net Proceeds of such issue of the Refunded Bonds ("private-use proceeds") . For purposes of this Section, the term "person" includes any individual, corporation, partnership, unincorporated association, or any other entity capable of carrying on a trade or business; and the term "trade or business" means, with respect to any natural person, any activity regularly carried on for profit and, with respect to persons other than natural persons, any activity other than an activity carried on by a governmental unit. Any use of proceeds of the Refunded Bonds or the Bonds in any manner contrary to the guidelines set forth in Revenue Procedure -15- a 93-19, including any revisions or amendments thereto, shall constitute the use of such proceeds in the trade or business of one who is not a governmental unit; (ii) The City has not permitted and will not permit more than five percent of the Net Proceeds of any issue of the Refunded Bonds to be used in the trade or business of any person other than a governmental unit if such use is unrelated to the governmental purpose of such issue of Refunded Bonds. Further, the amount of private-use proceeds of any issue of the Refunded Bonds in excess of five percent of the Net Proceeds of such issue of Refunded Bonds ("excess private-use proceeds") did not and will not exceed the proceeds of such issue of Refunded Bonds expended for the governmental purpose of such issue of Refunded Bonds to which such excess private-use proceeds relate; (iii) The City has not permitted and will not permit an amount of proceeds of any issue of the Refunded Bonds exceeding the lesser of (a) $5, 000, 000 or (b) five percent of the Net Proceeds of such issue of Refunded Bonds to be used, directly or indirectly, to finance loans to persons other than governmental units. When used in this Section 22 , the term Net Proceeds of the Bonds and the Refunded Bonds shall mean the proceeds from the sale of each issue of the Bonds and the Refunded Bonds, respectively, including investment earnings on the proceeds of such issue, less accrued interest with respect to such issue. (c) No Federal Guaranty. The City covenants and agrees not to take any action, or knowingly omit to take any action within its control, that, if taken or omitted, respectively, would cause the Bonds to be "federally guaranteed" within the meaning of section 149 (b) of the Code and applicable regulations thereunder, except as permitted by section 149 (b) (3) of the Code and such regulations. (d) Bonds are not Hedge Bonds. The City represents that not more than 50 percent of the proceeds of any issue of the Refunded Bonds was invested in nonpurpose investments (as defined in section 148 (f) (6) (A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of section 149 (g) (3) (A) (ii) of the Code, and the City reasonably expected at the time the Refunded Bonds were issued that at least 85 percent -16- of the spendable proceeds of each issue of the Refunded Bonds would be used to carry out the governmental purposes of such Refunded Bonds within the corresponding three-year period beginning on the respective dates of such Refunded Bonds. (e) No-Arbitrage Covenant. The City shall certify, through an authorized officer, employee or agent, that based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, the City will reasonably expect that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of section 148 (a) of the Code and applicable regulations thereunder. Moreover, the City covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from Bond proceeds, regulate investments of proceeds of the Bonds, and take such other and further action as may be required so that the Bonds will not be "arbitrage bonds" within the meaning of section 148 (a) of the Code and applicable regulations thereunder. (f) Arbitrage Rebate. The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of section 148 (f) (6) (B) of the Code) , be rebated to the federal government. Specifically, the City will (i) maintain records regarding the investment of the gross proceeds of the Bonds as may be required to calculate the amount earned on the investment of the gross proceeds of the Bonds separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City, (ii) calculate at such times as are required by applicable regulations, the amount earned from the investment of the gross proceeds of the Bonds which is required to be rebated to the federal government, and (iii) pay, not less often than every fifth anniversary date of the delivery of the Bonds or on such other dates as may be permitted by applicable regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or larger loss than would have resulted if the arrangement had been at arm's length and had the yield on the issue not been relevant to either party. (g) Information Reporting. The City covenants and agrees to file or cause to be filed with the Secretary of the Treasury, not later than the 15th day of the second calendar month after the -17- close of the calendar quarter in which the Bonds are issued, an information statement concerning the Bonds, all under and in accordance with section 149 (e) of the Code and applicable regulations thereunder. 23 . Qualified Tax-Exempt Obligations. The City hereby designates the Bonds as "qualified tax-exempt obligations" for purposes of section 265(b) of the Code. In connection therewith, the City represents (a) that the aggregate amount of tax-exempt obligations issued by the City during calendar year 1993, including the Bonds, which have been designated as "qualified tax-exempt obligations" under section 265 (b) (3) of the Code does not exceed $10, 000, 000, and (b) that the reasonably anticipated amount of tax-exempt obligations which will be issued by the City during calendar year 1993, including the Bonds, will not exceed $10, 000, 000. For purposes of this Section 23 , the term "tax-exempt obligation" does not include "private activity bonds" within the meaning of section 141 of the Code, other than "qualified 501(c) (3) bonds" within the meaning of section 145 of the Code. In addition, for purposes of this Section 23, the City includes all governmental units which are aggregated with the City under the Code. 24. Use of Proceeds. Proceeds from the sale of the Bonds shall, promptly upon receipt by the City, be applied as follows: (a) Accrued interest shall be deposited into the Interest and Sinking Fund and invested in direct obligations of the United States of America. (b) The balance of the proceeds from the sale of the Bonds shall be applied, together with other lawfully available funds of the City, to establish an escrow fund to refund the Refunded Bonds, as more fully provided below, and, to the extent not otherwise provided for, to pay all expenses arising in connection with the issuance of the Bonds, the establishment of such escrow fund and the refunding of the Refunded Bonds. Any proceeds of the Bonds remaining after making all such deposits and payments shall be deposited into the Interest and Sinking Fund and constitute a reserve in such fund. 25. Escrow Agreement. The discharge and defeasance of the Refunded Bonds shall be effectuated pursuant to the terms and provisions of an Escrow Agreement to be entered into by and between the City and Texas Commerce Bank National Association, Houston, Texas, as Escrow Agent, which shall be substantially in the form attached hereto as Exhibit A, the terms and provisions of which are hereby approved, subject to such insertions, additions and modifications as shall be necessary (a) to carry out the program -18- a designed for the City by the Underwriters, which shall be certified as to mathematical accuracy by KPMG Peat Marwick, Certified Public Accountants, whose Report shall be attached to the Escrow Agreement (b) to maximize the City's present value savings and/or to minimize the City's costs of refunding, (c) to comply with all applicable laws and regulations relating to the refunding of the Refunded Bonds and (d) to carry out the other intents and purposes of this Ordinance, and the Mayor or Mayor Pro Tem is hereby authorized to execute and deliver such Escrow Agreement on behalf of the City in multiple counterparts and the City Secretary or an Assistant City Secretary is hereby authorized to attest thereto and affix the City's seal. 26. Redemption of Refunded Bonds. The City hereby irrevocably calls the following Refunded Bonds for redemption prior to maturity on the dates set forth below, at a price of par plus accrued interest to the dates fixed for redemption, and authorizes and directs notice of such redemption to be given in accordance with the ordinances authorizing the issuance of such bonds: Bonds to be Redeemed Redemption Date Permanent Improvement Bonds, Series 1978 Maturities 1994 through 1997 September 1, 1993 .. Refunding Bonds, Series 1985 Maturity 1996 and Maturities 1998 through 2001 March 1, 1995 Public Improvement Bonds, Series 1986 Maturities 1998 through 2003 March 1, 1997 Public Improvement Bonds, Series 1988 Maturities 1999 through 2003 March 1, 1998 27. Purchase of United States Treasury Obligations. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Mayor or Mayor Pro Tem, the Director of Finance, and the Escrow Agent are hereby authorized to subscribe for, agree to purchase, and purchase non-callable obligations of the United States of America, in such amounts and maturities and bearing interest at such rates as may be provided for in the Report, and to execute any and all subscriptions, purchase agreements, commitments, letters of authorization and other documents necessary to effectuate the foregoing, and any actions heretofore taken for such purpose are hereby ratified and approved. -19- IP - 28. Related Matters. To satisfy in a timely manner all of the City's obligations under this Ordinance, the bond purchase agreement, and the Escrow Agreement, the Mayor or Mayor Pro Tem, the Director of Finance, the City Secretary or an Assistant City Secretary, and all other appropriate officers and agents of the City are hereby authorized and directed to take all other actions 116. that are reasonably necessary to provide for the refunding of the Refunded Bonds, including, without limitation, executing and delivering on behalf of the City all certificates, consents, receipts, requests, and other documents as may be reasonably necessary to satisfy the City's obligations under the Escrow Agreement, the bond purchase agreement, and this Ordinance and to direct the application of funds of the City consistent with the r provisions of such Escrow Agreement and this Ordinance. 29. Registrar. The form of agreement setting forth the duties of the Registrar is hereby approved, and the appropriate officials of the City are hereby authorized to execute such agreement for and on behalf of the City. r 30. Official Statement. The City Council ratifies and confirms its prior approval of the form and content of the Preliminary Official Statement prepared in the initial offering and sale of the Bonds and hereby authorizes the preparation of a final Official Statement reflecting the terms of the bond purchase agreement with the Underwriters and other relevant matters. The use of such Official Statement in the reoffering of the Bonds by the Underwriters is hereby approved and authorized. The proper officials of the City are hereby authorized to execute and deliver a certificate pertaining to such Official Statement as prescribed therein, dated as of the date of payment for and delivery of the Bonds. 31. No Personal Liability. No recourse shall be had for payment of the principal of or interest on any Bonds or for any claim based thereon, or on this Ordinance, against any official or employee of the City or any person executing any Bonds. 32. Open Meeting. It is hereby officially found and determined that the meeting at which this Ordinance was adopted was open to the public, and that public notice of the time, place and purpose of said meeting was given, all as required by Article 6252-17, Vernon's Texas Civil Statutes, as amended. 33. Effective Date. This Ordinance shall become effective immediately upon passage by this City Council and signature of the Mayor. 34. Emergency. It is hereby officially found and determined that this Ordinance relates to an immediate public emergency -20- 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 Bonds are required as soon as possible to reduce the City's debt service requirements, and that this Ordinance be passed and approved on the date of its introduction. PASSED AND APPROVED on first reading pursuant to Section 3 . 10 of the City Charter this 8th day of April, 1993 . /s/ C. V. Coppinger Mayor CITY OF PEARLAND, TEXAS ATTEST: /s/ Pat Jones_ City Secretary CITY OF PEARLAND, TEXAS (SEAL) - -21- EXHIBIT A ESCROW AGREEMENT THIS ESCROW AGREEMENT (the "Escrow Agreement") dated for convenience April 8, 1993, but effective on the Escrow Funding Date described herein, is made and entered into by and between the City of Pearland, Texas, an incorporated city of the State of Texas (the "City") , and Texas Commerce Bank National Association, Houston, Texas, as escrow agent (together with any successor or assign in such capacity, the "Escrow Agent") WHEREAS, the City has heretofore issued and there remain outstanding the City's Permanent Improvement Bonds, Series 1978, dated September 1, 1978, the City's Refunding Bonds, Series 1985, dated August 15, 1985, the City's Public Improvement Bonds, Series 1986, dated April 1, 1986, and the City's Public Improvement Bonds, Series 1988, dated May 1, 1988 (the "Outstanding Bonds") ; and WHEREAS, the City desires to refund in advance of maturity a portion of such Outstanding Bonds in the aggregate principal amount of $5, 800, 000 (the "Refunded Bonds") ; and WHEREAS, Article 717k, Vernon's Texas Civil Statutes, as amended, authorizes and empowers the City to deposit the proceeds of refunding bonds payable from ad valorem taxes of the City, together with other available funds or resources, with any place of payment for the Refunded Bonds in an amount which is sufficient to provide for the payment or redemption of the principal of and interest on the Refunded Bonds; and WHEREAS, the City Council of the City has adopted an ordinance authorizing the issuance of the City's Refunding Bonds, Series 1993, in the aggregate principal amount of $6, 510, 000 (the "Refunding Bonds") , for the purpose of providing the funds necessary to refund the Refunded Bonds, to provide a savings in debt service; and WHEREAS, the City Council of the City has further determined to effectuate the advance refunding of the Refunded Bonds pursuant to this Escrow Agreement, under which provision is made for the safekeeping, investment, reinvestment, administration and disposition of the proceeds of the Refunding Bonds, so as to provide firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are r r hereby acknowledged, and in order to secure the full and timely payment of the principal of and the interest on the Refunded Bonds, the City and the Escrow Agent agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1. 01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, the following terms shall have the respective meanings specified below for all purposes of this Escrow Agreement: "City" shall mean the City of Pearland, Texas, and any successor to its duties and functions. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder and under the Internal Revenue Code of 1954 . "Escrow Agent" shall mean Texas Commerce Bank National Association, Houston, Texas, in its capacity as escrow agent hereunder, and any successor or assign in such capacity. "Escrow Agreement" shall mean this escrow agreement by and between the City and the Escrow Agent. "Escrow Fund" shall mean the fund created in Section 3 .01 of this Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of this Escrow Agreement. "Escrow Funding Date" shall mean the date on which the City deposits with the Escrow Agent the cash and Escrowed Securities r described in Section 2 . 01. "Escrowed Securities" shall mean the United States Treasury Obligations-State and Local Government Series for deposit into the Escrow Fund, purchased with proceeds of the Refunding Bonds and other funds, all as more fully described in the Report. "Paying Agents for the Refunded Bonds" shall mean Texas Commerce Bank National Association, Houston, Texas, successor to First City National Bank of Houston, Houston, Texas, for the Series 1978, Series 1985, and Series 1986 Bonds, and Ameritrust Texas National Association, Houston, Texas (formerly MTrust Corp, National Association, Houston, Texas) for the Series 1988 Bonds. "Refunded Bond Ordinances" shall mean the City's ordinances authorizing the issuance, sale and delivery of the Refunded Bonds. -2- "Refunded Bonds" shall mean the City's Permanent Improvement Bonds, Series 1978, in the aggregate principal amount of $900, 000, maturing on March 1 in the years 1994 through 1997, both inclusive, the outstanding bonds of the City's Refunding Bonds, Series 1985, in the aggregate principal amount of $800, 000, maturing on March 1 in the year 1996 and in each of the years 1998 through 2001, both inclusive, the City's Public Improvement Bonds, Series 1986, in the aggregate principal amount of $2 ,850, 000, maturing on March 1 in each of the years 1998 through 2003, both inclusive, the City's Public Improvement Bonds, Series 1988, in the aggregate principal amount of $1, 250, 000, maturing on March 1 in each of the years 1999 through 2003, both inclusive. "Refunding Bonds" shall mean the City's Refunding Bonds, Series 1993, dated May 1, 1993, in the initial aggregate principal amount of $6, 510, 000. "Refunding Bond Ordinance" shall mean the City's Ordinance adopted April 8, 1993 , authorizing the issuance, sale and delivery of the Refunding Bonds. "Report" shall mean the verification report prepared by KPMG Peat Marwick relating to the advance refunding of the Refunded Bonds, a copy of which is attached hereto as Exhibit A, and any subsequent report required by Section 5. 02. Section 1. 02 . Interpretations. The titles and headings of the articles and sections of this Escrow Agreement have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict the terms hereof. This Escrow Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Bonds in accordance with applicable law. ARTICLE II DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2. 01. Deposits with Escrow Agent; Acquisition of Escrowed Securities. On the Escrow Funding Date the City will deposit, or cause to be deposited, with the Escrow Agent the following: (a) Escrowed Securities in the principal amount of $6, 293 , 000, purchased with proceeds of the Refunding Bonds and other funds; and (b) A beginning cash balance of $6.20. -3- ARTICLE III CREATION AND OPERATION OF ESCROW FUND Section 3 . 01. Escrow Fund. On the Escrow Funding Date the Escrow Agent will create on its books a special fund and irrevocable escrow to be known as the City of Pearland, Texas, Refunding Bonds, Series 1993 Escrow Fund, into which will be deposited the cash and Escrowed Securities described in Section 2 .01. The Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund shall be the property of the Escrow Fund, and shall be applied only in strict conformity with the terms and conditions hereof. The Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund are hereby irrevocably pledged to the payment of the principal of and interest on the Refunded Bonds, which payment shall be made by timely transfers to the Paying Agents for the Refunded Bonds of such amounts at such times as are provided in Section 3 .02 hereof. When the final transfers have been made to the Paying Agents for the Refunded Bonds for the payment of such principal of and interest on the Refunded Bonds, any balance then remaining in the Escrow Fund shall be transferred to the City, and the Escrow Agent shall thereupon be discharged from any further duties hereunder. Section 3 . 02 . Payment of Principal of and Interest on Refunded Bonds. (a) The Escrow Agent is hereby irrevocably instructed to transfer to the Paying Agents for the Refunded Bonds from the cash balance from time to time on deposit in the Escrow Fund the amounts required to pay the principal of and interest on the Refunded Bonds as the same become due and payable, all as provided in the Report. (b) Money transferred to and held by the Paying Agents for the Refunded Bonds in accordance with the provisions hereof shall be held by the Paying Agents for the Refunded Bonds as a separate trust fund for the account of the respective Owners of the Refunded Bonds in connection with which such money is held; provided, however, that money so held remaining unclaimed by the Owners of such Refunded Bonds for three (3) years after the dates on which payment thereon was due, shall be reported and disposed of in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. Section 3 . 03 . Sufficiency of Escrow Fund. The City represents (based solely upon the Report) that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to -4- provide money for transfer to the Paying Agents for the Refunded Bonds at the times and in the amounts required to pay the interest on the Refunded Bonds as such interest comes due and to pay the principal of the Refunded Bonds as the Refunded Bonds mature or are redeemed. If any deficiency results from any error in the calculations set forth in the Report, the City shall transfer to the Escrow Agent for deposit to the Escrow Fund to be held pursuant to this Escrow Agreement an additional amount of cash or securities sufficient to provide for such deficiency. Section 3 .04 . Security of Escrow Fund. The Escrow Agent at all times shall hold the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; it shall hold and dispose of the assets of the Escrow Fund only as set forth herein, and the Escrow Agent shall at all times provide at its expense a surety bond or insurance policy covering theft or defalcation sufficient to protect the City and the Owners of the Refunded Bonds. The Escrowed Securities and other assets of the Escrow Fund always shall be maintained by the Escrow Agent for the benefit of the Owners of the Refunded Bonds; and a special account therefor evidencing such fact shall be maintained at all times on the books of the Escrow Agent. The Owners of the Refunded Bonds shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof and all other assets of the Escrow Fund as are enjoyed by other beneficiaries of similar accounts. The amounts received by the Escrow Agent under this Escrow Agreement shall not be considered as a banking deposit by the City, and the Escrow Agent shall have no right or title with respect thereto except as escrow agent under the terms hereof. The amounts received by the Escrow Agent hereunder shall not be subject to warrants, drafts or checks drawn by the City. Section 3 . 05. Security for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, shall be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. -5- ► - ARTICLE IV REDEMPTION OF CERTAIN REFUNDED BONDS PRIOR TO MATURITY Section 4. 01. Optional Redemption. The City has irrevocably exercised its option to call the following Refunded Bonds of the City for redemption prior to maturity on the dates set forth below, at a price of par plus accrued interest to the dates fixed for redemption, and has authorized and directed notice of such redemption to be given in accordance with the ordinances authorizing the issuance of such bonds: Bonds to be Redeemed Redemption Date Permanent Improvement Bonds, Series 1978 Maturities 1994 through 1997 September 1, 1993 P„ Refunding Bonds, Series 1985 Maturity 1996 and Maturities 1998 through 2001 March 1, 1995 r" Public Improvement Bonds, Series 1986 Maturities 1998 through 2003 March 1, 1997 Public Improvement Bonds, Series 1988 Maturities 1999 through 2003 March 1, 1998 PP ARTICLE V LIMITATION ON INVESTMENTS Section 5.01. General. Except as herein otherwise expressly provided, the Escrow Agent shall not have any power or duty to invest any money held hereunder; or to make substitutions of the Escrowed Securities; or to sell, transfer or otherwise dispose of the Escrowed Securities. Section 5.02 . Substitution of Securities. At the written request of the City, and upon compliance with the conditions hereinafter stated, the Escrow Agent shall sell, transfer, otherwise dispose of or request the redemption of all or any portion of the Escrowed Securities and apply the proceeds therefrom to purchase Refunded Bonds or direct, non-callable obligations of, or direct, non-callable, non-prepayable obligations the principal of and interest on which are unconditionally guaranteed for full and timely payment by, the United States of America and which do r -6- not permit the redemption thereof at the option of the obligor. Any such transaction may be effected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a nationally recognized firm of independent certified public accountants acceptable to the City and the Escrow Agent that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient, when added to the interest to accrue thereon, to provide for the payment of principal and interest on the remaining Refunded Bonds as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the City and the Escrow Agent to the effect that (i) such transaction will not cause any of the Refunding Bonds to be an "arbitrage bond" within the meaning of the Code, and (ii) that such transaction complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Bonds and the Refunding Bonds. ARTICLE VI RECORDS AND REPORTS Section 6. 01. Records. The Escrow Agent shall keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipt, disbursement, allocation and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the City and the owners of the Refunded Bonds. Section 6. 02 . Reports. For the period beginning on the Escrow Funding Date and ending on August 31, 1993, and for each twelve (12) month period thereafter while this Agreement remains in effect, the Escrow Agent shall prepare and send to the City, at the City's request, within thirty (30) days following the end of such period a written report summarizing all transactions relating to the Escrow Fund during such period, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund to the Paying Agents for the Refunded Bonds, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. Section 6. 03 . Notification. The Escrow Agent shall notify the City immediately if at any time during the term of this agreement it determines that the cash and Escrowed Securities in the Escrow Fund are not sufficient to provide for the transfer to -7- the Paying Agents for the Refunded Bonds for timely payment of all interest on and principal of the Refunded Bonds. ARTICLE VII CONCERNING THE ESCROW AGENT Section 7 .01. Representations of Escrow Agent. Texas Commerce Bank National Association hereby represents that it is a Paying Agent for the Refunded Bonds with all necessary power and authority to enter into this Escrow Agreement and undertake the obligations and responsibilities imposed upon it herein, and that it will carry out all of its obligations hereunder. Section 7. 02 . Limitation on Liability. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Escrow Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable except for its own neglect or default, nor for any loss unless the same shall have been through its negligence or want of good faith. The liability of the Escrow Agent to transfer funds to the Paying Agents for the Refunded Bonds for the payments of the principal of and interest on the Refunded Bonds shall be limited to the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, the Escrow Agent shall have no liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligor of the Escrowed Securities to make timely payment thereon, except for its obligation to notify the City promptly of any such occurrence. The recitals herein and in the proceedings authorizing the Refunding Bonds shall be taken as the statements of the City and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Escrow Agreement. The Escrow Agent makes no representation as to the accuracy of the Report, the value, condition or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the City thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall incur no liability or responsibility with respect to any of such matters. -8- In the absence of bad faith, the Escrow Agent may rely conclusively upon the truth, completeness and accuracy of the statements, certificates, opinions, resolutions and other documents conforming to the requirements of this Escrow Agreement, and shall not be obligated to make any independent investigation with respect thereto. It is the intention of the City and the Escrow Agent that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. Unless it is specifically provided otherwise herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the City with respect to arrangements or contracts with others, with the Escrow Agent's sole duty hereunder being to safeguard the Escrow Fund and to dispose of and deliver the same in accordance with this Escrow Agreement. If, however, the Escrow Agent is called upon by the terms of this Escrow Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence. In determining the occurrence of any such event or contingency the Escrow Agent may request from the City or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with the City, among others, at any time. The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith. To the full extent permitted by law, the City agrees to indemnify, defend and hold the Escrow Agent harmless from and against any and all loss, damage, tax, liability and expense that may be incurred by the Escrow Agent arising out of or in connection with its acceptance or appointment as Escrow Agent hereunder, including attorneys fees and expenses of defending itself against any claim or liability in connection with its performance hereunder, except that the Escrow Agent shall not be indemnified -9- for any loss, damage, tax, liability, or expense resulting from its own negligence. Section 7. 03 . Compensation. On the Escrow Funding Date, the City will pay the Escrow Agent, as a fee for performing the services hereunder and for all expenses incurred or to be incurred .� by the Escrow Agent in the administration of this Escrow Agreement the sum of $4, 000.00, and for payment of the paying agency fees of the Paying Agents for the Refunded Bonds, the sum of $8,980.00. This sum does not include the cost of publication, printing costs, r or reasonable out-of-pocket expenses of the Escrow Agent. If the Escrow Agent is requested to perform any extraordinary services hereunder, the City hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services. It is expressly provided that the Escrow Agent shall look only to the City for the payment of such additional fees and reimbursement of such additional expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular, additional or extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. Section 7.04. Successor Escrow Agents. This agreement may be terminated by the City or the Escrow Agent on 60 days written notice, but no such termination shall be effective until a successor Escrow Agent has been appointed and has accepted such appointment. Any successor Escrow Agent appointed by the City shall succeed, without further act, to all the rights, immunities, powers and trusts of the predecessor Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the City shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such immunities, rights, powers and duties. The Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee hereunder equal to the portion of such fee attributable to duties to be performed after the date of succession. ARTICLE VIII MISCELLANEOUS Section 8.01. Notices. Any notice, authorization, request, or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: -10- 111 ' To the Escrow Agent: Texas Commerce Bank National Association P. O. Box 4717 Houston, TX 77210 Attention: Corporate Trust Department, Tax Exempt and Agency Division Refunding Escrow To the City: r City of Pearland Attention: Mayor P. O. Box 2068 Pearland, TX 77588 The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Either party hereto may change the address to which notices are to be delivered by giving to the other party not less than ten days prior notice thereof. Section 8. 02 . Termination of Escrow Agent's Obligations. Upon the taking by the Escrow Agent of all the actions as described r herein, the Escrow Agent shall have no further obligations or responsibilities hereunder to the City, the Owners of the Refunded Bonds or to any other person or persons in connection with this Escrow Agreement. Section 8 .03 . Binding Agreement. This Escrow Agreement shall *, be binding upon the City and the Escrow Agent and their respective successors and legal representatives, and shall inure solely to the benefit of the Owners of the Refunded Bonds, the City, the Escrow Agent and their respective successors and legal representatives. Section 8.04 . Severability. If any one or more of the provisions contained in this Escrow Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Escrow Agreement, but this Escrow r Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Section 8.05. Amendment. Except as provided in this Section, this Escrow Agreement may not be amended without the prior written consent of the Owners of all Refunded Bonds then outstanding. No consent of any Owner shall be required for amendments limited to: ,�. (a) the insertion of unintentionally omitted material or the correction of mistakes or clarification of ambiguities; (b) the pledging of additional security to the refunded bondholders; or (c) the deposit of additional cash or securities to the escrow account. r -11- - Section 8 . 06. Governing Law. This Escrow Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 8. 07 . Time of Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Escrow Agreement. Executed as of April 8, 1993, but effective as set forth herein. - - -12- CITY OF PEARLAND, TEXAS Mayor ATTEST: City Secretary (SEAL) TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Escrow Agent By: Title: ATTEST: By: Title: (SEAL) -13- r 1 1 V ACKNOWLEDGMENT OF NOTICE OF SPECIAL MEETING; WAIVER AND RATIFICATION THE STATE OF TEXAS § COUNTIES OF BRAZORIA § AND HARRIS § I acknowledge that I received timely and sufficient notice of I the special meeting of the City Council of the City of Pearland, Texas, held on the 8th day of April, 1993, at which an ordinance authorizing the issuance of City of Pearland, Texas, Refunding Bonds, Series 1993 ; authorizing the redemption prior to maturity of certain outstanding bonds; authorizing the advance refunding of certain outstanding obligations and the execution and delivery of an escrow agreement and the subscription for and purchase of certain escrowed securities; and declaring that an immediate public emergency exists because the proceeds of such bonds are needed as soon as possible for the protection of life, health, property and the public peace; and I hereby waive any and all defects and irregularities, if any, relating to such notice; and I hereby ratify, adopt and confirm all proceedings had by said City Council at said meeting. WITNESS MY HAND this day of April, 1993. r r - 7 C. V. Cop er r r r r ACKNOWLEDGMENT OF NOTICE OF SPECIAL MEETING; WAIVER AND RATIFICATION THE STATE OF TEXAS § COUNTIES OF BRAZORIA § AND HARRIS § I acknowledge that I received timely and sufficient notice of the special meeting of the City Council of the City of Pearland, Texas, held on the 8th day of April, 1993 , at which an ordinance authorizing the issuance of City of Pearland, Texas, Refunding Bonds, Series 1993 ; authorizing the redemption prior to maturity of certain outstanding bonds; authorizing the advance refunding of certain outstanding obligations and the execution and delivery of an escrow agreement and the subscription for and purchase of certain escrowed securities; and declaring that an immediate public emergency exists because the proceeds of such bonds are needed as soon as possible for the protection of life, health, property and the public peace; and I hereby waive any and all defects and irregularities, if any, relating to such notice; and I hereby ratify, adopt and confirm all proceedings had by said City Council at said meeting. WITNESS MY HAND this ,2 -- day of April, 1993 . OPP (/// D. A. Mille , r ESCROW AGREEMENT THIS ESCROW AGREEMENT (the "Escrow Agreement") dated for convenience April 8 , 1993 , but effective on the Escrow Funding Date described herein, is made and entered into by and between the City of Pearland, Texas, an incorporated city of the State of Texas (the "City" ) , and Texas Commerce Bank National Association, Houston, Texas, as escrow agent (together with any successor or assign in such capacity, the "Escrow Agent") . WHEREAS , the City has heretofore issued and there remain outstanding the City' s Permanent Improvement Bonds, Series 1978 , dated September 1, 1978 , the City' s Refunding Bonds, Series 1985 , dated August 15, 1985 , the City ' s Public Improvement Bonds, Series 1986, dated April 1, 1986, and the City' s Public Improvement Bonds, Series 1988 , dated May 1, 1988 (the "Outstanding Bonds") ; and WHEREAS, the City desires to refund in advance of maturity a portion of such Outstanding Bonds in the aggregate principal amount of $5, 800, 000 (the "Refunded Bonds") ; and WHEREAS , Article 717k, Vernon' s Texas Civil Statutes, as amended, authorizes and empowers the City to deposit the proceeds of refunding bonds payable from ad valorem taxes of the City, together with other available funds or resources, with any place of payment for the Refunded Bonds in an amount which is sufficient to provide for the payment or redemption of the principal of and interest on the Refunded Bonds; and WHEREAS, the City Council of the City has adopted an ordinance authorizing the issuance of the City' s Refunding Bonds, Series 1993 , in the aggregate principal amount of $6, 510, 000 (the "Refunding Bonds") , for the purpose of providing the funds necessary to refund the Refunded Bonds, to provide a savings in debt service; and WHEREAS, the City Council of the City has further determined to effectuate the advance refunding of the Refunded Bonds pursuant to this Escrow Agreement, under which provision is made for the safekeeping, investment, reinvestment, administration and disposition of the proceeds of the Refunding Bonds, so as to provide firm banking and financial arrangements for the discharge and final payment or redemption of the Refunded Bonds; NOW, THEREFORE, in consideration of the mutual undertakings, promises and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to secure the full and timely payment of the principal of and the interest on the Refunded Bonds, the City and the Escrow Agent agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATIONS Section 1 . 01. Definitions. Unless otherwise expressly provided or unless the context clearly requires otherwise, the following terms shall have the respective meanings specified below for all purposes of this Escrow Agreement: "City" shall mean the City of Pearland, Texas, and any successor to its duties and functions. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the applicable regulations thereunder and under the Internal Revenue Code of 1954 . "Escrow Agent" shall mean Texas Commerce Bank National Association, Houston, Texas, in its capacity as escrow agent hereunder, and any successor or assign in such capacity. "Escrow Agreement" shall mean this escrow agreement by and between the City and the Escrow Agent. "Escrow Fund" shall mean the fund created in Section 3 . 01 of this Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of this Escrow Agreement. "Escrow Funding Date" shall mean the date on which the City deposits with the Escrow Agent the cash and Escrowed Securities described in Section 2 . 01. "Escrowed Securities" shall mean the United States Treasury Obligations-State and Local Government Series for deposit into the Escrow Fund, purchased with proceeds of the Refunding Bonds and other funds, all as more fully described in the Report. "Paying Agents for the Refunded Bonds" shall mean Texas Commerce Bank National Association, Houston, Texas, successor to First City National Bank of Houston, Houston, Texas, for the Series 1978 , Series 1985, and Series 1986 Bonds, and Ameritrust Texas National Association, Houston, Texas (formerly MTrust Corp, National Association, Houston, Texas) for the Series 1988 Bonds. "Refunded Bond Ordinances" shall mean the City' s ordinances authorizing the issuance, sale and delivery of the Refunded Bonds. -2- "Refunded Bonds" shall mean the City's Permanent Improvement Bonds, Series 1978, in the aggregate principal amount of $900, 000, maturing on March 1 in the years 1994 through 1997, both inclusive, the outstanding bonds of the City's Refunding Bonds, Series 1985, in the aggregate principal amount of $800, 000, maturing on March 1 in the year 1996 and in each of the years 1998 through 2001, both inclusive, the City's Public Improvement Bonds, Series 1986, in the aggregate principal amount of $2,850, 000, maturing on March 1 in each of the years 1998 through 2003 , both inclusive, the City's .. Public Improvement Bonds, Series 1988, in the aggregate principal amount of $1,250, 000, maturing on March 1 in each of the years 1999 through 2003, both inclusive. "Refunding Bonds" shall mean the City's Refunding Bonds, Series 1993 , dated May 1, 1993, in the initial aggregate principal amount of $6, 510, 000. "Refunding Bond Ordinance" shall mean the City's Ordinance adopted April 8, 1993, authorizing the issuance, sale and delivery of the Refunding Bonds. "Report" shall mean the verification report prepared by KPMG Peat Marwick relating to the advance refunding of the Refunded Bonds, a copy of which is attached hereto as Exhibit A, and any subsequent report required by Section 5. 02 . Section 1. 02 . Interpretations. The titles and headings of the articles and sections of this Escrow Agreement have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict the terms hereof. This Escrow Agreement and all of the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to achieve the intended purpose of providing for the refunding of the Refunded Bonds in accordance with applicable law. ARTICLE II DEPOSIT OF FUNDS AND ESCROWED SECURITIES Section 2 . 01. Deposits with Escrow Agent; Acquisition of Escrowed Securities. On the Escrow Funding Date the City will deposit, or cause to be deposited, with the Escrow Agent the following: (a) Escrowed Securities in the principal amount of $6, 293, 000, purchased with proceeds of the Refunding Bonds and other funds; and (b) A beginning cash balance of $6.20. -3- ARTICLE III CREATION AND OPERATION OF ESCROW FUND Section 3 . 01 . Escrow Fund. On the Escrow Funding Date the Escrow Agent will create on its books a special fund and irrevocable escrow to be known as the City of Pearland, Texas, Refunding Bonds, Series 1993 Escrow Fund, into which will be deposited the cash and Escrowed Securities described in Section 2 . 01. The Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund shall be the property of the Escrow Fund, and shall be applied only in strict conformity with the terms and conditions hereof. The Escrowed Securities, all proceeds therefrom and all cash balances from time to time on deposit in the Escrow Fund are hereby irrevocably pledged to the payment of the principal of and interest on the Refunded Bonds, which payment shall be made by timely transfers to the Paying Agents for the Refunded Bonds of such amounts at such times as are provided in Section 3 . 02 hereof. When the final transfers have been made to the Paying Agents for the Refunded Bonds for the payment of such principal of and interest on the Refunded Bonds, any balance then remaining in the Escrow Fund shall be transferred to the City, and the Escrow Agent shall thereupon be discharged from any further duties hereunder. Section 3 . 02 . Payment of Principal of and Interest on Refunded Bonds. (a) The Escrow Agent is hereby irrevocably instructed to transfer to the Paying Agents for the Refunded Bonds from the cash balance from time to time on deposit in the Escrow Fund the amounts required to pay the principal of and interest on the Refunded Bonds as the same become due and payable, all as provided in the Report. (b) Money transferred to and held by the Paying Agents for the Refunded Bonds in accordance with the provisions hereof shall be held by the Paying Agents for the Refunded Bonds as a separate trust fund for the account of the respective Owners of the Refunded Bonds in connection with which such money is held; provided, however, that money so held remaining unclaimed by the Owners of such Refunded Bonds for three (3) years after the dates on which payment thereon was due, shall be reported and disposed of in accordance with the provisions of Texas law including, to the extent applicable, Title 6 of the Texas Property Code, as amended. Section 3 . 03 . Sufficiency of Escrow Fund. The City represents (based solely upon the Report) that the successive receipts of the principal of and interest on the Escrowed Securities will assure that the cash balance on deposit from time to time in the Escrow Fund will be at all times sufficient to -4- I provide money for transfer to the Paying Agents for the Refunded Bonds at the times and in the amounts required to pay the interest on the Refunded Bonds as such interest comes due and to pay the principal of the Refunded Bonds as the Refunded Bonds mature or are redeemed. If any deficiency results from any error in the calculations set forth in the Report, the City shall transfer to the Escrow Agent for deposit to the Escrow Fund to be held pursuant to this Escrow Agreement an additional amount of cash or securities sufficient to provide for such deficiency. Section 3 . 04 . Security of Escrow Fund. The Escrow Agent at all times shall hold the Escrow Fund, the Escrowed Securities and all other assets of the Escrow Fund wholly segregated from all other funds and securities on deposit with the Escrow Agent; it shall never allow the Escrowed Securities or any other assets of the Escrow Fund to be commingled with any other funds or securities of the Escrow Agent; it shall hold and dispose of the assets of the Escrow Fund only as set forth herein, and the Escrow Agent shall at all times provide at its expense a surety bond or insurance policy covering theft or defalcation sufficient to protect the City and the Owners of the Refunded Bonds. The Escrowed Securities and other assets of the Escrow Fund always shall be maintained by the Escrow Agent for the benefit of the Owners of the Refunded Bonds ; and a special account therefor evidencing such fact shall be maintained at all times on the books of the Escrow Agent. The Owners of the Refunded Bonds shall be entitled to the same preferred claim and first lien upon the Escrowed Securities, the proceeds thereof and all other assets of the Escrow Fund as are enjoyed by other beneficiaries of similar accounts. The amounts received by the Escrow Agent under this Escrow Agreement shall not be considered as a banking deposit by the City, and the Escrow Agent shall have no right or title with respect thereto except as escrow agent under the terms hereof. The amounts received by the Escrow Agent hereunder shall not be subject to warrants, drafts or checks drawn by the City. Section 3 . 05. Security for Cash Balances. Cash balances from time to time on deposit in the Escrow Fund, to the extent not insured by the Federal Deposit Insurance Corporation or its successor, shall be continuously secured by a pledge of direct obligations of, or obligations unconditionally guaranteed by, the United States of America, having a market value at least equal to such cash balances. -5- I TARTICLE IV REDEMPTION OF CERTAIN REFUNDED BONDS PRIOR TO MATURITY Section 4 . 01 . Optional Redemption. The City has irrevocably exercised its option to call the following Refunded Bonds of the City for redemption prior to maturity on the dates set forth below, at a price of par plus accrued interest to the dates fixed for redemption, and has authorized and directed notice of such redemption to be given in accordance with the ordinances authorizing the issuance of such bonds: Bonds to be Redeemed Redemption Date Permanent Improvement Bonds, Series 1978 Maturities 1994 through 1997 September 1, 1993 Refunding Bonds, Series 1985 Maturity 1996 and Maturities 1998 through 2001 March 1, 1995 Public Improvement Bonds, Series 1986 Maturities 1998 through 2003 March 1, 1997 Public Improvement Bonds, Series 1988 Maturities 1999 through 2003 March 1, 1998 ARTICLE V LIMITATION ON INVESTMENTS Section 5 . 01. General . Except as herein otherwise expressly provided, the Escrow Agent shall not have any power or duty to invest any money held hereunder; or to make substitutions of the Escrowed Securities; or to sell , transfer or otherwise dispose of the Escrowed Securities. Section 5. 02 . Substitution of Securities. At the written request of the City, and upon compliance with the conditions hereinafter stated, the Escrow Agent shall sell, transfer, otherwise dispose of or request the redemption of all or any portion of the Escrowed Securities and apply the proceeds therefrom to purchase Refunded Bonds or direct, non-callable obligations of, or direct, non-callable, non-prepayable obligations the principal of and interest on which are unconditionally guaranteed for full and timely payment by, the United States of America and which do -6- not permit the redemption thereof at the option of the obligor. Any such transaction may be effected by the Escrow Agent only if (1) the Escrow Agent shall have received a written opinion from a nationally recognized firm of independent certified public accountants acceptable to the City and the Escrow Agent that such transaction will not cause the amount of money and securities in the Escrow Fund to be reduced below an amount which will be sufficient, when added to the interest to accrue thereon, to provide for the payment of principal and interest on the remaining Refunded Bonds as they become due, and (2) the Escrow Agent shall have received the unqualified written legal opinion of nationally recognized bond counsel or tax counsel acceptable to the City and the Escrow Agent to the effect that (i) such transaction will not cause any of the Refunding Bonds to be an "arbitrage bond" within the meaning of the Code, and (ii) that such transaction complies with the Constitution and laws of the State of Texas and with all relevant documents relating to the issuance of the Refunded Bonds and the Refunding Bonds. ARTICLE VI RECORDS AND REPORTS Section 6 . 01. Records. The Escrow Agent shall keep books of record and account in which complete and correct entries shall be made of all transactions relating to the receipt, disbursement, allocation and application of the money and Escrowed Securities deposited to the Escrow Fund and all proceeds thereof, and such books shall be available for inspection at reasonable hours and under reasonable conditions by the City and the owners of the Refunded Bonds . Section 6 . 02 . Reports. For the period beginning on the Escrow Funding Date and ending on August 31, 1993 , and for each twelve (12) month period thereafter while this Agreement remains in effect, the Escrow Agent shall prepare and send to the City, at the City' s request, within thirty (30) days following the end of such period a written report summarizing all transactions relating to the Escrow Fund during such period, including, without limitation, credits to the Escrow Fund as a result of interest payments on or maturities of the Escrowed Securities and transfers from the Escrow Fund to the Paying Agents for the Refunded Bonds, together with a detailed statement of all Escrowed Securities and the cash balance on deposit in the Escrow Fund as of the end of such period. Section 6 . 03 . Notification. The Escrow Agent shall notify the City immediately if at any time during the term of this agreement it determines that the cash and Escrowed Securities in the Escrow Fund are not sufficient to provide for the transfer to -7- the Paying Agents for the Refunded Bonds for timely payment of all interest on and principal of the Refunded Bonds. ARTICLE VII CONCERNING THE ESCROW AGENT Section 7 . 01 . Representations of Escrow Agent. Texas Commerce Bank National Association hereby represents that it is a Paying Agent for the Refunded Bonds with all necessary power and authority to enter into this Escrow Agreement and undertake the obligations and responsibilities imposed upon it herein, and that it will carry out all of its obligations hereunder. Section 7 . 02 . Limitation on Liability. The Escrow Agent shall not be liable for any action taken or neglected to be taken by it in good faith in the exercise of reasonable care and believed by it to be within the discretion or power conferred upon it by this Escrow Agreement, nor shall the Escrow Agent be responsible for the consequences of any error of judgment; and the Escrow Agent shall not be answerable except for its own neglect or default, nor for any loss unless the same shall have been through its negligence or want of good faith. The liability of the Escrow Agent to transfer funds to the Paying Agents for the Refunded Bonds for the payments of the principal of and interest on the Refunded Bonds shall be limited to the proceeds of the Escrowed Securities and the cash balances from time to time on deposit in the Escrow Fund. Notwithstanding any provision contained herein to the contrary, the Escrow Agent shall have no liability whatsoever for the insufficiency of funds from time to time in the Escrow Fund or any failure of the obligor of the Escrowed Securities to make timely payment thereon, except for its obligation to notify the City promptly of any such occurrence. The recitals herein and in the proceedings authorizing the Refunding Bonds shall be taken as the statements of the City and shall not be considered as made by, or imposing any obligation or liability upon, the Escrow Agent. In its capacity as Escrow Agent, it is agreed that the Escrow Agent need look only to the terms and provisions of this Escrow Agreement. The Escrow Agent makes no representation as to the accuracy of the Report, the value, condition or sufficiency of the Escrow Fund, or any part thereof, or as to the title of the City thereto, or as to the security afforded thereby or hereby, and the Escrow Agent shall incur no liability or responsibility with respect to any of such matters. -8- In the absence of bad faith, the Escrow Agent may rely conclusively upon the truth, completeness and accuracy of the statements, certificates, opinions, resolutions and other documents conforming to the requirements of this Escrow Agreement, and shall not be obligated to make any independent investigation with respect thereto. It is the intention of the City and the Escrow Agent that the Escrow Agent shall never be required to use or advance its own funds or otherwise incur personal financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. Unless it is specifically provided otherwise herein, the Escrow Agent has no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of the City with respect to arrangements or contracts with others, with the Escrow Agent ' s sole duty hereunder being to safeguard the Escrow Fund and to dispose of and deliver the same in accordance with this Escrow Agreement. If, however, the Escrow Agent is called upon by the terms of this Escrow Agreement to determine the occurrence of any event or contingency, the Escrow Agent shall be obligated, in making such determination, only to exercise reasonable care and diligence, and in event of error in making such determination the Escrow Agent shall be liable only for its own misconduct or its negligence. In determining the occurrence of any such event or contingency the Escrow Agent may request from the City or any other person such reasonable additional evidence as the Escrow Agent in its discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and in this connection may make inquiries of, and consult with the City, among others, at any time. The Escrow Agent shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper or document believed by it to be genuine, and to have been signed or presented by the proper party or parties. The Escrow Agent may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it in good faith and in accordance therewith. To the full extent permitted by law, the City agrees to indemnify, defend and hold the Escrow Agent harmless from and against any and all loss, damage, tax, liability and expense that may be incurred by the Escrow Agent arising out of or in connection with its acceptance or appointment as Escrow Agent hereunder, including attorneys fees and expenses of defending itself against any claim or liability in connection with its performance hereunder, except that the Escrow Agent shall not be indemnified -9- for any loss, damage, tax, liability, or expense resulting from its own negligence. Section 7 . 03 . Compensation. On the Escrow Funding Date, the City will pay the Escrow Agent, as a fee for performing the services hereunder and for all expenses incurred or to be incurred by the Escrow Agent in the administration of this Escrow Agreement the sum of $5, 000. 00, and for payment of the paying agency fees of the Paying Agents for the Refunded Bonds, the sum of $8, 980. 00. This sum does not include the cost of publication, printing costs, or reasonable out-of-pocket expenses of the Escrow Agent. If the Escrow Agent is requested to perform any extraordinary services hereunder, the City hereby agrees to pay reasonable fees to the Escrow Agent for such extraordinary services and to reimburse the Escrow Agent for all expenses incurred by the Escrow Agent in performing such extraordinary services. It is expressly provided that the Escrow Agent shall look only to the City for the payment of such additional fees and reimbursement of such additional expenses. The Escrow Agent hereby agrees that in no event shall it ever assert any claim or lien against the Escrow Fund for any fees for its services, whether regular, additional or • extraordinary, as Escrow Agent, or in any other capacity, or for reimbursement for any of its expenses. Section 7. 04 . Successor Escrow Agents. This agreement may be terminated by the City or the Escrow Agent on 60 days written notice, but no such termination shall be effective until a successor Escrow Agent has been appointed and has accepted such appointment. Any successor Escrow Agent appointed by the City shall succeed, without further act, to all the rights, immunities, powers and trusts of the predecessor Escrow Agent hereunder. Upon the request of any such successor Escrow Agent, the City shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Escrow Agent all such immunities, rights, powers and duties. The Escrow Agent shall pay over to its successor Escrow Agent a proportional part of the Escrow Agent's fee hereunder equal to the portion of such fee attributable to duties to be performed after the date of succession. ARTICLE VIII MISCELLANEOUS Section 8. 01. Notices. Any notice, authorization, request, or demand required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when mailed by registered or certified mail, postage prepaid, addressed as follows: -10- To the Escrow Agent: Texas Commerce Bank National Association P. 0. Box 4717 Houston, TX 77210 Attention: Corporate Trust Department, Tax Exempt and Agency Division Refunding Escrow To the City: City of Pearland Attention: Mayor P. O. Box 2068 Pearland, TX 77588 The United States Post Office registered or certified mail receipt showing delivery of the aforesaid shall be conclusive evidence of the date and fact of delivery. Either party hereto may change the address to which notices are to be delivered by giving to the other party not less than ten days prior notice thereof. Section 8 . 02 . Termination of Escrow Agent' s Obligations. Upon the taking by the Escrow Agent of all the actions as described herein, the Escrow Agent shall have no further obligations or responsibilities hereunder to the City, the Owners of the Refunded Bonds or to any other person or persons in connection with this Escrow Agreement. Section 8 . 03 . Binding Agreement. This Escrow Agreement shall be binding upon the City and the Escrow Agent and their respective successors and legal representatives, and shall inure solely to the benefit of the Owners of the Refunded Bonds, the City, the Escrow Agent and their respective successors and legal representatives. Section 8 . 04 . Severability. If any one or more of the provisions contained in this Escrow Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Escrow Agreement, but this Escrow Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. Section 8 . 05. Amendment. Except as provided in this Section, this Escrow Agreement may not be amended without the prior written consent of the Owners of all Refunded Bonds then outstanding. No consent of any Owner shall be required for amendments limited to: (a) the insertion of unintentionally omitted material or the correction of mistakes or clarification of ambiguities; (b) the pledging of additional security to the refunded bondholders; or (c) the deposit of additional cash or securities to the escrow account. -11- Section 8 . 06. Governing Law. This Escrow Agreement shall be governed exclusively by the provisions hereof and by the applicable laws of the State of Texas. Section 8 . 07 . Time of Essence. Time shall be of the essence in the performance of obligations from time to time imposed upon the Escrow Agent by this Escrow Agreement. Executed as of April 8 , 1993 , but effective as set forth herein. -12- CITY OF PEARLAND, TEXAS Mayo ATTEST: City Sec ary (SEAL) ONAL TEXAS COMMERCE BANK NA NATI Agent ASSOCIATION, as Escrow By: a Vice President and Trust Officer Title: ATTEST: By: Assistant Vice President Corporate Trust fiaer Title: (SEAL) S -13- !CMG Peat Marwick 700 Louisiana Telephone 713 224 4262 Telefax 713 224 4566 P.O. Box 4545 Telex 286705 PMMT UR(RCA) Houston,TX 77210-4545 May 11, 1993 City of Pearland,Texas Rauscher Pierce Refsnes, Inc. Houston,Texas Vinson&Elkins L.L.P. Houston,Texas $6,510,000 City of Pearland (Brazoria and Harris Counties,Texas) Refunding Bonds, Series 1993 The City of Pearland,Texas(the "City")proposes to issue the above referenced bonds(the "Bonds") dated May 1, 1993 on May 11, 1993. A portion of the proceeds of the Bonds will be used to purchase United States Treasury Securities -- .. State and Local Government Series (the "Restricted Acquired Obligations") which will be placed in an irrevocable trust together with an initial cash deposit to be used solely to refund that portion of the City's Permanent Improvement Bonds, Series 1978; Refunding Bonds, Series 1985; Public Improve- ., ment Bonds, Series 1986; and Public Improvement Bonds, Series 1988 (respectively,the "Series 1978 Refunded Bonds", "Series 1985 Refunded Bonds", "Series 1986 Refunded Bonds" and "Series 1988 Refunded Bonds",and collectively,the "Refunded Bonds")described below: Maturities Optional Original Amount Maturities Subject Redemption Amount to be to be to Optional Date and Series Issued Dated Date Refunded Refunded Redemption Price 1978 $1,860,000 09-01-1978 $900,000 03-01-1994- 03-01-1994- 09-01-1993 03-01-1997, 03-01-1997, @ 100% Inclusive Inclusive 1985 $12,060,000 08-15-1985 $800,000 03-01-1996 03-01-1996 03-01-1995 03-01-1998 - 03-01-1998- @ 100% 03-01-2001, 03-01-2001, Inclusive Inclusive .... Member Firm of Klynveld Peat Marwick Goerdeler i mito Peat Marwick City of Pearland,Texas May 11, 1993 Page 2 Maturities Optional Original Amount Maturities Subject Redemption Amount to be to be to Optional Date and Series Issued Dated Date Refunded Refunded Redemption Price 1986 $4,500,000 04-01-1986 $2,850,000 03-01-1998- 03-01-1998- 03-01-1997 03-01-2003, 03-01-2003, @ 100% Inclusive Inclusive 1988 $2,000,000 05-01-1988 $1,250,000 03-01-1999- 03-01-1999- 03-01-1998 03-01-2003, 03-01-2003, @ 100% Inclusive Inclusive At your request, we have independently verified the arithmetical accuracy of the computations provided to us by Rauscher Pierce Refsnes, Inc. which indicate: (1)the sufficiency of the receipts from the Restricted Acquired Obligations together with an initial cash deposit to pay to and at early redemption the principal of and interest on the Refunded Bonds; and, (2)the "yields" to be considered by bond counsel in its determination that the Bonds are not "arbitrage bonds" within the meaning of Section 148 of the Internal Revenue Code of 1986,as amended. The term "yield",as used herein, means that yield which,when used in computing the present value of all payments of principal and interest on an obligation compounded semiannually using a 30/360-day year basis,produces an amount equal to: in the case of the Restricted Acquired Obligations, the purchase price of such securities; and,in the case of the Bonds,the Issue Price to the Public less the cost of bond insurance. The original computations,along with certain assumptions and information, were furnished to us by Rauscher Pierce Refsnes, Inc. on behalf of the City. We have relied solely on the assumptions and information provided to us and have not made any study or evaluation of them,except as noted below. We express no opinion on the reasonableness of the assumptions, or the likelihood that the principal and interest on the Refunded Bonds will be paid as described in the accompanying Exhibits. In the course of our engagement, we were furnished by Vinson&Elkins L.L.P.with the Ordinances authorizing the issuance of the Refunded Bonds and an excerpt from the Opinion of Bond Counsel for the Series 1978 Refunded Bonds. We were provided by Rauscher Pierce Refsnes, Inc.with the Official Statement for the Bonds and copies of the initial and final subscription forms for the purchase of the Restricted Acquired Obligations. We compared the information contained in the schedules provided by Rauscher Pierce Refsnes, Inc. with certain information set forth in such documents with respect to principal payment dates and amounts, interest payment dates and rates, yields, and redemption dates and prices. We found that the information contained in such schedules provided to us by Rauscher Pierce Refsnes, Inc. was in agreement with the above-mentioned information set forth in such documents. In addition, we have verified that,based upon the table of interest rates payable on United States Treasury Securities -- State and Local Government Series for use on April 8, 1993,the interest rates payable on the Restricted Acquired Obligations are at or below the maximum allowable interest rate for each maturity date. MIPPeat Marwick City of Pearland,Texas May 11, 1993 Page 3 In our opinion,based on the assumptions and information provided by Rauscher Pierce Refsnes. Inc. on behalf of the City,the computations in the accompanying Exhibits prepared by us and comparable schedules provided to us are arithmetically accurate and indicate that: (1) the receipts from the Restricted Acquired Obligations together with an initial cash deposit of $6.20 will be sufficient to pay to and at early redemption the principal of and interest on the Refunded Bonds; and, (2) the yield of the Bonds is 4.47171% (Exhibit E)and the yield of the Restricted Acquired Obligations is 4.47159% (Exhibit D). The terms of our engagement are such that we have no obligation to update this report or to verify any revised computation because of events and transactions occurring subsequent to the date of this report. This report is issued solely for your information and assistance in connection with the issuance of the Bonds. This report is not to be quoted or referred to without our prior written consent. Very truly yours, Exhibits A. Sources and Uses of Funds B. Escrow Cash Flow �• C. Debt Service Requirements of the Refunded Bonds to Early Redemption C-1. Debt Service Requirements of the Series 1978 Refunded Bonds to Maturity C-2. Debt Service Requirements of the Series 1978 Refunded Bonds to Early Redemption C-3. Debt Service Requirements of the Series 1985 Refunded Bonds to Maturity C-4. Debt Service Requirements of the Series 1985 Refunded Bonds to Early Redemption C-5. Debt Service Requirements of the Series 1986 Refunded Bonds to Maturity C-6. Debt Service Requirements of the Series 1986 Refunded Bonds to Early Redemption C-7. Debt Service Requirements of the Series 1988 Refunded Bonds to Maturity C-8. Debt Service Requirements of the Series 1988 Refunded Bonds to Early Redemption D. Receipts from Restricted Acquired Obligations and Proof of Yield E. Debt Service Requirements and Proof of Yield on the Bonds F. Computation of Original Issue Discount G. Computation of Net Present Value Savings a a a a Exhibit A Sources and Uses of Funds City of Pearland Refunding Bonds,Series 1993 S SOURCES Principal Amount of the Bonds $6,510,000.00 Accrued Interest 7,455.45 $6,517,455.45 USES Purchase Price of Restricted Acquired Obligations $6,293,000.00 Initial Cash Deposit 6.20 Costs of Issuance 94,805.00 Underwriters' Discount 55,335.00 Original Issue Discount 36,127.05 Accrued Interest 7,455.45 Bond Insurance 30,625.82 Contingency 100.93 $6,517,455.45 r Exhibit B Escrow Cash Flow City of Pearland Refunding Bonds, Series 1993 F Debt Service Receipts from Requirements Beginning Restricted of the Ending Cash Acquired Refunded Bonds Cash Date Balance Obligations to Early Redemption Balance 09/01/93 $6.20 $1,098,275.50 $1,098,262.50 $19.20 03/01/94 $19.20 173,816.75 173,812.50 $23.45 09/01/94 $23.45 173,816.75 173,812.50 $27.70 03/01/95 $27.70 973,816.75 973,812.50 $31.95 09/01/95 $31.95 139,308.59 139,268.75 $71.79 03/01/96 $71.79 139,252.06 139,268.75 $55.10 09/01/96 $55.10 139,236.70 139,268.75 $23.05 03/01/97 $23.05 2,989,260.70 2,989,268.75 $15.00 09/01/97 $15.00 44,370.00 44,375.00 $10.00 03/01/98 $10.00 1,294,370.00 1,294,375.00 $5.00 .. $7,165,523.80 $7,165,525.00 r Exhibit C Debt Service Requirements of the Refunded Bonds to Early Redemption City of Pearland Refunding Bonds,Series 1993 Debt Service Debt Service Debt Service Debt Service Debt Service _ Requirements Requirements Requirements Requirements Requirements of the Series 1978 of the Series 1985 of the Series 1986 of the Series 1988 of the Refunded Bonds Refunded Bonds Refunded Bonds Refunded Bonds Refunded Bonds Date to Early Redemption to Early Redemption to Early Redemption to Early Redemption to Early Redemption 09/01/93 $924,450.00 $34,543.75 $94,893.75 $44,375.00 $1,098,262.50 03/01/94 34,543.75 94,893.75 44,375.00 173,812.50 09/01/94 34,543.75 94,893.75 44,375.00 173,812.50 03/01/95 834,543.75 94,893.75 44,375.00 973,812.50 09/01/95 94,893.75 44,375.00 139,268.75 03/01/96 94,893.75 44,375.00 139,268.75 09/01/96 94,893.75 44,375.00 139,268.75 03/01/97 2,944,893.75 44,375.00 2,989,268.75 09/01/97 44,375.00 44,375.00 03/01/98 1,294,375.00 1,294,375.00 $924,450.00 $938,175.00 $3,609,150.00 $1,693,750.00 $7,165,525.00 a Exhibit C-I Debt Service Requirements of the Series 1978 Refunded Bonds to Maturity City of Pearland Refunding Bonds,Series 1993 $1,860,000 City of Pearland,Texas Permanent Improvement Bonds,Series 1978 Debt Service Requirements of the Series 1978 Coupon Refunded Bonds Date Principal Rate Interest to Maturity 09/01/93 $24,450.00 $24,450.00 03/01/94 $200,000.00 5.300% 24,450.00 224,450.00 09/01/94 19,150.00 19,150.00 03/01/95 200,000.00 5.400% 19,150.00 219,150.00 09/01/95 13,750.00 13,750.00 03/01/96 250,000.00 5.500% 13,750.00 263,750.00 09/01/96 6,875.00 6,875.00 03/01/97 250,000.00 5.500% 6,875.00 256,875.00 $900,000.00 $128,450.00 $1,028,450.00 Exhibit C-2 Debt Service Requirements of the Series 1978 _ Refunded Bonds to Early Redemption IMO City of Pearland Refunding Bonds,Series 1993 a $1,860,000 City of Pearland,Texas Permanent Improvement Bonds,Series 1978 — Debt Service Requirements of the Series 1978 Coupon Refunded Bonds Date Principal Rate Interest to Early Redemption a 09/01/93 $900,000.00 * $24,450.00 $924,450.00 * Coupon rates are as shown in the Debt Service Requirements of the Series 1978 Refunded Bonds to Maturity. Exhibit C-3 Debt Service Requirements of the Series 1985 Refunded Bonds to Maturity City of Pearland Refunding Bonds, Series 1993 $12,060,000 City of Pearland,Texas Refunding Bonds,Series 1985 Debt Service Requirements of the Series 1985 Coupon Refunded Bonds Date Principal Rate Interest to Maturity 09/01/93 $34,543.75 $34,543.75 03/01/94 34,543.75 34,543.75 09/01/94 34,543.75 34,543.75 03/01/95 34,543.75 34,543.75 09/01/95 34,543.75 34,543.75 03/01/96 $95,000.00 8.250% 34,543.75 129,543.75 09/01/96 30,625.00 30,625.00 03/01/97 30,625.00 30,625.00 09/01/97 30,625.00 30,625.00 03/01/98 95,000.00 8.500% 30,625.00 125,625.00 09/01/98 26,587.50 26,587.50 03/01/99 155,000.00 8.600% 26,587.50 181,587.50 09/01/99 19,922.50 19,922.50 03/01/00 195,000.00 8.700% 19,922.50 214,922.50 09/01/00 11,440.00 11,440.00 03/01/01 260,000.00 8.800% 11,440.00 271,440.00 $800,000.00 $445,662.50 $1,245,662.50 Exhibit C-4 Debt Service Requirements of the Series 1985 Refunded Bonds to Early Redemption City of Pearland Refunding Bonds,Series 1993 $12,060,000 City of Pearland,Texas Refunding Bonds,Series 1985 Debt Service Requirements of the Series 1985 Coupon Refunded Bonds Date Principal _ Rate Interest to Early Redemption 09/01/93 $34,543.75 $34,543.75 03/01/94 34,543.75 34,543.75 09/01/94 34,543.75 34,543.75 03/01/95 $800,000.00 * 34,543.75 834,543.75 $800,000.00 $138,175.00 $938,175.00 * Coupon rates are as shown in the Debt Service Requirements of the Series 1985 Refunded Bonds to Maturity. Exhibit C-5 Debt Service Requirements of the Series 1986 Refunded Bonds to Maturity City of Pearland Refunding Bonds,Series 1993 $4,500,000 City of Pearland,Texas Public Improvement Bonds,Series 1986 Debt Service Requirements of the Series 1986 Coupon Refunded Bonds Date Principal Rate Interest to Maturity 09/01/93 $94,893.75 $94,893.75 03/01/94 94,893.75 94,893.75 09/01/94 94,893.75 94,893.75 03/01/95 94,893.75 94,893.75 09/01/95 94,893.75 94,893.75 03/01/96 94,893.75 94,893.75 09/01/96 94,893.75 94,893.75 ' 03/01/97 94,893.75 94,893.75 09/01/97 94,893.75 94,893.75 03/01/98 $450,000.00 6.600% 94,893.75 544,893.75 09/01/98 80,043.75 80,043.75 03/01/99 450,000.00 6.600% 80,043.75 530,043.75 09/01j99 65,193.75 65,193.75 03/01/00 475,000.00 6.700% 65,193.75 540,193.75 Obi 09/01/00 49,281.25 49,281.25 03/01/01 475,000.00 6.750% 49,281.25 524,281.25 09/01/01 33,250.00 33,250.00 • 03/01/02 500,000.00 6.800% 33,250.00 533,250.00 09/01/02 16,250.00 16,250.00 03/01/03 500,000.00 6.500% 16,250.00 516,250.00 $2,850,000.00 $1,436,975.00 $4,286,975.00 Exhibit C-6 Debt Service Requirements of the Series 1986 Refunded Bonds to Early Redemption City of Pearland Refunding Bonds,Series 1993 a $4,500,000 City of Pearland,Texas Public Improvement Bonds,Series 1986 Debt Service Requirements of the Series 1986 Coupon Refunded Bonds Date Principal Rate Interest to Early Redemption 09/01/93 $94,893.75 $94,893.75 03/01/94 94,893.75 94,893.75 09/01/94 94,893.75 94,893.75 a 03/01/95 94,893.75 94,893.75 09/01/95 94,893.75 94,893.75 03/01/96 94,893.75 94,893.75 09/01/96 94,893.75 94,893.75 03/01/97 $2,850,000.00 * 94,893.75 2,944,893.75 $2,850,000.00 $759,150.00 $3,609,150.00 * Coupon rates are as shown in the Debt Service Requirements of the Series 1986 Refunded Bonds to Maturity. a a S a — Exhibit C-7 Debt Service Requirements of the Series 1988 _ Refunded Bonds to Maturity City of Pearland Refunding Bonds,Series 1993 i $2,000,000 City of Pearland,Texas Public Improvement Bonds,Series 1988 Debt Service Requirements of the Series 1988 Coupon Refunded Bonds Date Principal Rate Interest to Maturity .. 09/01/93 $44,375.00 $44,375.00 03/01/94 44,375.00 44,375.00 09/01/94 44,375.00 44,375.00 — 03/01/95 44,375.00 44,375.00 09/01/95 44,375.00 44,375.00 03/01/96 44,375.00 44,375.00 09/01/96 44,375.00 44,375.00 03/01/97 44,375.00 44,375.00 09/01/97 44,375.00 44,375.00 03/01/98 44,375.00 44,375.00 09/01/98 44,375.00 44,375.00 03/01/99 $250,000.00 6.900% 44,375.00 294,375.00 09/01/99 35,750.00 35,750.00 03/01/00 250,000.00 7.000% 35,750.00 285,750.00 09/01/00 27,000.00 27,000.00 03/01/01 250,000.00 7.100% 27,000.00 277,000.00 09/01/01 18,125.00 18,125.00 03/01/02 250,000.00 7.250% 18,125.00 268,125.00 09/01/02 9,062.50 9,062.50 03/01/03 250,000.00 7.250% 9,062.50 259,062.50 $1,250,000.00 $712,375.00 $1,962,375.00 Exhibit C-8 Debt Service Requirements of the Series 1988 Refunded Bonds to Early Redemption City of Pearland Refunding Bonds,Series 1993 a. $2,000,000 City of Pearland,Texas Public Improvement Bonds,Series 1988 am Debt Service Requirements of the Series 1988 Coupon Refunded Bonds Date Principal _ Rate Interest to Early Redemption 09/01/93 $44,375.00 $44,375.00 03/01/94 44,375.00 44,375.00 09/01/94 44,375.00 44,375.00 03/01/95 44,375.00 44,375.00 09/01/95 44,375.00 44,375.00 03/01/96 44,375.00 44,375.00 09/01/96 44,375.00 44,375.00 03/01/97 44,375.00 44,375.00 09/01/97 44,375.00 44,375.00 03/01/98 $1,250,000.00 * 44,375.00 1,294,375.00 $1,250,000.00 $443,750.00 $1,693,750.00 * Coupon rates are as shown in the Debt Service Requirements of the Series 1988 Refunded Bonds to Maturity. Exhibit D Receipts from Restricted Acquired Obligations and Proof of Yield City of Pearland Refunding Bonds,Series 1993 Present Value of Receipts from Future Receipts Restricted at 05/11/93 Using Coupon Acquired a Rate of Date Principal _ Rate Interest Obligations 4.47159% 09/01/93 $1,028,500.00 0.00000% $69,775.50 $1,098,275.50 $1,083,534.66 03/01/94 60,200.00 0.00000% 113,616.75 173,816.75 167,733.64 09/01/94 60,200.00 0.00000% 113,616.75 173,816.75 164,065.47 03/01/95 860,200.00 2.97795% 113,616.75 973,816.75 899,083.07 09/01/95 38,500.00 3.93000% 100,808.59 139,308.59 125,804.88 03/01/96 39,200.00 4.16000% 100,052.06 139,252.06 123,003.72 09/01/96 40,000.00 4.38000% 99,236.70 139,236.70 120,300.48 03/01/97 2,890,900.00 4.60000% 98,360.70 2,989,260.70 2,526,239.16 09/01/97 12,500.00 4.80000% 31,870.00 44,370.00 36,677.28 03/01/98 1,262,800.00 5.00000% 31,570.00 1,294,370.00 1,046,557.64 $6,293,000.00 $872,523.80 $7,165,523.80 $6,293,000.00 Purchase Price of Restricted Acquired Obligations $6,293,000.00 — Exhibit E Debt Service Requirements and Proof of Yield on the Bonds City of Pearland Refunding Bonds,Series 1993 Present Value of Future Debt Service Payments at Requirements 05/11/93 Using Coupon of the a Rate of Date Principal Rate Interest Bonds 4.47171% 09/01/93 $115.000.00 2.650% $89,465.41 $204,465.41 $201,721.04 03/01/94 95,000.00 3.000% 132,674.38 227,674.38 219,706.19 ow 09/01/94 131,249.38 131,249.38 123,885.98 03/01/95 320,000.00 3.200% 131,249.38 451,249.38 416,618.25 09/01/95 126,129.38 126,129.38 113,902.88 s, 03/01/96 465,000.00 3.500% 126,129.38 591,129.38 522,152.98 09/01/96 117,991.88 117,991.88 101,944.57 03/01/97 365,000.00 3.800% 117,991.88 482,991.88 408,177.06 09/01/97 111,056.88 111,056.88 91,801.76 03/01/98 655,000.00 4.000% 111,056.88 766,056.88 619,388.76 09/01/98 97,956.88 97,956.88 77,470.08 03/01/99 950,000.00 4.100% 97,956.88 1,047,956.88 810,660.96 .. 09/01/99 78,481.88 78,481.88 59,382.98 03/01/00 990,000.00 4.250% 78,481.88 1,068,481.88 790,781.60 09/01/00 57,444.38 57,444.38 41,584.71 _ 03/01/01 1,030,000.00 4.400% 57,444.38 1,087,444.38 769,998.69 09/01/01 34,784.38 34,784.38 24,091.51 03/01/02 770,000.00 4.500% 34,784.38 804,784.38 545,200.21 09/01/02 17,459.38 17,459.38 11,569.17 ma 03/01/03 755,000.00 4.625% 17,459.38 772,459.38 500,663.20 $6,510,000.00 $1,767,248.63 $8,277,248.63 $6,450,702.58 .. Principal Amount of the Bonds $6,510,000.00 Accrued Interest 7,455.45 Bond Insurance (30,625.82) .. Original Issue Discount (36,127.05) $6,450,702.58 Exhibit F Computation of Original Issue Discount City of Pearland Refunding Bonds,Series 1993 Coupon Purchase Accrued Original Issue Date Principal Rate Yield Price Price Interest Discount 09/01/93 $115,000.00 2.650% 2.650% 100.000% $115,000.00 $84.65 $0.00 ' 03/01/94 95,000.00 3.000% 3.000% 100.000% 95,000.00 79.17 0.00 03/01/95 320,000.00 3.200% 3.200% 100.000% 320,000.00 284.44 0.00 03/01/96 465,000.00 3.500% 3.500% 100.000% 465,000.00 452.08 0.00 03/01/97 365,000.00 3.800% 3.800% 100.000% 365,000.00 385.28 0.00 03/01/98 655,000.00 4.000% 4.000% 100.000% 655,000.00 727.78 0.00 03/01/99 950,000.00 4.100% 4.200% 99.484% 945,098.00 1,081.94 (4,902.00) i 03/01/00 990,000.00 4.250% 4.350% 99.410% 984,159.00 1,168.75 (5,841.00) 03/01/01 1,030,000.00 4.400% 4.500% 99.342% 1,023,222.60 1,258.89 (6,777.40) 03/01/02 770,000.00 4.500% 4.650% 98.920% 761,684.00 962.50 (8,316.00) 03/01/03 755,000.00 4.625% 4.800% 98.637% 744,709.35 969.97 (10,290.65) am $6,510,000.00 $6,473,872.95 $7,455.45 ($36,127.05) Exhibit G Computation of Net Present Value Savings City of Pearland Refunding Bonds,Series 1993 Present Value of the Debt Service Debt Service Requirements Debt Service Savings at of the Requirements 05/11/93 Using Refunded Bonds of the Debt Service a Rate of Date To Maturity Bonds Savings 4.47171% 09/01/93 $198,262.50 $204,465.41 ($6,202.91) ($6,119.65) 03/01/94 398,262.50 227,674.38 170,588.12 164,617.84 09/01/94 192,962.50 131,249.38 61,713.12 58,250.87 03/01/95 392,962.50 451,249.38 (58,286.88) (53,813.65) 09/01/95 187,562.50 126,129.38 61,433.12 55,478.03 03/01/96 532,562.50 591,129.38 (58,566.88) (51,732.95) 09/01/96 176,768.75 117,991.88 58,776.87 50,783.01 03/01/97 426,768.75 482,991.88 (56,223.13) (47,514.24) 09/01/97 169,893.75 111,056.88 58,836.87 48,635.69 03/01/98 714,893.75 766,056.88 (51,163.13) (41,367.51) 09/01/98 151,006.25 97,956.88 53,049.37 41,954.57 03/01/99 1,006,006.25 1,047,956.88 (41,950.63) (32,451.46) 09/01/99 120,866.25 78,481.88 42,384.37 32,069.95 03/01/00 1,040,866.25 1,068,481.88 (27,615.63) (20,438.28) 09/01/00 87,721.25 57,444.38 30,276.87 21,917.81 03/01/01 1,072,721.25 1,087,444.38 (14,723.13) (10,425.17) 09/01/01 51,375.00 34,784.38 16,590.62 11,490.59 03/01/02 801,375.00 804,784.38 (3,409.38) (2,309.68) 09/01/02 25,312.50 17,459.38 7,853.12 5,203.74 03/01/03 775,312.50 772,459.38 2,853.12 1,849.23 $8,523,462.50 $8,277,248.63 $246,213.87 $226,078.74 Present Value of Debt Service Savings $226,078.74 Adjustment at Closing(Accrued Interest) 7,455.45 Net Present Value Savings $233,534.19 CERTIFICATE OF ESCROW AGENT RELATING TO AUTHORITY OF OFFICERS AND SIGNATURE IDENTIFICATION I, the undersigned officer of Texas Commerce Bank National Association, Houston, Texas (the "Bank") , do hereby execute and deliver this certificate for the benefit of the Attorney General of the State of Texas and the purchasers of, and all other persons _ interested in the validity of, the $6, 510, 000 CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993 (the "Bonds") , and I do hereby certify as follows: 1. That I am the duly chosen, qualified and acting officer of the Bank for the office shown beneath my signature and I am duly authorized to execute and deliver this certificate. 2 . That attached as Exhibit "A" to this certificate is a certified copy of the Bank's resolution, in full force and effect as of the date of this certificate, relating to the corporate authority of the Bank to enter into a certain Escrow Agreement by and between the Bank and City of Pearland, Texas, for the purpose of creating an escrow fund for the issuance of the Bonds, and designating the officers of the Bank authorized to execute such Escrow Agreement. 3 . That the following are duly elected, qualified and acting officers of the Bank having the authority to act for and in the name of the Bank as set forth in Exhibit "A" and that the signatures set opposite their names are their true and correct signatures: NAME TITLE SIGNATURE KATHLEEN WAGNER Vice President and Trii_t Cfl ci r Assistant VioQ President Ate SHIRL PATTERSON Corporate Trust Officer 4� C� IN WITNESS WHEREOF, I have hereunto_ my hand and affixed the corporate seal of the Bank as of the day of April, 1993 . TEXAS COMMERCE BANK NATIONAL ASSOCIATION Y f By f , Katherine Bock Title Vice President and Trust Officer ATTEST: By Vluvw. M. e ' Assistant Vice President Title and Trust Officer Y (SEAL) Y TEXAS CCMMERCE BANK NATICIWJ ASSOCIATION SECRETARY'S CERTIFICATE I, Melanie McKittrick, Vice President and Assistant Secretary of Texas amerce Bank National Association (the "Association") hereby certify that the following is a true and correct copy of the text of a resolution adopted by the Board of Directors of said Association at a regular meeting, held on May 17, 1983, at which meeting a quorum was present and voted, and that such resolution is presently in full force and effect: "RESOLVED, That any Executive Vice President and Trust OffinPr, Senior Vice President and Trust Offin r, Vice President and Trust Officer, Assistant Vice President and Trust Officer, Senior Corporate Trust Officer, or Corporate Trust Offictor of this Association be and each of them are authorized and empowered to execute and deliver for and on behalf of this Association trust indentures, agency agreements (including, but not limited to, transfer agency agreements, paying agency agreements, and exchange agency agreements) , escrow agreements, and other similar agreements and documents. Each of the above-listed officers is further authorized and empowered to execute on behalf of this Association authentication certificates appearing on bonds or debentures, registration certificates appearing on stocks or bonds and debenture certificates and such other documents and instruments as may be necessary and appropriate to carry out the above-expressed powers in the course of conducting the business of the Corporate Trust Division of the Trust Department of this Association." IN WITNESS WHEREOF, the undersigned has subscribed her name and affixed the seal of this Association hereto effective as of the 23rd day of April, 1993, at Houston, Texas. TEXAS COMMERCE BANK NATIONAL ASSOCIATION [SEAL] By: u/t4t4gl'i Lit6( (A-4 MELANIE MCKLTrRICK Vice President and Assistant Secretary i PD F 4144 OMB NO.1535.00e2 Dept of the Treasury SUBSCRIPTION FOR PURCHASE AND ISSUE OF °"2192 Bur.of the Public Debt (Rev.8/89) U.S. TREASURY SECURITIES- STATE AND LOCAL GOVERNMENT SERIES TIME DEPOSIT SECURITIES 0 INITIAL , FINAL E AMENDED To: Federal Reserve Bank or Branch at , r, , 1. Pursuant to the previsions of Department d the Treasury Grcu/ar, Pudic Debt Series No3.72, current revision(31 CFR Part 344).the undersigned hereby subscribes for the purchase of the following securities: a. United States Treasury Certificates of Indebtedness-State and Local Government Series ,O �� 7Q0 (PD F 41442) TOTAL AMOUNT S / 66 b. United States Treasury Notes-State and Local Government Series ' (PD F 4144-3) TOTAL AMOUNT S 5 2 p illi DO c. United States Treasury Bonds-State and Local Government Series (PD F 4144-4) TOTAL AMOUNT S , GRAND TOTAL $ ti 07Q3� coo as described on the attached schedules. accompanied by PO F 4144-1,which are incorporated by reference in this subscription,to be issued as mii entries on the books of the Bureau of the Public Debt, Department of the Treasury. 2.The undersigned certifies that this subscription complies with the certification requirements in 31 CFR Sec 344.3. 3. The undersigned requests that try accounts be tabplished Ion -'Ti r., Name of owner Y x�� �YX 1��XXiXXX��:�s1 Texas Commerce Bai r*1 National Associatio as Escrow Agent for City of Pearland, Tex,`as A/C 14�.,010-00 _ -1 4. The undersigned: .5 = a. 0 submits payment in full herewith for the above securities, as shown below. :Li -r- •n b.Pi<requests that issuance be deferred until .4*' 'i, /yfj (not to exceed by more than 60 darts the date on whiu�miS '7j subscription is received at a Federal Reserve Bark or Branch or,where mailed, by the postmark date on the envelope in which it is U received), and agrees to make payment on that date 7 r_i 5. The undersigned agrees that interest and redemption payments made to the subscriber will be by Automated Clearing House(ACH)rfm�Rmod.1* 6. The undersigned further certifies that the following official(s), by title(s),are authorized, subject to the provisions Of the above referencetrcircular," to request redemption prior to maturity of the securities. (If no one has been so authorized, enter the word "nori9 O Od Od ASieregig.- Texas Commerce Bank Natio • - • •- •• • • . • . : •entw i for City of Pearland, Texas A/C 14200-00 = 7. It the undersigned is a financial institution, it certifies that it has received the specific authorization of the government body to submit this sub- ,- scription. Subscriptions submitted by an agent other than a commercial bank must be accompanied by evidence of the agent's authority to act. Such evidence must describe the nature and scope of the agent's authorization,specify the legal authority under which the agent was designated, and relate by its terms to the investment action being undertaken. ;inscriptions unsupported by such evidence will not be accepted. Dated this f_day of Ape, / , 19 93 414/ e, /�rfe-.s_.ra/ �tJl-2_C of Staii or Local Governmen or Other Eligible Entity) (7/3) 41(S '- 2Kii By r i . Q� rA.oT�,. (Telephone-include Area Code) (Signature and Title FOR USE OF FINANCIAL INSTITUTION IN TRANSMITTING PAYMENT FOR ABOVE SECURITY (The issue date of the account will be the date specified in this subscription, provided payment therefor in readily available funds is received here- with or within the time limitation specified above. Where payment is submitted =•.rately, it • • be accompan by a copy of th subscription.) '°" 0 Check enclosed Name of Institut••n / s-t 4t ' ye/A.va/,fS/ov�'"' %Charge reserve clearing account on S1�i w City �. - ''' _� --- ❑ Other (Date) Authorized signature and titl ��• • . •- FOR USE OF FEDERAL RESERVE BANK ACCOUNT NUMBERS APPLICABLE ISSUE Date Credited C OF I S: From: Through: INTEREST DATE to Trees Acct. RATE TABLE (Cannot be a NQ Subsequent to NOTES: From: Through: Issue Date) I LBONDS: From: Through: FOR USE OF THE BUREAU OF THE PUBLIC DEBT i Approved L. BBy Date Signature and Title Computer Run For the notice required under the Privacy and Paperwork Reduction Acts,see the reverse side of this form I PD F 41442 SCHEDULE OF U.S. TREASURY OMB NO.1535d0Y2 Dept.of the Treasury EXP.2/92 Bureau of the Public Debt CERTIFICATES OF INDEBTEDNESS— _ try ' STATE AND LOCAL GOVERNMENT SERIES TIME DEPOSIT SECURITIES The United States Treasury Certificates of Indebtedness—State and Local Government Series subscribed for on PD F 4144 and account information furnished on PD F 4144-1 to which this schedule is attached and incorporated, are requested to be issued and held in book-entry accounts on the books of the Department of the Treasury,as follows: 'w ACCOUNT NUMBERS PRINCIPAL INTEREST ISSUE MATURITY FOR TREASURY assigned by FRB AMOUNT RATE DATE DATE DEPT USE ONLY 02/67IP _ . 0- si 3 1/43 IA/4 6d 200 - G- 5.X. /41 3/,/ Iv a i a a a NOTE The interest rate on each certificate may not exceed the maximum interest rate for Treasury securities of comparable terms of a maturity,as shown in the Treasury rate table applicable to this issuance The maturity dates specified must be at least 30 days but not greater than one year from date of issue. Interest will be paid at maturity with the principal. FRB CERTIFICATION The undefsigned certifies that this form has been NAME OF STATE OR/LOCAL GOVERNMENT BODY: reviewed and is in compliance with regulations govern- 01 .O-�ds//c&i.wd 7 k(.i,.J ing US.Treasury securities—State and Local Govern- �' meet Series V - /lam Signature SIGNATURE / 1 TITLE FRB Date Phone FOR BUREAU USE ONLY: ACCOUNTS ESTABUSHED BY: au of the Public Debt Copy ON Date Po F""' SCHEDULE OF U.S TREASURY NOTES-- Dept.of the Treasury2/92 OMB Na iSJS-0OYt Bureau of the Public Debt STATE AND LOCAL GOVERNMENT SERIES EXP. (Rev.8r89) I TIME DEPOSIT SECURITIES The United States Treasury Notes—State and local Government Series subscribed for on PD F 4144 and account information furnished on PD F 41441 to which this schedule is attached and incorporated, are requested to be issued and held in book-entry accounts on the books of the Department of the Treasury, as follows: ACCOUNT NUMBERS PRINCIPAL INTEREST ISSUE MATURITY FIRST INTEREST FOR TREASURY aasigr»d by FRB AMOUNT RATE DATE DATE PAYMENT DATE DEPT.USE ONLY � sift � ' 860, joo �. '7>Yt'_ s�/s,7 . 3/1s.1" , f///Q� , 3 13-do , 3.13 . 7,/!3 9/,,/ic , V/ 3 31, 2 - 4.iG S/"/cz 3/'/`e ///t3 10, 000 5/3 i �ir/f3 4Y/44 A/43 /4 a �yo 9cav 5�to g1/ 3/ 4/• � _ /t3 /L� f� _ "/fa s�//f3 9//17 _ '1//93 4 _ ,/, 2-4 z Folo S'oo /1A3 3//'Y , //f3 , k_ i - TOTAL J ,Zo Y.cee NOTE The interest rate on each note may not exceed the maximum interest rate for Treasury securities of comparable terms of maturity,as shown in the Traaa,ry rate table applicable to this issuance. The maturity dates specified must be at least one year and one day but not greater than ten years from date of iMJR. Interest will be paid on the designated first interest payment date and semi-annually thereafter,the final six I i NA id IS interest to be paid at maturity with the principal. FRB CERTIFICATION NAMES OR LOCAL MENT BOOt. The undersigned certifies that this forth has been 1 Q 1e. 1 -€-,ui-1 ..,ore , /G,k reviewed and Is In compliance with regulations govern- ing US.Treasury securities—State and Local Govern- SIGNATURE Q 'l� - ti ment Series Signature TITLE i(� 40r A 'TF-pr FRB Date Phone FOR BUREAU USE ONLY: ACCOUNTS ESTABLISHED BY: reau of the Public Debt Copy ON Date we ess AD F 41444 OMB Na 1616-0092 e a a�Pu c Deb( ACCOUNT INFORMATION FOR °X°'2/92 (Rev.e'89'' U.S. TREASURY SECURITES STATE AND LOCAL GOVERNMENT SERES I TIME DEPOSIT SECURITIES The United States Treasury Secumies--estate and Local Gaemment Series arscribed kx on PD F 4144 to which this form is attached and incorporated. are requested to be issued and held in book-entry accounts on the books of the Department oI the Treasury, as follows: NAME OF OWNER r [..-_- ....-4441'7„4444_PaNit_X.W. eQe4V90.1et ._•ZSI.I'tc.,..A1WitZirtaitakl:' "It:17TisilAladi. -'‘''''.*".- --- x e 4111.._ 1Inon4�;;��I11�.1'1 [L�► f30ClatYOf. .. 1. . fit• 1�, .Pk!...- 13 �,_3 -,A),rt:;., „-;'- L. `-Tr—. City E tjAnd�'-.�4 ..'1/� ..1420Q-p0_ °"_:.:* =fn..:ky' •, ` ,=. `. . . 2jwtri`..' : -- -. .S•iit4 a� �aL..s -+i..,,a� �, -.i i fi 4.--..li 2,..44a-a.g -. .i.....-...:w.T.-.J..a�t.c.- . ._ - •:-.Z.11w.c'Ja.S0► .. .�.. ... ' iie -.m _ - J�' . FEMPLOYER IDENTIFICATION NUMBER tiq - raD-.---` Q tADDRESS OF OWNER _ -. ^.L4e�C�t - P. O;-•BO- 4717, Mail-St-A tt 1. C --•' ' 'p�',. ... .�ttA: Sharon McNejll -~=�=,- rr.- _..,. 74 . '.._',-E 74 .�lr)..�a•• - -�s� .:�. >:A• Jrii.' ♦. - . •r..-.e.1•.it.�C '_i. �asa��r. [-..2:-.A.`.s- n„: >+.Cry• , j4 (� ,:= •, .-Le � �`B ' • i:w: .klPXa4-� ..._ Houston :' .... . _ �_ CITY STATE AP CODE NAME OF SUBSCRIBER'S FINANCIAL INSTITUTION AND OFFICER TO CONTACT r. 7X.A-S _. �D �/z.C� , ,O,v IC �tMLro•vde. sloci ;`�� Sharon. McNeill . , • -- • .;: . 1,- _-tz..- .` :: ...._ . ..... M r....• - ... .. - - -.. _ �..•fr-..•..: .fI-..'iT�Y mat-+.••.A. ._ ._ :-..R_,lam':. • - - •j_ _ aw.„...s... .-.--..L..,i .. _... - . .- . . • .. -.__ ..-....`+. ww—�. ..... . _. � ADDRESS OF SUBSCRIBERS FINANCIAL INSTITUTION -,... • . ...-v .,.MOCKXXX aCXx�x4 RX P.O. Box oy�7,Nall__Station..1J-?CT=91: �. X XX Attu: Sharon McNeill... `!*t �' . '='s' ='p�'y '`'�"*. ��j�.,.�y s •.�ro� ...°,.:1—_.:..rua. .•r...w .mac-ay. .LT.,:4i....- ..._ _ ^� ++.-:11 t ' r ;:sell. -+•.-- - w•�+; ,... .-. .....- r.;7-fin..-....-., 1 CITY STATE ZIP CODE • DIRECT DEPOSIT(ACH) INFORMATION To be Completed by the Financial Institution ACCOUNT NAME6 qnl �. _1420 0=00 . .._ _. _- - -- ACCOUNT NUMBER DDA#175-361 S - ' - A ; 'i01- 130 0609 = ROUTING NUMBER �:}-�--.Q. _. ,_ •::_.,.s.;: ACCOUNT TYPE CHECKING tX SAVINGS E A.Bureau of the Public Debt Copy April 8 , 1993 Ameritrust Texas, National Association P. O. Box 3285 Houston, TX 77253 Attention: Corporate Trust Gentlemen: The bonds described below have been called for redemption prior to scheduled maturities on the redemption date set out below, at the redemption price of par plus accrued interest to the date fixed for redemption, by ordinance adopted on April 8 , 1993 , by the City Council of the City of Pearland, Texas. As registrar for such bonds, you are hereby directed to give notice of redemption of such bonds in accordance with the provisions of the ordinance authorizing their issuance. Such notice is to be given at least thirty days prior to the redemption date by (i) certified mail to • the owner of each bond to be redeemed in whole or in part at the address shown on the Register, and (ii) publication one time in a financial journal or publication published in the City of New York, New York, or in the City of Austin, Texas. The notice must identify the bonds to be redeemed and must set out the following information: (A) Redemption Date (shown below) . (B) Amount of accrued interest payable. (C) Place at which bonds are to be surrendered for payment (Ameritrust) . (D) The numbers of the bonds to be redeemed. Bonds to be Redeemed Redemption Date Public Improvement Bonds, Series 1988 Maturities 1999 through 2003 March 1, 1998 a Please have affidavits of the publication of such notice furnished to the undersigned and to Mr. Clifford W. Youngblood, Vinson & Elkins L.L.P. , 2500 First City Tower, 1001 Fannin, Houston, TX 77002-6760. Very truly yours, e//' •• Mayor City of Pearland, Texas Received this Jyd. day of May, 1993 . AMERITRUST TEXAS, NATIONAL ASSOCIATION By Li LETHA GLOVER = TRUST OFFICER Title NOTICE OF REDEMPTION Notice is hereby given that the City of Pearland, Texas (the "City") has called the following bonds of the City for redemption on September 1, 1993 , at the redemption price hereafter stated, in accordance with the ordinance authorizing the issuance of such bonds: CITY OF PEARLAND, TEXAS, PERMANENT IMPROVEMENT BONDS, SERIES 1978 , dated September 1, 1978, in the aggregate principal amount of $900, 000, maturing on March 1 in each of the years 1994 through 1997 . The redemption price for the above bonds is par plus accrued interest to September 1, 1993 , the date fixed for redemption. Upon the City' s making due provision on or prior to September 1, 1993 , for the payment of the redemption price for the above bonds in accordance with the ordinance authorizing their issuance, such bonds shall be redeemed and shall no longer bear interest after September 1, 1993 . The redemption price for such bonds shall be paid at the principal corporate trust office of Texas Commerce Bank National Association, Houston, Texas (successor to First City National Bank of Houston, Houston, Texas) , the Paying Agent for such bonds. Dated April 8 , 1993 . C. W. Coppinger, Mayor City of Pearland, Texas a a Texas Commerce Bank National Association, Houston, Tcxas, acknowledges receipt of this notice of redemption on the 5 - day of May, 1993 . TEXAS COMMERCE BANK NATIONAL ASSOCIATION a By AA:i Atee-W-874-1 Assistant Vice President Title corporate Trust Officer a a a a Al April 8, 1993 Texas Commerce Bank National Association P. O. Box 4631 Houston, TX 77210 Attention: Corporate Trust Gentlemen: The bonds described below have been called for redemption prior to scheduled maturities on the redemption date set out below, at the redemption price of par plus accrued interest to the date fixed for redemption, by ordinance adopted on April 8, 1993 , by the City Council of the City of Pearland, Texas. As registrar for such bonds, you are hereby directed to give notice of redemption of such bonds in accordance with the provisions of the ordinance authorizing their issuance. Such notice is to be given at least thirty days prior to the redemption date by (i) first class mail, postage prepaid, to the owner of each bond to be redeemed in whole or in part at the address shown on the Bond Register, and (ii) publication in a financial journal or publication published in the City of New York, New York, or in the City of Austin, Texas. The notice must identify the bonds to be redeemed and must set out the following information: (A) Redemption Date (shown below) . (B) Redemption Price (par plus accrued interest) . (C) Place at which bonds are to be surrendered for payment (TCB) . (D) The numbers of the bonds to be redeemed. Bonds to be Redeemed Redemption Date Refunding Bonds, Series 1985 Maturity 1996 and Maturities 1998 through 2001 March 1, 1995 V Please have affidavits of the publication of such notice furnished to the undersigned and to Mr. Clifford W. Youngblood, Vinson & Elkins L.L.P. , 2500 First City Tower, 1001 Fannin, Houston, TX 77002-6760. Very truly yours, Mayor City of Pearland, Texas r r r r r I Received this D day of May, 1993 . TEXAS COMMERCE BANK NATIONAL ASSOCIATION By 14 ,4.A-11- fl_' Assistant Vice President Title Corporate Trust Officer 4 a a April 8, 1993 a Texas Commerce Bank National Association P. 0. Box 4631 Houston, TX 77210 Attention: Corporate Trust Gentlemen: The bonds described below have been called for redemption prior to scheduled maturities on the redemption date set out below, at the redemption price of par plus accrued interest to the date fixed for redemption, by ordinance adopted on April 8, 1993 , by the City Council of the City of Pearland, Texas. As registrar for such bonds, you are hereby directed to give notice of redemption of such bonds in accordance with the provisions of the ordinance authorizing their issuance. Such notice is to be given at least thirty days prior to the redemption date by (i) certified mail to the owner of each bond to be redeemed in whole or in part at the address shown on the Register, and (ii) publication one time in a financial journal or publication published in the City of New York, New York, or in the City of Austin, Texas. The notice must identify the bonds to be redeemed and must set out the following information: (A) Redemption Date (shown below) . (B) Amount of accrued interest payable. (C) Place at which bonds are to be surrendered for payment (TCB) . (D) The numbers of the bonds to be redeemed. Bonds to be Redeemed Redemption Date Public Improvement Bonds, Series 1986 Maturities 1998 through 2003 March 1, 1997 Please have affidavits of the publication of such notice furnished to the undersigned and to Mr. Clifford W. Youngblood, Vinson & Elkins L.L.P. , 2500 First City Tower, 1001 Fannin, Houston, TX 77002-6760. Very truly yours, e47- 9 Mayor City of Pearland, Texas a a a a a a a a a Received this - day of May, 1993 . a TEXAS COMMERCE BANK NATIONAL ASSOCIATION BY 14+:1 Assistant Vice President Corporate Trust Officer Title a a a CITY OF PEARLAND, TEXAS May 11, 1993 a THE TEXAS BOND REPORTER P. O. Box 2177 Austin, TX 78768-2177 Re: Publication of Notice of Redemption Gentlemen: Pursuant to an ordinance adopted by the City Council of the City of Pearland, Texas, you are hereby requested to publish the enclosed Notice of Redemption in THE TEXAS BOND REPORTER one time as soon as possible. The invoice for the cost of the publication should be sent to Ms. Janet S. Eastburn, Director of Finance, City of Pearland, P. O. Drawer 2068, Pearland, TX 77588. Please send six affidavits of publication to Mr. Clifford W. Youngblood at Vinson & Elkins L.L.P. , 2500 First City Tower, 1001 Fannin, Houston, TX 77002-6760. Yours very truly, Mayor City of Pearland, Texas a a a NOTICE OF PRIOR REDEMPTION CITY OF PEARLAND, TEXAS, PERMANENT IMPROVEMENT BONDS, SERIES 1978, dated September 1, 1978, in the aggregate principal amount of $900, 000, maturing on March 1 in each of the years 1994 through 1997. NOTICE IS HEREBY GIVEN that the City of Pearland, Texas, has called the above bonds for redemption on September 1, 1993 . Such bonds will be redeemed at Texas Commerce Bank National Association, Houston, Texas (successor to First City National Bank of Houston, Houston, Texas) , where due provision shall be made to pay the redemption price of par plus accrued interest to September 1, 1993 . Such bonds shall not bear interest after September 1, 1993 . Under current U.S. Federal income tax law, paying agents are required to withhold 31% of payments to bondholders who fail to provide a valid taxpayer identification number, certified to be correct under penalties of perjury, on or before the date on which the bonds are presented for payment. Additionally, bondholders who fail to provide such a number are subject to a penalty of $50. When presenting your securities for payment, please submit a completed Internal Revenue Service Form W-9, which includes your taxpayer identification number, to avoid this 31% withholding from your payment. BY ORDINANCE of the City Council of the City of Pearland, Texas, adopted April 8, 1993 . C. V. Coppinger, Mayor City of Pearland, Texas X THE STATE OF TEXAS X X — X COUNTY OF TRAVIS X X Before me, the undersigned authority, on this date personally appeared Charlotte Hawkins , who, having been by me duly sworn , upon her oath deposes and says ; That she is editor of TEXAS BOND REPORTER, an official publication of Municipal Advisory Council of Texas , and is authorized to make this affidavit; that the attached is a true and correct copy of NOTICE OF REDEMPTION - CITY OF PEARLAND, PERMANENT IMPROVEMENT BONDS, SERIES 1978 was published in the TEXAS — BOND REPORTER on the following date(s) , to wit: May 14, 1993. Sworn to and subscribed before me this the 14th day of May, A.D. 1993. C44LC.ci Notary Public in and for the State of Texas My commission expires 1-25-96 . — TEXAS BOND REPORTER NOTICE OF PRIOR REDEMPTION CITY OF PEARLAND, TEXAS, PERMANENT IMPROVEMENT BONDS, SERIES 1978 , dated September 1, 1978, in the aggregate principal amount of $900, 000, maturing on March 1 in each of the years 1994 through 1997. NOTICE IS HEREBY GIVEN that the City of Pearland, Texas, has called the above bonds for redemption on September 1, 1993 . Such bonds will be redeemed at Texas Commerce Bank National Association, Houston, Texas (successor to First City National Bank of Houston, Houston, Texas) , where due provision shall be made to pay the redemption price of par plus accrued interest to September 1, 1993 . Such bonds shall not bear interest after September 1, 1993 . Under current U.S. Federal income tax law, paying agents are required to withhold 31% of payments to bondholders who fail to provide a valid taxpayer identification number, certified to be correct under penalties of perjury, on or before the date on which the bonds are presented for payment. Additionally, bondholders who fail to provide such a number are subject to a penalty of $50. When presenting your securities for payment, please submit a completed Internal Revenue Service Form W-9, which includes your taxpayer identification number, to avoid this 31% withholding from your payment. _ BY ORDINANCE of the City Council of the City of Pearland, Texas, adopted April 8, 1993 . C. V. Coppinger, Mayor City of Pearland, Texas PAID ADV. May 14, 1993 Page 1111 SIGNATURE IDENTIFICATION AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § We, the undersigned officers of the City of Pearland, Texas, certify that we officially signed, by our manual or facsimile signatures, on behalf of said City, the following described bonds, hereinafter called the "Bonds" , to wit: CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993 , dated May 1, 1993 , in the principal amount of $6 , 510, 000, being on the date of such signing and on the date hereof the duly chosen, qualified and acting officers authorized to execute the Bonds, and holding the official titles set forth below opposite such signatures. We further certify that said facsimile signatures have been affixed to the Bonds with our full knowledge and consent, and we hereby respectively adopt the same as our own signatures. We further certify that no litigation of any nature is now pending or to our knowledge threatened, either in the State or Federal courts contesting or attacking the Bonds or restraining or enjoining their issuance, execution or delivery, or restraining or enjoining the levy and/or collection and/or pledge of the funds from which the Bonds are payable, or in any manner questioning the authority or proceedings for the issuance, execution or delivery of the Bonds, or affecting the title of the present officials, or the boundaries of the City, and that no proceedings or authority for the issuance, execution or delivery of the Bonds have been repealed, rescinded or revoked. We further certify that the seal which has been impressed, or placed in facsimile, upon the Bonds is the legally adopted, proper and only official seal of the issuer of the Bonds, said official seal being impressed on this certificate. We further certify that no petition or other request has been filed with or presented to any official of the issuer of the Bonds requesting that any of the proceedings authorizing the Bonds be submitted to a referendum or other election. We further certify that the information and data contained in the General Certificate dated April 8 , 1993 , are still true and correct as of this date. rN WITNESS OUR HANDS this 4.„ day of May, 1993 . SIGNATURES TITLE OF OFFICE '• 'Y /I'l Mayor C. . Coppi e 77c1 I/ Pat Jones City Secretary (SEAL) The signatures of the above officers are hereby certified to be genuine. Ye 6///G;Z6 2§ (7,41 Fe t// Name of Bank i nature of Ban OAA/ i r g UG C-ttG • `�/L� AC/G/1W City Title of Bank Officer (BANK SEAL) r I I a �RNE}`Ct, i • PeS Office of tije Zittorrtep enera[ 'tate of Texas' DAN MORALES ATTORNEY GENERAL ��� —���7�CJ' May 6, 1993 THIS IS TO CERTIFY that City of Pearland, Texas (the "Issuer") has submitted to me City of Pearland, Texas, Refunding Bonds, Series 1993 (the "Bonds"), in the aggregate principal amount of $6,510,000 for approval. The Bonds are dated May 1, 1993, numbered R-0001 through R-0011 and were authorized by an Ordinance of the Issuer passed on April 8, 1993. I have examined the law and such certified proceedings and other papers as I deem necessary to render this opinion. a 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 the Official Statement or any other offering material relating to the Bonds. Based on my examination, I am of the opinion, as of the date hereof and under existing law, as follows: (1) The Bonds have been issued in accordance with law and are valid and binding obligations of the Issuer. (2) In accordance with the provisions of the law, including an Escrow Agreement dated April 8, 1993, firm banking arrangements have been made for the discharge and final payment or redemption of the obligations being refunded upon deposit of an amount sufficient to pay said obligations when due. (3) The Bonds 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. Therefore, the Bonds are approved. 512/463-2100 P.O. BOX 12548 AUSTIN, TEXAS 78711-2548 PRI\ ; 'ON Rrc'}?ZPH'I',lILY AN EQUAL EMPLOYMENT OPPORI I,NITY EMPLOYIh.R City of Pearland, Texas, Refunding Bonds, Series 1993 - $6,510,000 Page -2- — The Comptroller is instructed that he may register the Bonds without the cancellation of the underlying securities being refunded thereby. Attorney General of the State of Texas a No.27029 Book No.93 njl a a a w s s s OFFICE OF COMPTROLLER OF THE STATE OF TEXAS I,Arlene Chisholm, nBond Clerk X 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 6th day of May. 1993, I signed the name of the Comptroller to the certificate of registration endorsed upon the: City of Pearland. Texas. Refunding Bonds. Series 1993, numbered R-0001 through R-0011, dated May 1. 1993, and that in signing the certificate of registration I used the following signature: (J-1"111.—A—e IN WITNESS EREOF I have executed this certificate this th 6th day of May. 1993. e(!f 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 described in this certificate have been duly registered in the office of the Comptroller, as appears of record on page 595 of volume 25, under Registration Number 55115 in the Bond Register kept in the office of the Comptroller. GIVEN under my hand and seal of office at Austin,Texas,this the 6th day of May. 1993. JOHN SHARP Comptroller of Public Accounts of the State of Texas r OFFICE OF COMPTROLLER rOF THE STATE OF TEXAS r 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, Refunding Bonds. Series 1993 numbered R-0001 through R-0011 , of the denomination of $ various , dated May 1 , 1993, as authorized by issuer, interest various percent, under and by authority of which said bonds/certificates were registered in the office of the Comptroller, on the 6th day of May, 1993, as appears of record on page 595 of volume 95 under Registration Number 55115 in the Bond Register kept in the office of the Comptroller. Given under my hand and seal of office, at Austin, Texas, the 6th day of May, 1993. JOHN SHARP Comptroller of Public Accounts of the State of Texas RECEIPT AND NO-LITIGATION CERTIFICATE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § We, the undersigned officers of City of Pearland, Texas (the "City") , do hereby certify, as of the date set forth below, the following: 1. On May 11, 1993 , we delivered, or caused to be delivered, to the purchaser thereof the following bonds (the "Bonds") : CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993, dated May 1, 1993, in the principal amount of $6, 510, 000. 2. At the time of such delivery, the City received from the purchaser full payment for the Bonds in keeping with the ordinance authorizing the issuance and awarding the sale thereof, such full purchase price being $6, 418, 537.95 plus accrued interest from the date of the Bonds to the date of delivery. 3 . At the time of delivery of the Bonds, (a) no litigation of any nature has been filed or is now pending which contests or attacks the validity of the Bonds, which would restrain or enjoin the issuance or delivery of the Bonds; which would restrain or enjoin the collection or pledge of funds from which the Bonds are payable or would in any other manner affect the provision made for their payment or security; or which in any manner questions the proceedings or authority concerning the issuance of the Bonds; and so far as we know and believe no such litigation is threatened; (b) neither the corporate existence nor the boundaries of the City are being contested; no litigation has been filed or is now pending which would affect the authority of the officers of the City to issue, execute and deliver the Bonds or would affect the title of the undersigned to their respective offices; and no authority or proceedings for the issuance, execution or delivery of the Bonds have been repealed, rescinded or revoked; and (c) no additional bonds, warrants or other indebtedness payable from the same source as the Bonds have been issued since the date of the General Certificate submitted to the Attorney General of Texas in connection with the approval of the Bonds. s SIGNED AND SEALED as of, and delivered on, the date of delivery of the Bonds set forth above. Mayor CITY OF PEARLAND, TEXAS City Sec ary CITY OF EARLAND, TEXAS (CITY SEAL) i 1 ' ' r r NO-ARBITRAGE CERTIFICATE I, the undersigned officer of the City of Pearland, Texas (the "City"), make this certification for the benefit of all persons interested in the exclusion from gross income for federal income tax purposes of the interest to be paid on the City's Refunding Bonds, Series 1993 (the "Bonds"), which are being issued in the aggregate principal amount of $6,510,000 and are being delivered simultaneously with the delivery of this certificate. The capitalized terms used in this certificate (unless otherwise defined) are defined in the ordinance authorizing the issuance of the Bonds (the "Ordinance") dated April 8, 1993. I do hereby certify as follows: Pm 1. Authorized Representative. I am the duly chosen, qualified and acting officer of the City for the office shown below my signature; as such, I am familiar with the facts herein certified and I am duly authorized to execute and deliver this certificate. 2. Qualification of Official. I am charged, along with others, with responsibility for issuing the Bonds. I am aware of the provisions of section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations (the "Regulations") heretofore promulgated under the Code and section 103(c) of the Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the Tax Reform Act of 1986. This certificate is being executed and delivered pursuant to sections 1.103-13, 1.103-14, 1.103-15, 1.103-18, 1.148-0 through 1.148-9, 1.148-11, 1.148-12T, +r' 1.149(d)-1 and 1.150-1 of the Regulations and certain terms used herein have the same meaning as given to those terms in the Regulations. 3. Reasonable Expectations. This certification is based on the facts and estimates in existence on the date of issue of the Bonds and, for purposes of paragraph 15 below only, the date the Bonds were sold to a group of underwriters, the book running manager of which is Masterson Moreland Sauer Whisman, Inc. (the "Underwriters"). To the best of my knowledge and belief, the expectations set forth herein are reasonable in the light of such facts and estimates. 4. Description of Governmental Purpose. The City is issuing the Bonds pursuant to the Ordinance (a) to provide funds which will be used to advance refund and defease a portion of the outstanding principal amount of the City's $1,860,000 Permanent Improvement Bonds, Series 1978 (the "Series 1978 Bonds"), a portion of the outstanding principal amount of the City's $12,060,000 Refunding Bonds, Series 1985 (the "Series 1985 Bonds"), a portion of the outstanding principal amount of the City's $4,500,000 Public Improvement Bonds, Series 1986 (the "Series 1986 Bonds") and a portion of the outstanding principal amount of the City's $2,000,000 Public Improvement Bonds, Series r , , 1988 (the "Series 1988 Bonds" and, together with the Series 1978 Bonds, the Series 1985 Bonds and the Series 1986 Bonds, the "Prior Bonds") pursuant to an Escrow Agreement dated as of April 8, 1993 (the "Escrow Agreement"), between the City and Texas r Commerce Bank National Association, Houston, Texas (the "Escrow Agent"), and (b) to pay the costs of issuance of the Bonds. Specifically, all of the Series 1978 Bonds maturing on March 1, 1994, through March 1, 1997, inclusive, in the amount of $900,000, all of the .. Series 1985 Bonds maturing on March 1, 1996, and on March 1, 1998, through March 1, 2001, inclusive, in the amount of $800,000, all of the Series 1986 Bonds maturing on March 1, 1998, through March 1, 2003, inclusive, in the amount of $2,850,000, and all of the Series 1988 Bonds maturing on March 1, 1999, through March 1, 2003, inclusive, in the amount of $1,250,000 (the "Refunded Bonds") will be retired with proceeds of the Bonds. The Refunded Bonds are being defeased in order to achieve a present-value savings in the debt service payable by the City. September 1, 1993, is the first date on which the Series 1978 Bonds, March 1, 1995, is the first date on which the Series 1985 Bonds, March 1, 1997, is the first date on which the Series 1986 Bonds and March 1, 1998, is the first date on which the Series 1988 Bonds may be redeemed at any price and on such dates all of such Refunded Bonds will be called for redemption in advance of their rscheduled maturities and retired with proceeds of the Bonds. The City has no present intent to issue any additional bonds. .. 5. Accountant's Report. At the request of the City, KPMG Peat Marwick, certified public accountants, has prepared a series of schedules and a report based thereon dated as of May 11, 1993 (the "Report"), detailing all relevant aspects of the application -R of the proceeds of the Bonds and the City's program to refund the Refunded Bonds. 6. The Prior Bonds. None of the Prior Bonds is owned or has been owned by P' the Texas Water Development Board, the Texas Water Resources Finance Authority or any other issuer of a conduit financing issue within the meaning of Section 1.148-11 of the Regulations. .. The Prior Bonds were issued in accordance with the provisions of the ordinances adopted by the City on July 24, 1978, July 22, 1985, March 10, 1986, and April 11, 1988, a authorizing the issuance, sale, and delivery of the Prior Bonds (the "Prior Bond Ordinances"). All of the original and investment proceeds allocable to the Prior Bonds I, have been expended in accordance with the Prior Bond Ordinances, except for original and investment proceeds of the Series 1985 Bonds which remain on deposit in the escrow fund created with respect to the Series 1985 Bonds (the "Series 1985 Escrow Fund"). The .• proceeds of the Series 1985 Bonds were used to advance refund and defease a portion of the outstanding principal amount of the City's Permanent Improvement Bonds, Series 1982 and the City's Public Improvement Bonds, Series 1984 (the "Prior Refunded Bonds") and to pay costs of issuance thereof. All of the original and investment proceeds allocable to the Prior Refunded Bonds have been expended. No other proceeds of the Prior Bonds were used to pay the principal of, or interest on, any other issue of governmental r -2- r , r obligations. In addition, no portion of the proceeds of the Prior Bonds was used to reimburse the City for any expenditures made by the City prior to the issuance date of the Prior Bonds. Under the Prior Bond Ordinances, the City created and continued debt service funds (the "Prior Interest and Sinking Funds") and has on hand as of the date hereof in .. such Prior Interest and Sinking Funds amounts accumulated solely from tax revenues (i.e., amounts other than proceeds of the Prior Bonds) that were to be used for the payment of debt service on the Prior Bonds and the City's other outstanding Bonds. The balance in the Prior Interest and Sinking Funds on the date hereof is not more than $1,140,537 (the "Reserve Cash"). The Prior Interest and Sinking Funds will be continued for the payment of debt service on the outstanding bonds that are not Refunded Bonds (the "Unrefunded Obligations"), and the City has created a new Interest and Sinking Fund under the Ordinance for purposes of the payment of debt service on the Bonds as described in paragraph 18 below. Not more than $335,377.19 of the aforementioned amount in the Prior Interest and Sinking Funds is allocable to the Refunded Bonds, such allocation being based on the relationship of the original principal amounts of the Refunded Bonds to the City's Unrefunded Obligations ($5,800,000/$19,724,400 or 29.4052 percent). Such Reserve Cash includes amounts the City has received and has on hand current year tax receipts ("Current Cash") that, together with earnings thereon, would have been used to pay debt service on the Refunded Bonds on September 1, 1993, the only debt service date for the Refunded Bonds that precedes the collection of tax revenues for the next fiscal year. As a result, such Current Cash is part of a bona fide debt service fund under the Regulations because such portion is depleted at least once annually to pay debt service on the Refunded Bonds. In addition, the amount of Reserve Cash of $32,602.08 (the "Reasonable Carryover") is part of a bona fide debt service fund" under the Regulations because it is equal to one-twelfth of the debt service scheduled for the 1994 fiscal year on the Refunded Bonds. 7. Use of Amounts Allocable to Prior Bonds. Other than amounts described in paragraph 6 above, there are no amounts on hand which represent proceeds of the Prior Bonds, amounts treated as proceeds of the Prior Bonds or accumulated earnings on such proceeds. Proceeds in the Series 1985 Escrow Fund will be retained therein as required by the governing escrow agreement for the purpose of paying debt service on the Series 1985 Bonds. The amount of the Current Cash is less than the amount of debt service to be paid on the Bonds on September 1, 1993. The entire amount of the Reserve Cash allocable to the Refunded Bonds will be transferred to the Interest and Sinking Fund r with respect to the Bonds and retained by the City (and invested at a restricted yield to the extent described in paragraph 18 below) based on the recommendation of the Financial Advisor set forth in Exhibit B hereto, that the balance of $335,377.19, to the extent not used to pay debt service on September 1, 1993, will be maintained in the City's Interest and Sinking Fund with respect to the Bonds to provide a reserve for periodic fluctuations in the amount and timing of ad valorem tax collections. The remaining r -3- i s „_ amount of Reserve Cash totalling approximately $805,159.81, to the extent not used to pay debt service on September 1, 1993, will be retained in the City's Prior Interest and Sinking Funds based on the recommendation of the Financial Advisor set forth in Exhibit B hereto that such balance should be maintained in the City's Prior Interest and Sinking Funds with respect to the Unrefunded Obligations. 8. Use of Proceeds of the Bonds. The net proceeds received by the City from the sale of the Bonds will be $6,425,993.40. Such amount represents the original principal amount of the Bonds, equal to $6,510,000, plus accrued interest in the amount of $7,455.45, less an original issue discount in the amount of $36,127.05 and an underwrit- ers' discount in the amount of $55,335. The net proceeds received by the City from the sale of the Bonds will be expended as follows: (a) The amount of $6,293,000 will be deposited in the escrow fund ,,. established pursuant to the Escrow Agreement (the "Escrow Fund") and used on the date hereof to purchase United States Treasury Certificates of Indebtedness and Notes, State and Local Government Series (the "Restricted Securities"), the proceeds of which will be used as described in the Report to pay the principal of, and interest and redemption premium, if any, on, the Refunded Bonds. (b) The amount of $7,455.45, representing accrued interest on the Bonds from May 1, 1993, through the date of delivery, will be deposited in the Interest and Sinking Fund, and will be disbursed on September 1, 1993, to pay interest on the Bonds. a (c) The amount of $94,805 will be disbursed to pay the costs of issuance on the Bonds (including any rating agency fees charged to the City by the Bond insurer). (d) The amount of $30,625.82 will be disbursed to pay insurance premium on the Bonds (net of any rating agency fees). (e) The amount of $100.93 represents a rounding amount that, if not used to pay additional costs of issuing the Bonds, will be deposited in the Interest and Sinking Fund and used to pay debt service on the Bonds on the first interest payment date. (f) The amount of $6.20 will be deposited as the initial cash balance in the Escrow Fund and disbursed on September 1, 1993, to pay debt service on the Refunded Bonds. Pending disbursement, such amount will not be invested. -4- a 9. Investment Proceeds. Except for earnings on the amounts described in paragraphs 8(b) through 8(e) and the amount of $5.00 set forth in the Report as the amount expected to be remaining in the Escrow Fund following the final debt service payment with respect to the Refunded Bonds on March 1, 1998, all amounts received by the City, such as interest and dividends, resulting from the investment of any original pro- ceeds or investment proceeds of the Bonds will be deposited in the Escrow Fund for the •- Refunded Bonds and used to pay the principal of, and interest and redemption premium, if any, on, the Refunded Bonds. Earnings on the amounts described in paragraphs 8(b) through 8(e) will be used for one of the purposes described in such paragraphs. 10. No Overissuance. The amount of proceeds received by the City from the sale of the Bonds, after payment of costs of issuance, does not exceed the amount necessary to fund the Escrow Fund and to pay issuance and insurance costs and accrued interest on the Bonds. Except for earnings on the amounts described in paragraphs 8(b) through 8(e) and the amount of $5.00 described in paragraph 9, all investment earnings on the original proceeds of the Bonds will be retained in the Escrow Fund and used for the governmental purpose of the Bonds. The timing of receipt of the investment earnings on the amounts described in paragraphs 8(b) through 8(e), which are expected to be de minimis, does not permit their use for the governmental purpose of the issue. The amount described in paragraph 8(e) could not be eliminated other than by reducing the principal amount of the Bonds to an amount which would be insufficient to repay the Refunded Bonds, the amount necessary for the governmental purpose of the Bonds. 11. No Excess Proceeds. All of the amounts received from the sale of the Bonds, except for (i) the amount of $7,455.45 described in paragraph 8(b), (ii) the amount of $94,805 described in paragraph 8(c), (iii) the amount of $30,625.82 described in paragraph 8(d), (iv) the amount of $100.93 described in paragraph 8(e) and (v) investment earnings accruing on the amounts described in paragraphs 8(b) through 8(e) will be deposited in or transferred to the Escrow Fund. Except for the amount of $5.00 described in paragraph 9, all proceeds of the Bonds deposited in or transferred to the Escrow Fund will be used to make payments of principal and interest on the Refunded Bonds. All other proceeds of the Bonds, except for the amount described in paragraph 8(e) and the investment earnings accruing on the amounts described in paragraphs 8(b) through 8(e), will be used to pay interest accruing on the Bonds from May 1, 1993, until the date hereof or costs of issuing and insuring the Bonds. In addition, there are no other amounts which constitute original or investment proceeds of the Prior Bonds, original or transferred proceeds of the Bonds, or investment earnings on such original proceeds. Investment earnings on the amounts described in paragraphs 8(b) through 8(e) are expected to be de minimis; therefore, the sum of the investment earnings on the amounts described in paragraphs 8(b) through 8(e), the amount described in paragraph 8(e) and the amount described in paragraph 9 will be less than one percent of the original proceeds of the Bonds. -5- 12. No After-arising Replacement Amounts for Bonds. Set forth in the Report is the approximate amount of debt service savings that will be realized by the City as a result of the issuance of the Bonds based on the difference between the annual fiscal year differences between the debt service requirements for the Refunded Bonds and the debt service requirements for the Bonds. Based on these projected savings, the City will not have "after-arising replacement amounts" within the meaning of section 1.148-11(c)(1) of the Regulations for the following reasons: (a) No amount of such savings will become available to the City after the date of issue of the Bonds as a direct or indirect result of the issuance of the Bonds because the projected tax receipts for each year during which such savings are expected to result are expected to be reduced in an amount equal to or greater than such savings. (b) Even if such amounts are considered to become available to the City, the City reasonably expects additional annual capital expenditures within six months of each receipt of such amounts that exceed the corresponding annual debt service savings referenced above. (c) Even if such amounts are considered to become available to the City, the present value of such amounts is not in excess of the present value of the debt service savings attributable to the Bonds, computed in both cases using the yield on the Bonds as the discount rate. Based on the foregoing, the City reasonably expects that no amount of the savings described above will be accumulated in any fund or otherwise invested following the date such savings are anticipated to be realized. 13. Temporary Periods. Except for the amounts described in paragraphs 8(b) through 8(e) above, all of the amounts received from the sale of the Bonds, to the extent invested, will be invested in obligations the yield on which is not in excess of the yield on the Bonds. (a) Accrued Interest. The amount described in paragraph 8(b) represents accrued interest on the Bonds for a period not in excess of six months and will be expended within one year; therefore, such amount will be invested for an allowable temporary period. (b) Issuance and Insurance Costs. It is expected that the amounts described in paragraphs 8(c) and 8(d) will be disbursed within one year of the date hereof for costs of issuing and insuring the Bonds; therefore, such amount will be invested for an allowable temporary period. -6- r r (c) Rounding Amount. The amount described in paragraph 8(e) may be invested at a yield which is "materially higher" than the yield on the Bonds to the extent set forth in paragraph 20 below. To the extent any of the amounts described in paragraphs 8(b) through 8(d) are not expended as described herein, the City will take steps to restrict the investment of such amounts to a yield which is not materially higher than the yield on the Bonds except as set forth in paragraph 20. 14. Transferred Proceeds. On the date (i.e., March 1, 1995) that amounts on deposit in the Escrow Fund are used to pay principal of, or interest on, the Refunded Bonds that are Series 1985 Bonds (the "transfer date") any amounts of proceeds in the Series 1985 Escrow Fund on hand will cease to be proceeds of the Series 1985 Bonds and will become transferred proceeds (the "transferred proceeds") of the Bonds. Inasmuch as all amounts in the Series 1985 Escrow Fund will be expended prior to March 1, 1995, there will be no transferred proceeds from the Series 1985 Bonds. T', 15. Yield on the Bonds. For the purposes of this certificate, the term "yield" shall have the meaning ascribed in section 148(h) of the Code and means that yield which when used in computing the present worth of all payments of principal and interest to be paid on the obligation, produces an amount equal to the purchase price of such obligation. The yield on both the Bonds and any investments allocable to the Bonds will be calculated by the same frequency interval of compounding interest. In the case of the Bonds, "purchase price" means the initial offering price of the Bonds to the public (excluding all bond houses, brokers and other intermediaries), plus accrued interest to the date of issue only, less original issue discount, at which price a substantial amount of each maturity of the Bonds was to be sold, based on the actual facts and reasonable estimates on the date the Bonds were sold to the Underwriters. Based upon the representations of the Underwriters set forth in Exhibit A hereto, the initial offering price (including accrued interest to the date of issue only) of the Bonds to the public at which a substantial amount of each maturity of the Bonds was to be sold aggregated $6,481,328.40. Any PAUnderwriters' discount, issuance costs or costs of carrying or repaying the Bonds or the Refunded Bonds will not be taken into account as an adjustment to the purchase price, except that the cost of the insurance premium on the Bonds paid to Financial Guaranty 9. Insurance Company ("FGIC") in the amount of $30,625.82 will be treated as a reduction of the purchase price of the Bonds. With respect to the bond insurance policy provided by FGIC, the City represents that (a) FGIC is rated in one of the two highest categories for unsecured debt or insurance underwriting or claims paying ability by a nationally recognized rating agency or by issuing its policies causes obligations insured thereby to be rated in one of such two highest categories; (b) FGIC will not be called upon to make any payment with respect to the Bonds for which FGIC will not be reimbursed immediately or upon commercially r -7- a a ,,. reasonable repayment terms (during a workout period that is not unreasonably long) for any payment under the FGIC guarantee; (c) FGIC is reasonably assured that sufficient funds will be available in the event that none (or an insubstantial portion) of the proceeds •• of the Bonds are expended to fund the Project; and (d) FGIC will not perform any nonguarantee service and no portion of the insurance premium payable to FGIC includes the direct or indirect payment for a cost, risk, or other element that is not customarily a borne by guarantors of tax-exempt bonds (in transactions in which the guarantor has no involvement other than as guarantor). Based upon representations of the Underwriters set forth on Exhibit A hereto, (a) the insurance premium payable to FGIC does not exceed a reasonable charge for the transfer of credit risk taking into account payments charged by guarantors in comparable transactions (including transactions in which a guarantor has no involvement other than as a guarantor) and (b) the present value of the debt service savings expected to be realized as a result of such insurance exceeds the present value of the insurance premium payable to FGIC determined using a discount rate equal to the yield on the Bonds assuming recovery of the insurance premium. Yield on the Bonds is calculated on the basis of the final maturity date because no Bond is subject to optional or mandatory redemption prior to maturity. The yield on the Bonds calculated in this manner, as shown in the Report, is 4.47171 percent. 16. Yield on the Restricted Securities. As shown in the Report, the yield on the Restricted Securities, based on an aggregate purchase price of $6,293,000 is 4.47159 percent, a yield that is not higher than the yield on the Bonds. The City has covenanted in the Ordinance to comply with, among other things, the requirements of section 148(f) of the Code and, if required, the City will satisfy this requirement with respect to earnings on the Restricted Securities out of funds other than those in the Escrow Fund. 17. Issue. There are no obligations which (a) are issued at substantially the same time as the Bonds (i.e., within 31 days of the date hereof), (b) are sold pursuant to a common plan of financing with the Bonds, and (c) will be paid out of substantially the same source of funds or will have substantially the same claim to be paid out of substan- tially the same source of funds as the Bonds. 18. Interest and Sinking Fund. Pursuant to the Ordinance, the City has created a debt service fund designated as 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 Bonds and the City expects that taxes levied, assessed and collected for and on a account of the Bonds will be sufficient each year to pay such debt service. a -8- All amounts which will be used to pay principal of and interest on the Bonds within 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 in excess of the greater of one year's earnings on the Fund or one-twelfth of the annual debt service on the Bonds will constitute a bona fide debt service fund component of the Interest and Sinking Fund (the "Bona Fide Portion"); the remaining portion of the Interest and Sinking Fund (the "Reserve Portion") will be treated separately for purposes of this certificate. Amounts on deposit from time to time in the Bona Fide Portion and the Reserve Portion are alloca- ble between the Bonds and any other obligations of the City secured by the Interest and Sinking Fund on the basis of the relative original principal amounts of such issues. To the extent that the Reserve Portion allocable to the Bonds in the aggregate exceeds the least of(a) ten percent of the original proceeds of the Bonds (i.e., $647,387.30), (b) 100 percent of maximum annual debt service on the Bonds, and (c) 125 percent of average annual debt service on the Bonds, such excess will be invested at a yield not "materially higher" than the yield on the Bonds, except as set forth in paragraph 20 below. For purposes of determining that portion of the Reserve Portion that is allocable to the Bonds, the City will allocate in accordance with one of the following proportions: (a) the outstanding principal amounts on any date of allocation of the Bonds and such other issues of the City's obligations that are outstanding on such date of allocation, except that in the case of any bond of such issues that was issued with original issue discount or premium in excess of one-fourth of one percent multiplied by the number of complete years to maturity of the issue, the present value of that bond must be used in lieu of its outstanding principal amount; (b) the present values of such issues as of the date of allocation determined in accordance with the section 1.148-2 of the Regulations; or (c) the aggregate amount of debt service payable on such issues during the ensuing one year period. 19. No Sinking Funds. Except for and to the extent of the Interest and Sinking Fund, there is and will be no other fund or account comprised of any securities, evidences of indebtedness or other obligations and established, or to be established, by or on behalf of the City which is reasonably expected to be used, or to generate earnings to be used, to pay debt service on the Bonds or which is reserved or pledged as collateral for payment of debt service on the Bonds and for which there is reasonable assurance that amounts therein will be available to pay such debt service if the City encounters financial .., difficulties. Furthermore, no portion of the annual debt service savings resulting from the issuance of the Bonds will be accumulated in a sinking fund for the payment of debt service on the Unrefunded Obligations. 20. Minor Portion. The City expects that all proceeds received from the sale of the Bonds 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 Bonds, other than amounts on deposit in the Interest and Sinking Fund, will be expended in accordance with paragraphs 13 and 18 above. To the extent such amounts remain -9- t r unexpended or are otherwise on hand following the periods set forth in paragraphs 13 and 18 above, the City will invest such amounts at a restricted yield as set forth in such paragraphs; provided, however, that a portion of such amounts, not to exceed in the �. aggregate $100,000, may be invested at a yield which is materially higher than the yield on the Bonds. 21. 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 Bonds, within the meaning of section 148(f) of the Code be rebated to the federal government. Specifically, the City will (a) maintain records regarding the investment of the "gross proceeds" of the Bonds as may be required to calculate such "rebatable arbitrage earnings" separately from records of amounts on deposit in the funds and accounts of the City which are allocable to other bond issues of the City or moneys which do not represent "gross proceeds" of any bonds of the City, (b) calculate at such intervals as may be required by applicable Regulations, the amount of "rebatable arbitrage earnings," if any, earned from the investment of the "gross proceeds" of the Bonds and (c) pay, not less often than every �. fifth anniversary date of the delivery of the Bonds and within 60 days following the final maturity of the Bonds, or on such other dates required or permitted by applicable Regulations, all amounts required to be rebated to the federal government. Further, the City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the "gross proceeds" of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if the arrangement had been at arm's-length and had the yield on the issue not been relevant to either party. 22. No Other Refunding. No portion of the proceeds of the Bonds is expected to be used to pay any interest on, or principal of, any issue of governmental obligations other than the Bonds and the Refunded Bonds. 23. No Artifice or Device. The Bonds are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section �. 148 of the Code and the Regulations by (a) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (b) increasing the burden on the market for tax-exempt obligations. -10- 24. Not an Abusive Transaction. A device has not been and will not be employed in connection with the issuance of the Bonds to obtain a material financial advantage (based on arbitrage) apart from savings attributable to lower interest rates. The Refunded Bonds do not include any of the Prior Bonds that do not produce savings if refunded separately by an issue with terms comparable to those of the Bonds. •• Furthermore, the City is not refunding more Prior Bonds than are necessary to achieve the savings purpose of the Bonds. The Bonds have not been structured with the expectation that any revenues will thereby become available to the City for purposes of creating a sinking fund for any of the City's obligations. 25. No Arbitrage. On the basis of the foregoing facts, estimates and circumstances, it is expected that the proceeds of the Bonds will not be used in a manner that would cause any of the Bonds to be an "arbitrage bond" within the meaning of section 148 of the Code and the Regulations. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change such expectations. 26. Right to Certify. Although no examination has been made, the undersigned is neither aware of any listing or proposed listing of the City by the Commissioner of Internal Revenue, by publication in the Internal Revenue Bulletin or otherwise, to the effect that it may not certify the Bonds, nor has the City been notified of any such listing or proposed listing of it by the Commissioner of Internal Revenue, by publication in the Internal Revenue Bulletin or otherwise, to the effect that it may not certify the Bonds. WITNESS MY HAND, this 11th day of May, 1993. CITY OF PEARLAND, TEXAS By: aOww 7` . f„) Title: Mayor duo ups 503\4093(5/4/93) c:\wp501shg\pea27 Y advref93.arb -11- a EXHIBIT A CERTIFICATE OF UNDERWRITERS a We, the undersigned, have acted as Managing Underwriter for the underwriting group (the "Underwriters") in connection with the sale and delivery of the City of Pearland, Texas (the "City") Refunding Bonds, Series 1993 in the aggregate principal amount of $6,510,000 (the "Bonds"). In such capacity, we hereby certify as follows on behalf of the Underwriters: a 1. The Underwriters have purchased the Bonds from the City pursuant to a Bond Purchase Agreement dated April 8, 1993, for an aggregate purchase price of $6,425,993.40, which price includes accrued interest in the amount of $7,455.45. The aggregate initial offering price (including bond premium and discount and accrued interest to the issue date only) of the Bonds to the public (excluding bond houses, brokers and other intermediaries acting in the capacity of wholesalers or underwriters) at which price a substantial amount of each maturity of the Bonds was to be sold is $6,481,328.40. Each of the Bonds was actually offered to the general public in a bona fide public offering for the initial offering price of the Bond as set forth on the cover of the Official Statement prepared in connection with the offering of the Bonds and as set forth below: Bond Total Bond Initial Maturity Retirement Coupon Offering Date Value Rate (%) Price (%) a 09/01/93 $115,000 2.650% 100.000% 03/01/94 95,000 3.000% 100.000% 03/01/95 320,000 3.200% 100.000% 03/01/96 465,000 3.500% 100.000% ., 03/01/97 365,000 3.800% 100.000% 03/01/98 655,000 4.000% 100.000% 03/01/99 950,000 4.100% 99.484% 03/01/00 990,000 4.250% 99.410% 03/01/01 1,030,000 4.400% 99.342% 03/01/02 770,000 4.500% 98.920% 03/01/03 755,000 4.625% 98.637% a a a 2. In no event did any initial offering price for a Bond set forth above exceed the fair market value of such Bond on the sale date of the Bonds. Each such initial offering price was determined on the basis of actual facts and reasonable expectations as of the sale date and has not a been adjusted to take into account actual facts after such date. 3. The term "sale date," as used herein, is the first date on which the Bonds were sold by the City pursuant to a binding, written contract (i.e., April 8, 1993). The term "issue date" is the first day on which there a is a physical delivery of the written evidence of the Bonds in exchange for the purchase price (but not earlier than the date interest on the Bonds begins to accrue for federal income tax purposes, i.e., May 11, 1993). a The undersigned understands that the statements made herein will be relied upon by the City in its efforts to comply with the conditions imposed by the Code on the exclusion of interest on the Bonds from the gross income of their owners. Capitalized terms used herein and not otherwise defined have the meaning ascribed to such terms in the No-Arbitrage Certificate to which this certificate is attached. MASTERSON MORELAND SAUER WHISMAN, INC. By: K/ 47 Title: /SF(//g a • a 503\4093(5/4/93) c:\wp50\shg\pea270/advref93.arb a a 4.1 -2- a EXHIBIT B CERTIFICATE OF FINANCIAL ADVISOR We, the undersigned, have acted as financial advisor to the City of Pearland, Texas (the "City"), in connection with the sale and delivery of the Refunding Bonds, Series 1993 in the aggregate principal amount of$6,510,000 (the "Bonds"). In our capacity as financial advisor, we certify as follows: 1. Based upon the scheduled debt service on the Bonds and the Unrefunded Obligations, an amount of not less than $335,377.19 should be maintained as of the end of the current fiscal year as a balance in the City's Interest and Sinking Fund and an amount of not less than $805,159.81 should be maintained as of the end of the current tax year as a balance in the i City's Prior Interest and Sinking Funds consistent with accepted standards of prudent fiscal management for similar governmental districts and in order to provide a reserve against periodic fluctuations in the amount and timing of ad valorem tax collections by the City for debt service purposes and to pay debt service requirements of the Bonds and the Unrefunded Obligations on September 1, 1993. Furthermore, neither (after the payment of debt service requirements on September 1, 1993) amount exceeds the lesser of 100 percent of maximum annual debt service and 125 percent of average debt service on the Bonds and the Unrefunded Obligations, respectively. 2. The amount of $30,625.82 of the cost of insurance for the Bonds is set forth in FGIC's commitment. With respect to the bond insurance policy provided by FGIC (a) FGIC is rated in one of two highest categories for unsecured debt or insurance underwriting or claims paying ability by a nationally recognized rating agency or by issuing its policies causes obligations insured thereby to be rated in one of the two highest categories; (b) the amount of the insurance premium payable to FGIC has not been increased by any amount to reflect indirect payments of additional costs of issuance (i.e., costs in addition to a charge for transfer of credit risk); (c) FGIC will not perform any nonguarantee service and no portion of the insurance premium payable to FGIC includes the direct or indirect payment for a cost, risk, or other element that is not customarily borne by guarantors of tax-exempt bonds (in transactions in which the guarantor has no involvement other than as guarantor); (d) the insurance premium payable to FGIC does not exceed a reasonable charge for the transfer of credit risk taking into account payments charged by guarantors in comparable transactions (including transactions in which a guarantor has no involvement other than as a guarantor); and (e) the present value of the debt service savings expected to be realized as a result of such insurance exceeds the present value of the insurance premium payable to FGIC determined using a discount rate equal to the yield on the Bonds assuming recovery of the insurance premium. The undersigned understands that the statements made herein will be relied upon by the City in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986 on the exclusion of interest on the Bonds from the gross income of their owners. RAUSCHER PIERCE REFSNES, INC. By: Title: • `A isk 50314093(5/4193) c:\wp50\shg\pea270/advref93.arD aA aw a -2- Form 8038-G Information Return for Tax-Exempt Governmental Obligations (Rev.October 1989) to Under Section 149(e) OMB No :5a5:-:_ ►See separate Instructions OM Department of the Treasury Expires 5-3:-9: Internal Revenue Service (Use Form 8038-GC if the issue price is under$100.000) Part I Reporting Authority Check box it Amended Return ► 1 Issuer's name 2 tsSulr'S employer dent fication num e• ow City of Pearland, Texas 74-6028909-7 3 Number and street 4 Report number 3519 Liberty Drive G19 93 - 1 .. S City or town,state.and ZIP code 6 Date of issue Pearland, Texas 77581 May 11, 1993 7 Name of Issue 8 CUSIP Number a Refunding Bonds, Series 1993 704862LS8 Part II Type of Issue(check box(es)that applies and enter the Issue Price) 9 Check box if obligations are tax or other revenue anticipation bonds► ❑ Is>..e-r-e _ 10 Check box if obligations are in the form of a lease or installment sale► ❑ 11 ❑ Education $ 12 ❑ Health and hospital 13 ❑ Transportation 14 ❑ Public safety 15 ❑ Environment(including sewage bonds) 16 ❑ Housing .. 17 ❑ Utilities 18 ® Other. Describe(see Instructions)► improvement of City streets and sewer 6 473 872.95 system; construction of City building 717'., - Part III Description of Obligations (d) (d) (u (a) (b) (c) Stated redemption Weighted (f) Net•r`te•es Maturity date Interest rate Issue price price at maturity averse maturityYield i cos! 19 Final maturity . 3/1/2003 4.62596 744,709.35 755,000 %///f/ff/� �f��///%��,%//0/ j/f/%' - 20 Entire issue . .fr f/ff/ff/f ffA6,473,872.95 6,510,000 6.289 years 4.472 % 4.411 -, IZEI Uses of Original Proceeds of Bond Issues(Including underwriters'discount) 21 Proceeds used for accrued interest 21 7,455.45 .. 22 Issue price of entire issue(enter line 20c) 22 6,473 872.95 23 Proceeds used for bond issuance costs(including underwriters'discount). . 23 150,140.00 r /�%424 Proceeds used for credit enhancement 24 30,625.82 /..' 25 Proceeds allocated to reasonably required reserve or replacement fund . 25 0 /��';. ` 26 Proceeds used to refund prior issues 26 6,293,006.20 27 Total(add lines 23,24,25,and 26) 27 6,473,772.02 28 Nonrefunding proceeds of the issue(subtract line 27 from line 22 and enter amount here) 28 100.93 Part V Description of Refunded Bonds(complete this part only for refunding bonds) 29 Enter the remaining weighted average maturity of the bonds to be refunded ► 6.540 years 30 Enter the last date on which the refunded bonds will be called , ► March 1 , 1998 31 Enterthedate(s)therefundedbondswereissued ► 10/17/78; 8/15/85; 4/15/86; 5/11/88 Part VI Miscellaneous 32 Enter the amount of the state volume cap allocated to the issue ► --0-- 33 Enter the amount of the bonds designated by the issuer under section 265(bX3)(8XiXIII) (small issuer exception) ► 6,510,000 34 Pooled financings: a Enter the amount of the proceeds of this issue that are to be used to make loans to other governmental units► --0-- b Check box if this issue is a loan made from the proceeds of another tax-exempt issue ► 0 and enter the name of the issuer ► and the date of the issue O. Under penalties of perjury.I declare that I have examined this return and accompanying schedules and statements,and to the best of my rnowiedge ano:e e• they are true,correct,and complete. xx. Please RANDY K. WEBER, MAYOR PRO TES Signgb...„,,L, , <AI Here 05/11/93 C.V. Coppinger, Mayor aSignature of officer Date Type or print name and title For Paperwork Reduction Act Notice,see page 1 of the Instructions. Form 8038-G (Rev -€s) i CLOSING CERTIFICATE We, the undersigned, Mayor and City Secretary of the City of Pearland, Texas (the "City") , acting solely in our official capacities, hereby certify with respect to the City's $6, 510, 000 Refunding Bonds, Series 1993 (the "Bonds") , as follows: 1. This certificate is being given pursuant to Section 7 (F) (6) and (7) of that certain Bond Purchase Agreement (the "Bond Purchase Agreement") dated April 8, 1993 between the City and Masterson Moreland Sauer Whisman, Inc. and Coastal Securities Ltd. (the "Underwriters") . Capitalized terms herein are used as defined in the Bond Purchase Agreement. 2 . We certify that: (a) the representations and warranties of the City contained in the Bond Purchase Agreement are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing; (b) except to the extent disclosed in the Official ,. Statement, to our knowledge, no litigation is pending or threatened in any court to restrain or enjoin the issuance or delivery of the Bonds, or the collection of the taxes pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity of the Bonds, the Ordinance, the Escrow Agreement or the Bond Purchase Agreement, or contesting the powers of the City or contesting in any way the accuracy, completeness or fairness of the Preliminary Official Statement or the Official Statement; and (c) 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 purpose of 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. 3 . Other than as reflected in the Official Statement, there has not been any material and adverse change in the affairs or financial condition of the City since September 30, 1992, the latest date as to which audited financial information is available. SIGNED AND SEALED as of May 11, 1993 , the date of payment for and delivery of the Bonds. CITY OF PEARLAND, TEXAS Mayor City Secre ry (SEAL) a a a a PAYING AGENT/REGISTRAR AGREEMENT a AGREEMENT entered into as of April 8, 1993 (this 'Agreement'), by and between Ameritrust Texas National Association, duly organized and existing under the laws of the United States of America ("Ameritrust') and the City of Pearland,Texas,a municipality,organized and existing under the Constitution and laws of the State of Texas (the 'Issuer'). RECITALS a WHEREAS, the Issuer has duly authorized and provided for the issuance of its securities to be issued only in registered form, as to the payment of principal and interest thereon in an aggregate principal amount of $6,510,000 and titled Refunding Bonds, Series 1993 (the 'Securities') and WHEREAS, the Issuer has selected Ameritrust to serve as Paying Agent/Registrar in connection with the payment of the principal of, premium, if any, and interest on said Securities and with respect to the registration, transfer and exchange thereof by the registered owners thereof, and WHEREAS, Ameritrust has agreed to serve in such capacities for and on behalf of the Issuer and has full power and authority to perform and serve as Paying Agent/Registrar for the Securities; NOW, THEREFORE, it is mutually agreed as follows. a ARTICLE ONE APPOINTMENT OF AMERTIRUST AS PAYING AGENT AND REGISTRAR _ Section 1.01 Appointment The Issuer hereby appoints Ameritrust to serve as Paying Agent with respect to the Securities, to pay to the registered owners of the Securities the principal, premium (if any) and interest on the Securities as the same become due and payable to the registered owners thereof; all in accordance with this Agreement and the Security Resolution (hereinafter defined). The Issuer hereby appoints Ameritrust as Registrar with respect to the Securities and, as Registrar for the Securities, Ameritrust shall keep and maintain for and on behalf of the Issuer, books and records as to the ownership of said Securities and with respect to the transfer and exchange of said Securities as provided herein and in the Security Resolution. Ameritrust hereby accepts its appointment and agrees to serve as the Paying Agent and Registrar for the Securities. Section 1.02 Compensation As compensation for Ameritrust's services as Paying Agent/Registrar, the Issuer hereby agrees to pay Ameritrust the fees and amounts set forth in Annex A attached hereto for the remainder of the Fiscal Year during which this Agreement is executed and thereafter the fees and amounts set forth in Ameritrust's current fee schedule then in effect for services as Paying Agent/Registrar for municipalities, which shall be supplied to the Issuer on or before 90 days prior to the close of the Fiscal Year of the Issuer, and shall be effective upon the first day of the following Fiscal Year. In addition, the Issuer agrees to reimburse Ameritrust upon its request for all reasonable expenses, disbursements and advances (including the reasonable compensation and expenses and disbursements of its agent and counsel) incurred or made by Ameritrust pursuant to, or as a result of, any of the provisions thereof. ARTICLE TWO DEFINITIONS Section 2.01 Definitions For all purposes of this Agreement, except as otherwise expressly provided or unless the context requires: "Acceleration Date' on any Security means the date on and after which the principal or any or all installments of interest, or both, are due and payable on any Security which has become accelerated pursuant to the terms of the Security. "Ameritrust Office" means the corporate trust office of Ameritrust as indicated on page 9. "Security Resolution' means the resolution, order or ordinance of the governing body of the Issuer pursuant to which the Securities are issued certified by the secretary or any other officer of the Issuer and delivered to Ameritrust. "Fiscal Year" means the fiscal year of the Issuer ending September 30. 'Holder' and "Security Holder' each means a Person in whose name a Security is registered in the Security Register. "Issuer Request' and 'Issuer Order" means a written request or order signed in the name of the Issuer by an officer of the governing body of the Issuer or such other person named, or appointed by virtue of holding a particular position with the Issuer, in the Security Resolution as authorized to sign, and delivered to Ameritrust. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision of a government. "Predecessor Securities"of any particular Security means every previous Security evidencing all or a portion of the same obligation as that evidenced by such particular Security (and, for the purposes of this definition, any Security registered or delivered under Section 4.06 in lieu of a mutilated, lost, destroyed,or stolen Security shall be deemed to evidence the same obligation as the mutilated, lost, destroyed or stolen Security). "Redemption Date'when used with respect to any Security to be redeemed means the date fixed for such redemption pursuant to the terms of the Security Resolution. "Responsible Officer' when used with respect to Ameritrust means the Chairman or Vice- Chairman of the Board of Directors, the Chairman or Vice-Chairman of the Executive Committee of the Board of Directors, the President,any Vice President, the Secretary, any Assistance Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, or any other officer of Ameritrust customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Security Register" means the books and records to be maintained by Ameritrust on behalf of the Issuer relating to the registration, transfer, exchange, and payment of the Securities. -2- a 'Stated Maturity' means the date specified in the Security Resolution as the fixed date on which the principal of the Security is scheduled to be due and payable. Section 2.02 Other Definitions The terms "Ameritrust," "Issuer,' and 'Security" have the meanings assigned to them in the recital paragraphs of this Agreement. The term 'Paying Agent/Registrar" refers to Ameritrust when it is performing the functions associated with such terms in this Agreement. Section 2.03 Construction of Terms If appropriate in the context of this Agreement, words of the singular number shall be considered to include the plural, words of the plural shall be considered to include the singular, and words of the masculine, feminine, or neuter gender shall be considered to include the other genders. ARTICLE 'THREE PAYING AGENT Section 3.01 Duties of Paying Agent As Paying Agent, Ameritrust shall, provided adequate collected funds have been provided to it for such purpose by or on behalf of the Issuer, the principal of such Security at its Stated Maturity, Redemption Date, or Acceleration Date to the Holder upon surrender of the Security certificate to Ameritrust at the Ameritrust Office. As Paying Agent, Ameritrust shall, provided adequate collected funds have bee provided to it for such purpose by or on behalf of the Issuer, pay on behalf of the Issuer the interest on each Security when due. Ameritrust shall compute the amount of interest to be paid each Holder, and shall prepare and send a check in such amount by United States mail (first class postage prepaid) or prior to each interest payment date, to the Holder of each Security (or Predecessor Securities) whose name appears in the Security Register on the record date. Such checks shall be mailed in such manner to such Holder the address for such Holder appearing on the Security Register, or shall be transmitted to such Holder on each interest payment date by such other method acceptable to Ameritrust, requested in writing by, and at the risk and expense of, the Holder. Section 3.02 Payment Dates a The Issuer hereby instructs Ameritrust to pay the principal of and interest on the Securities at the dates specified in the Security Resolution. ARTICLE FOUR REGISTRAR Section 4.01 Transfer and Exchange Ameritrust agrees to keep and maintain for and on behalf of the Issuer at the Ameritrust Office, books and records (herein sometimes referred to as the "Security Register") for recording the names and addresses of the Holders of the Securities, the transfer, exchange and replacement of the Securities and the payment of the principal of and interest on the Securities to the Holders and containing such other information as may be reasonably required by the Issuer and subject to such reasonable regulations as the Issuer and Ameritrust may prescribe. All transfer, exchanges and replacement of Securities shall be noted in the Security Register. Every Security certificate surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument or transfer, the signature on which has been guaranteed by an officer -3- of a federal or state bank or a member of the National Association of Securities Dealers, in form satisfactory to Ameritrust, duly executed by the Holder or his attorney duly authorized in writing. As a condition to effecting a re-registration, transfer, or exchange of the Securities, the Registrar may request any supporting documentation it feels necessary to effect a re-registration, transfer, or exchange of the Securities. To the extent possible and under reasonable circumstances, Ameritrust agrees that, in relation to an exchange or transfer of Securities, the exchange or transfer by the Holders thereof will be completed and new Securities delivered to the Holder or the assignee of the Holder in not more than three (3) business days after the receipt of the Securities to be canceled in an exchange or transfer and the written instrument of transfer or request for exchange duly executed by the Holder, or his duly authorized agent, in form and manner satisfactory to the Paying Agent/Registrar. Section 4.02 Certificates The Issuer shall provide the Registrar with an adequate inventory of Securities certificates to facilitate transfers. Ameritrust covenants that it will maintain the Securities certificates in safekeeping, and will use reasonable care in maintaining such Securities certificates in safekeeping which shall be not less than the level of care it maintains for debt securities of other governments or corporations for which it serves as registrar, or which it maintains for its own securities. a Section 4.03 Form of Security Register Ameritrust as Registrar will maintain the records of the Security Register in accordance with Ameritrust's general practices and procedures in effect from time to time. Ameritrust shall not be obligated to maintain such Registrar in any form other than those which Ameritrust has currently available and currently utilizes at the time. The Security Register may be maintained in written form or in any other form capable of being converted into written form within a reasonable time. Section 4.04 List of Security Holders Ameritrust will provide the Issuer at any time requested by the Issuer, upon payment of the required fee, a copy of the information contained in the Security Register. The Issuer may also inspect the information in the Security Register at any time Ameritrust is customarily open for business, provided that reasonable time is allowed Ameritrust to provide an up-to-date listing or to convert the information into written form. Ameritrust will not release or disclose the content of the Security Register to any Person other than to, or at the written request of, an authorized officer or employee of the Issuer as specified in an Issuer Order, except upon receipt of a subpoena or court order or as required by law. Upon receipt of a subpoena or court order or other legal proceedings Ameritrust will notify the Issuer so that the Issuer may contest the same. Section 4.05 Return of Canceled Certificates Ameritrust will, at such reasonable intervals as it determines, surrender to the Issuer those Securities certificates in lieu of which or in exchange for which other Securities certificate have been issued, or which have been paid. Section 4.06 Mutilated, Destroyed, Lost or Stolen Securities Certificates The Issuer hereby instructs Ameritrust to deliver and issue Securities certificates in exchange for or in lieu of mutilated, destroyed, lost or stolen Securities certificates as long as the same does not result in an overissuance. Ameritrust will issue and deliver a new Security Certificate in exchange for a mutilated Security certificate surrendered to it. Ameritrust will issue a new Security certificate in lieu of Security certificate for which it received written representation from the Holder that the certificate representing such Security -4- is destroyed, lost or stolen; without the surrender or production of the original certificate. Ameritrust will pay on behalf of the Issuer the unpaid principal and premium, if any, of a Security at the Stated Maturity or on the Redemption Date or Acceleration Date, for which it receives written representation that the certificate representing such Security is destroyed, lost or stolen without the surrender or production of the original certificate. Ameritrust will not issue a replacement Security certificate or pay such replacement Security certificate unless there is delivered to Ameritrust such security or indemnity as it may require (which may be by Ameritrust's blanket Lost Original Instruments bond) to save both Ameritrust and the Issuer harmless. On satisfaction of Ameritrust and the Issuer that a Security certificate has been mutilated, destroyed, lost or stolen, the certificate number on the mutilated, destroyed, lost or stolen Security certificate will be canceled with a notation that it has been mutilated, destroyed, lost or stolen and a new Security certificate will be issued of the same series and of like tenor and principal amount bearing a number (according to the Security Register) not contemporaneously outstanding. Ameritrust may charge the Holder Ameritrust's fees and expenses in connection with issuing a new Security certificate in lieu of or exchange for a mutilated, destroyed, lost or stolen Security certificate. The Issuer hereby accepts Ameritrust's current blanket Lost Original Instrument bond for lost, stolen, or destroyed certificates and any future substitute blanket bond for lost, stolen or destroyed .. certificates that Ameritrust may arrange, and agrees that the coverage under any such blanket bond is acceptable to it and meets the Issuer's requirements as to security or indemnity. Ameritrust need not notify the Issuer of any changes in the security or other security or company giving bond or the terms of any such bond. At any time Ameritrust is customarily open for business, the blanket Lost Original Instruments bond then utilized for the purpose of lost, stolen or destroyed certificates by Ameritrust shall be available for inspection by the Issuer on request. The Issuer hereby accepts Ameritrust's indemnity to replace Security certificates destroyed or lost while in the possession or under the control of Ameritrust. Section 4.07 Transaction Information to Issuer Ameritrust will, within a reasonable time after receipt of an Issuer Request; furnish the Issuer information as to the Securities it has paid pursuant to Section 3.01, Security certificate it has delivered upon the transfer or exchange of any Security certificates pursuant to Section 4.01 and Security certificates is has delivered in exchange for or in lieu of mutilated, destroyed, lost or stolen Security certificates pursuant to Section 4.06. ARTICLE FIVE AMERTTRUST Section 5.01 Duties of Ameritrust Ameritrust undertakes to perform the duties set forth herein and agrees to use reasonable care in the performance thereof. Section 5.02 Reliance on Documents, Etc. (a) Ameritrust may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein,on certificates or opinions furnished to Ameritrust by the Issuer. a (b) Ameritrust shall not be liable for any error of judgement made in good faith by a Responsible Officer, unless it shall be proved in a court of competent jurisdiction that Ameritrust was negligent in ascertaining the pertinent facts. a .' -5- (c) No provision of this Agreement shall require Ameritrust to expend or risk its own funds or otherwise incur any financial liability for performance of any of its duties hereunder, or in the exercise of any of its rights or powers, it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not assure to it. (d) Ameritrust may rely and shall be protected by the Issuer against any claim by the Issuer or any other Person in acting or refraining from acting upon any resolution, certificate, statement,instrument,opinion,report,notice,request,direction,consent,order,bond,note, security, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. Without limiting the generality of the foregoing statement, Ameritrust need not examine the ownership of any Securities, but it protected in acting upon receipt of a Security certificate, containing an endorsement or instruction to transfer or power of transfer which appears on its face to be signed by the Holder or an agent of the Holder. Ameritrust shall not be bound to make any investigation into the facts or matters stated in a resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note, security, or other paper or document supplied by Issuer. (e) Ameritrust may consult with legal counsel, and the written advise of such counsel or any opinion shall be full and complete authorization and protection with respect to any action taken, suffered or omitted by it hereunder in good faith and in reliance therein; provided that any such written advise or opinion is supplied to the Issuer by Ameritrust. (f) Ameritrust may exercise any of the powers hereunder and perform any duties hereunder either directly or by or through agents or attorneys of Ameritrust. Section 5.03 Recitals of Issuer The recitals contained herein other than any recital relating to the power and authority of �- Ameritrust under this Agreement and in the Securities shall be taken as the statements of the Issuer, and Ameritrust assumes no responsibility for their correctness. Ameritrust shall in no event be liable to the Issuer, any Holder or Holders of any Security or any other Person for any amount due on any Security from its own funds. Section 5.04 May Hold Securities Ameritrust, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Issuer with the same rights it would have if it were not the Paying Agent/Registrar, or any other agent; provided that such dealings do not result in a breach of any duties or agreements imposed by this Agreement. Section 5.05 Moneys Held by Ameritrust Funds held by Ameritrust hereunder need not be segregated from any other funds provided appropriate accounts are maintained in the name and for the benefit of the Issuer. Ameritrust shall be under no liability for interest on any money received by it hereunder. Any money deposited with Ameritrust for the payment of the principal, premium (if any) or interest on any Security and remaining unclaimed for three years after the Security has become due and payable at the stated maturity will be reported and turned over to the State of Texas pursuant to Title 6 of the Texas Property Code, as amended. All funds at any time and from time to time provided to or held by Ameritrust hereunder shall be deemed, construed and considered for all purposes as being provided to or held by Ameritrust in trust and -6- as a trustee for the benefit of the Security Holders. Ameritrust acknowledges, covenants and represents that it is acting herein in a fiduciary capacity in relation to such funds, and is not accepting, holding, administering, or applying such funds as a banking depository, but solely as trustee and fiduciary for and on behalf of the Security Holders,and,consequently,shall have no right or title with respect thereto,except as trustee pursuant to the terms of this Agreement. The Security Holders shall be entitled to the same preferred claim and first lien on the funds so provided as are enjoyed by the beneficiaries of trust funds generally. The funds provided to Ameritrust hereunder shall not be subject to warrants, drafts or checks drawn by the Issuer and, except as expressly provided herein, shall not be subject to compromise, setoff or other charge or diminution by Ameritrust. Section 5.06 Interpleader The Issuer and Ameritrust agree that Ameritrust may seek adjudication of any adverse claim, demand or controversy over its person as well as funds on deposits, in any Federal or State District Court located in the State and County where either the Ameritrust Office or the Administrative Office of the Issuer is located, and agree that service of process by certified or registered mail, return receipt requested, to the address referred to in Section 6.03 of this Agreement shall constitute adequate service. The Issuer and Ameritrust further agree that Ameritrust has the right to file a Bill of Interpleader in any court of competent jurisdiction to determine the rights of any Person claiming any interest herein. Section 5.07 Indemnification To the extent permitted by law, the Issuer agrees to indemnify and hold harmless Ameritrust against any loss, liability, or expense incurred without negligence or bad faith on its own part, arising out of or in connection with the acceptance, administration, or performance of its duties hereunder, including the costs and expense of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. Section 5.08 Depository Services It is hereby represented and warranted that, in the event the Securities are otherwise qualified and accepted for Depository Trust Company or equivalent depository trust service by other organizations, Ameritrust has the capability and, to the extent within its control, will comply with the operational arrangements, which establishes requirements for securities to be eligible for such typed depository trust services, including but not limited to, requirements for the timeliness of payments and funds availability, transferred turnaround time, and notification of redemptions and calls. ARTICLE SIX MISCELLANEOUS PROVISIONS Section 6.01 Amendment This Agreement may be amended only by an agreement in writing signed by both of the parties hereto. Section 6.02 Assignment This Agreement may not be assigned by either party without the prior written consent of the other. Section 6.03 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 Ameritrust shall be mailed or delivered to the Issuer or Ameritrust, respectively, at the address shown on page 9. Section 6.04 Effect of Headings The Article and Section headings herein are for convenience only and shall not affect the construction hereof. -7- a Section 6.05 Successors and Assigns All covenants and agreements herein by the Issuer and Ameritrust shall bind their respective successors and assigns, whether so expressed or not. Section 6.06 Severability In case any provision herein shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be effected or unpaired thereby. Section 6.07 Benefits of Agreement Nothing herein, expressed or implied, shall give to any Person, other than the parties hereto and their sucrcsor hereunder, any benefit or any legal or equitable right, remedy or claim hereunder. a Section 6.08 Entire Agreement This Agreement and the Security Resolution constitute the entire agreement between the parties hereto relative Ameritrust acting as Paying Agent/Registrar and if any conflict exists between this Agreement and the Security Resolution, the Security Resolution shall govern. Section 6.09 Counterparts This Agreement may be executed in any number of counterparts, each which shall be deemed an original and all of which shall constitute one and the same Agreement. Section 6.10 Termination This Agreement will terminate (i) on the date of final payment of the principal of and interest on the Securities to the Holders thereof or (ii) may be earlier terminated by either party upon sixty (60) days written notice; provided, however, an early termination of this Agreement by either party shall not be effective until (a) a successor Paying Agent/Registrar has been appointed by the Issuer and such appointment accepted and (b) notice given to the Holders of the Securities of the appointment of a successor Paying Agent/Registrar. Furthermore,Ameritrust and Issuer mutually agree that the effective date Al of an early termination of this Agreement shall not occur at any time which would disrupt, delay or otherwise adversely affect the payment of the Securities. Upon an early termination of this Agreement, Ameritrust agrees to promptly transfer and deliver the Security Register (or a copy thereof), together with other pertinent books and records relating to the Securities, to the successor Paying Agent/Registrar designated and appointed by the Issuer. The provisions of Section 1.02 and of Article Five shall survive, and remain in full force and effect following the termination of this Agreement. Section 6.11 Governing Law This Agreement shall be construed in accordance with and governed by the laws of the State of Texas. a r -8- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year above written. oub CITY OF PEARLAND, TEXAS By. e ! V Mayor V�arz� [SEAL] Attest: City Secretary AMERITRUST TEXAS NATIONAL ASSOCIATION By: [SEAL] Attest: 4 /1-4-.7. obo r. Mailing Address: Delivery Address: Ameritrust Texas National Association Ameritrust Texas National Association sis Corporate Trust Services Corporate Trust Services P.O. Box 3285 5599 San Felipe,9th Floor Houston,Texas 77253-3285 Houston,Tens 77056 .usrevised 1/92 Yon .ia -9- PAYING AGENT/REGISTRAR'S RECEIPT The undersigned duly authorized representative of Ameritrust Texas, National Association, Houston, Texas, the paying agent/registrar for the following described bonds: CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993 , dated May 1, 1993, in the principal amount of $6,510, 000, certifies that said bonds have been delivered to the Underwriters, and that the purchase price has been received on behalf of the City. EXECUTED AND DELIVERED this llth day of May, 1993 . By • Title A47,-- a N. VINSON & ELKINS T L. L.P. THE WILLARD OFFICE BUILDING ATTORNEYS AT LAW ONE AMERICAN CENTER 1455 PENNSYLVANIA AVE,N.W. 600 CONGRESS AVENUE WASHINGTON, D-C.20004-1008 AUSTIN,TEXAS 78701-3200 TELEPHONE 12021639-6500 2500 FIRST CITY TOWER TELEPHONE 15121495-8400 FAX 12021 639-6604 1001 FANNIN FAX 15121495-8612 HUNGARIAN EXPORT BUILDING HOUSTON, TEXAS 77002-6760 3700 TRAMMELL CROW CENTER UL.POVARSKAYA(FORMERLY VOROVSKOGO),21 TELEPHONE 17131 758-2222 2001 ROSS AVENUE 121069 MOSCOW, RUSSIAN FEDERATION FAX 17131 758-2346 DALLAS,TEXAS 75201-2975 TELEPHONE 011170-951 202-8416 TELEPHONE 12141 2 20-770 0 FAX 011(70-95)202-0295 FAX 12141 220-7716 WRITER'S DIRECT DIAL 47 CHARLES ST, BERKELEY SQUARE BAGATELA 12 LONDON W1X 7PB,ENGLAND 00-585 WARSAW, POLAND TELEPHONE 011144-711491-7236 TELEPHONE 011 148-21625-33-33 IR FAX OII 144-711 499-532 0 FAX 011 148-21 625-22-45 May 11, 1993 City of Pearland, Texas Masterson Moreland Sauer Whisman, Inc. Coastal Securities, Ltd. Re: $6, 510, 000 City of Pearland, Texas, Refunding Bonds, Series 1993 Gentlemen: This letter is being furnished pursuant to Section 7 (F) (5) of the Bond Purchase Agreement, dated April 8, 1993 (the "Bond Purchase Agreement") , between the Underwriters referred to therein and City of Pearland, Texas (the "City") , relating to the issuance and sale by the City of its $6, 510, 000 Refunding Bonds, Series 1993 (the "Bonds") . In our capacity as Bond Counsel, we have reviewed the information in the Official Statement under the captions, "THE BONDS", and "LEGAL MATTERS--Legal Opinions" (insofar as such sections relate to our opinion) , and we are of the opinion that the information relating to the Bonds and the Ordinance contained under such captions in all respects accurately and fairly reflects the provisions thereof and, insofar as such information relates to matters of law, is true, accurate, and complete. It is our opinion that the Bonds are exempt from registration -• pursuant to the Securities Act of 1933 , as amended, and the Ordinance is exempt from qualification as an indenture pursuant to the Trust Indenture Act of 1939, as amended. S In the performance of our duties as Bond Counsel for the City, without having undertaken to determine independently the accuracy and completeness of all the statements contained in the Official Statement, nothing has come to our attention which leads us to believe that the Official Statement (excluding the financial statements and other financial and statistical data included therein, as to all of which no view is expressed) , contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. Very truly yours, ESCROW AGENT'S RECEIPT FOR DOCUMENTS. SECURITIES. AND FUNDS The undersigned, acting through its duly authorized officer as Escrow Agent (the "Escrow Agent") under the Escrow Agreement, dated as of April 8, 1993 (the "Escrow Agreement") , between it and the City of Pearland, Texas (the "City") , relating to the City's Refunding Bonds, Series 1993 (the "Refunding Bonds") , hereby acknowledges receipt of the following: 1. A copy of the Escrow Agreement with the Report (as defined in the Escrow Agreement) attached. 2 . The following securities and funds which have been deposited to the Escrow Fund as provided in Section 2 . 01 of the Escrow Agreement as of the date hereof: (a) Escrowed Securities in the principal amount of $6, 293, 000, purchased with proceeds of the Refunding Bonds and other funds; and (b) A beginning cash balance of $6.20. As a result of the receipt of the foregoing items, the Escrow Agreement between the Escrow Agent and the City has become effective as of the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand this llth day of May, 1993 . TEXAS COMMERCE BANK NATIONAL ASSOCIATION By G Assistant Vice President Title Corporate Trust Officer UNDERWRITER'S RECEIPT The undersigned duly authorized representative of Masterson Moreland Sauer Whisman, Inc. , the underwriter of the following described bonds: CITY OF PEARLAND, TEXAS, REFUNDING BONDS, SERIES 1993 , dated May 1, 1993, in the principal amount of $6, 510, 000, acknowledges receipt of the bonds; acknowledges that the bonds have been delivered and received in the proper form and in accordance with the terms of the agreement to purchase the bonds; and certifies that the bonds have been paid for in full. EXECUTED AND DELIVERED this llth day of May, 1993 . By C� fr . Title kE:: lte N a a a OFFICIAL STATEMENT CERTIFICATE THE STATE OF TEXAS § COUNTIES OF BRAZORIA AND HARRIS § We, the undersigned, Mayor and City Secretary of the City of Pearland, Texas (the "City") acting in our official capacities as such, hereby certify with respect to that issue of "City of Pearland, Texas, Refunding Bonds, Series 1993" , in the principal amount of $6, 510, 000 (the "Bonds") , as follows: That, to the best of our knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in its 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, such 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 therein or necessary to make the statements therein, 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 such 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. EXECUTED May 11, 1993 , the date of payment for and delivery of the Bonds. a CITY OF PEARLAND, TEXAS BY: a Mayor a City Secre ry a (SEAL) cu `� PRELIMINARYOFFICIAL STATEMENT DATED MARCH 29, 1993 This Preliminary Official Statement is subject to completion and amendment. Upon the sale of the Bonds, c m this Official Statement will be completed and delivered to the Underwriter. E5 IN THE OPINION OF BOND COUNSEL. INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL y' INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS.SEE"TAX MATTERS"FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL. INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSE- . QUENCES FOR CORPORATIONS. 0 11 NEW ISSUE Ratings: Standard & Poor's Corporation (FGIC) ..."AAA" Moody's Investors Service, Inc. (FGIC) .."Aaa" m 6 See "Municipal Bond Insurance" herein U•— c $6,465,000* 'V U CITY OF PEARLAND (Brazoria and Harris Counties, Texas) r(I)a. REFUNDING BONDS SERIES 1993 c =Cll tn._ Dated: May 1, 1993 E'E U r Interest on the Bonds maturing in the years 1993 through 2003, both inclusive (the "Bonds") will accrue from May 1, 1993, and will be payable March 1 and September 1 of each year,commencing September 1, 1993. The Bonds are referred to herein as the "Bonds" or the "Series 1993 Refunding Bonds". Principal of the Bonds is payable at the as principal corporate trust office of Ameritrust Texas, National Association, Houston, Texas, the paying agent/registrar To c (the "Registrar"), upon surrender of the Bonds for payment. Interest on the Bonds is 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 on the a: close of business as of the 15th day of the calendar month next preceding each interest payment date (the "Record E c-a.i Date"). The Bonds will be issued only in fully registered form, in denominations of$5,000 of principal amount or any a) = integral multiple thereof. The Bonds are not subject to redemption prior to their scheduled maturities. c a a N A Municipal Bond Guaranty Insurance Policy guaranteeing payment of the principal of and interest on the Bonds on E Y o the stated payment dates will be issued Financial Guarantee Insurance Company. mom fd 1 iC. ZU i w c c.0 .7 Service mark used by Financial Guaranty Insurance Company,a private company not affiliated with any U.S.government agency. o N PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES a, a) Initial Initial (73= Principal Interest Reoffering Principal Interest Reoffering o a`� Amount* Maturity Rate Yield(a) Amount' Maturity Rate Yield(a) m c $ 105,000 9/01/93 % % $ 945,000 3/01/99 % % 0 0 90,000 3/01/94 985,000 3/01/00 o c, 320,000 3/01/95 1,025,000 3/01/01 460,000 3/01/96 770,000 3/01/02 :°0 360,000 3/01/97 755,000 3/01/03 650,000 3/01/98 =o! t ai cr (a) The initial yields and prices are established by,and are the sole responsibility of the Underwriter (hereinafter defined) and may subsequently be rf, O changed. °° The proceeds of the Bonds will be applied to refund certain outstanding bonds of the City of Pearland, Texas (the ro a N "City"), and to pay certain costs incurred in connection with the issuance of the Bonds (See "THE BONDS —Sources °-o, and Uses of Funds").The Bonds,when issued,will constitute valid and binding obligations of the City and will be payable a`, 2 solely from the proceeds of an annual ad valorem tax, levied within the limits prescribed by law against taxable property If)o o within the city. rc° The Bonds are offered when, as and if issued by the City and accepted by the Underwriter, subject to the approval of a the Attorney General of Texas and the approval of certain legal matters by Vinson&Elkins L.L.P.,Houston,Texas,Bond �,3 Counsel. Certain legal matters will be passed upon for the Underwriter by Taylor, Solomon & Benson, L.L.P., Houston, c o c Texas. See "LEGAL MATTERS." Delivery of the Bonds is anticipated to be on or about May 11, 1993. E. MASTERSON MORELAND SAUER WHISMAN, INC. 92 o COASTAL SECURITIES CORPORATION to 3 * Preliminary amount, subject to change TABLE OF CONTENTS Page USE OF INFORMATION IN OFFICIAL STATEMENT 3 SALE AND DISTRIBUTION OF THE BONDS 3 Underwriting 3 Prices and Marketability 3 Securities Laws 3 BOND INSURANCE 4 Payment Pursuant to Municipal Bond New Issue Insurance Policy 4 MUNICIPAL BOND RATINGS 4 OFFICIAL STATEMENT SUMMARY 6 SELECTED FINANCIAL INFORMATION 7 THE BONDS 8 General 8 Optional Redemption 8 Source of Payment 8 Authorization of Bonds 8 Escrow Agreement 9 The Refunded Bonds 9 Sources and Uses of Funds 9 Future Borrowing 10 Registered Owners' Remedies and Effects of Bankruptcy 10 LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS 10 CITY DEBT 11 General 11 Bonded Indebtedness 11 Pro-Forma Debt Service Requirements 11 Estimated Overlapping Debt 12 Debt Ratios 12 TAX DATA 13 General 13 Property Tax Code and County-Wide Appraisal District 13 Tax Rate Limitations 13 Property Subject to Taxation by the City 14 Notice and Hearing Procedures 14 Levy and Collection of Taxes 14 Collection of Delinquent Taxes 15 Property Owned By the Resolution Trust Corporation 15 Historical Analysis of Tax Collection 16 Analysis of Tax Base 17 Estimated Overlapping Taxes 18 Sales Tax 19 SELECTED FINANCIAL DATA 20 Historical Operations of the City's General Fund 20 General Fund and Debt Service Fund Balance for the Past Five Fiscal Years 20 Pension Fund 21 Financial Statements 21 ADMINISTRATION OF THE CITY 21 Mayor and City Council 21 Administration 22 Consultants 22 a LEGAL MATTERS 23 Legal Opinions 23 No-Litigation Certificate 23 No Material Adverse Change 23 TAX MATTERS 23 Tax Exemption 23, Tax Accounting Treatment of Original Issue Discount Bonds 24 QUALIFIED TAX-EXEMPT OBLIGATIONS 25 VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION 26 GENERAL CONSIDERATIONS 26 Sources and Compilation of Information 26 Certification as to Official Statement 26 Updating of Official Statement 26 APPENDIX A - ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY a 2 USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other person has been authorized by the City or the Underwriter 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 or , the Underwriter. 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. SALE AND DISTRIBUTION OF THE BONDS Underwriting Masterson Moreland Sauer Whisman, Inc. and Coastal Securities Corporation (referred to herein as the "Underwriter") have agreed to purchase the Bonds from the City for$ , plus accrued interest on the Current Interest Bonds to the date of delivery. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriter on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is a bond house, broker or similar person acting in the capacity of underwriter or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriter at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriter. a The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriter after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS 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 For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document as the same may be supplemented or corrected by the City from time-to-time, may be treated as an OFFICIAL STATEMENT with respect to the Bonds 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 Bonds, shall constitute a "FINAL OFFICIAL STATEMENT" of the City with respect to the Bonds, as such term is defined in Rule 15c2-12. .� 3 No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933,as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction.The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. BOND INSURANCE Payment Pursuant to Municipal Bond New Issue Insurance Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds(the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the City. Financial Guaranty will make such payments to Citibank,N.A., or its successor as its agent(the "Fiscal Agent"), on the later of the date on which such principal and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice, subsequently confirmed in writing or written notice by registered or certified mail, from an owner of Bonds or the Paying Agent of the nonpayment of such amount by the City. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's right to payment of such principal and interest shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Bond includes any payment of principal or interest made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Policy is a non-cancellable and the premium will be fully paid at the time of delivery of the Bonds. The Policy covers failure to pay principal of the Bonds on their respective stated maturity dates, or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Bonds may have been accelerated, and covers the failure to pay an installment of interest on the stated date for its payment. The [Official Statement] contains a section regarding the ratings assigned to the Bonds and references should be made to such section for a discussion of such ratings and the basis for their assignment to the Bonds. References should be made to the description of the [issuer] [conduit borrower] and the Bonds for a discussion of the ratings, if any, assigned to such entity's outstanding parity debt that is not secured by credit enhancement and the circumstances, if any, under which the [issuer of the Bonds] is required to provide additional or substitute credit enhancement, and related matters. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. 4 Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation(the"Corporation"),a Delaware holding company. The Corporation is a subsidiary of General Electric Capital Corporation ("GE Capital"). Neither the Corporation nor GE Capital is obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled in the State of New York and is subject to regulation by the State of New York Insurance Department. As of December 31, 1992, the total capital and surplus of „M, Financial Guaranty was approximately$621,000,000. Financial Guaranty prepares financial statements on the basis of both statutory accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New York 10006, Attention: Communications Department(telephone number: (212)312-3000)or to the New York State Insurance Department at 160 West Broadway, 18th Floor, New York, New York 10013, Attention: Property Companies Bureau (telephone number: (212)602-0389). MUNICIPAL BOND RATINGS Moody's Investors Service and Standard & Poor's Corporation have assigned ratings of "Ana" and "AAA", respectively, to the Bonds, with the understanding that, upon delivery of the Bonds, the Financial Guaranty Policy a will be issued by Financial Guaranty. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007; Standard&Poor's Corporation, 25 Broadway, New York, New York 10004. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of either or both ratings may have an adverse effect on the market price of the Bonds. 5 a OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more complete information. GENERAL The Issuer The City of Pearland is a municipal corporation of the State of Texas located within Brazoria & Harris Counties, Texas. The Bonds $6,465,000.00*Refunding Bonds, Series 1993,are dated May 1, 1993, and mature September 1, 1993 and March 1, 1994 through March 1, 2003. See "THE BONDS - General." Payment of Interest Interest on the Bonds accrues from May 1, 1993, and is payable September 1, 1993, and on each September 1 and March 1 thereafter until maturity. Other Characteristics The Bonds are issued in fully registered form. The Bonds will be issued in denominations of$5,000 of principal amount or integral multiples thereof. The Bonds are not subject to redemption prior to their scheduled maturities. Source of Payment Principal of and interest on the Bonds are payable from the proceeds of a continuing, direct annual ad valorem tax, levied within the limits prescribed by law against taxable property located within the City. See "THE BONDS - Source of Payment." Use of Proceeds Proceeds of the Bonds will be applied to advance refund a portion of the City's $1,860,000 Permanent Improvement Bonds, Series 1978(the "Series 1978 Bonds");a portion of the City's$12,060,000 Refunding Bonds, Series 1985(the "Series 1985 Bonds"); $4,500,000 Public Improvement Bonds, Series 1986 (the "Series 1986 Bonds"); and $2,000,000 Public Improvement Bonds,Series 1988(the "Series 1988 Bonds")or collectively(the"Refunded Bonds"). In addition,the proceeds will be used to pay the costs of issuance of the Bonds. See "THE BONDS - Sources and Uses of Funds." Payment Record The City has never defaulted on the timely payment of principal of and interest on its bonds. * Preliminary amount, subject to change. 6 a a SELECTED FINANCIAL INFORMATION (Unaudited) 1992 Certified Assessed Valuation $ 654,804,750(a) (100% of market value as of January 1, 1992) See "TAX DATA" and "TAXING PROCEDURES." a Direct Debt: Outstanding Bonds(as of March 1, 1992) S 13,924,400(b) The Bonds 6,465,000(c) Total $ 20,389,400 Estimated Overlapping Debt $ 28.713.420 Direct and Estimated Overlapping Debt $ 49,102,820 Debt Service Fund Balance (as of March 1, 1992) $ 1,140,537 Ratio of Direct Debt to • 1992 Certified Assessed Valuation($654,804,750) . 3.11% 1992 Population(23,016) $ 886 a Ratio of Direct and Estimated Overlapping Debt to • 1992 Certified Assessed Valuation ($654,804,750) . 7.50% a 1992 Population(23,016) $2,133 (a) Certified by the Brazoria County Appraisal District. (b) Excludes the refunded bonds. (c) Preliminary amount, subject to change. a a a 7 THE BONDS General The following is a description of some of the terms and conditions of the Bonds, which description is qualified in its entirety by the form of the Bonds contained in the ordinance of the City Council of the City authorizing the issuance of the Bonds (the "Bond Ordinance"). A copy of the Bond Ordinance may be obtained upon request to the City. The Bonds are dated May 1, 1993, will mature on September 1, 1993 and thereafter on March 1 in the years and in the principal or maturity amounts indicated on the first page hereof. The interest rates for the Bonds are also shown on the first page hereof. Principal of the Bonds will be payable at the principal corporate trust office of Ameritrust Texas, National Association, Houston, Texas, the paying agent/registrar (the "Registrar"), upon surrender of the Bonds for payment. Interest on the Bonds accrues from May 1, 1993 (or the most recent interest payment date to which interest has been paid or duly provided for) and is payable each September 1 and March 1 thereafter until maturity. Interest on the Bonds is 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 as of the close of business on the 15th day of the calendar month next preceding each interest payment date (the "Record Date"). The Bonds are issued only in fully registered form. The Bonds will be issued in denominations of$5,000 principal amount, or integral multiples thereof. The Bonds are transferable only on the bond register kept by the Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount or maturity amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Registrar. The City has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds,or receipt of satisfactory evidence of such destruction, loss or theft,and receipt by the City and the Registrar of security or indemnity to hold them harmless. The City or the Registrar may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Optional Redemption The City does not reserve the right to redeem the Bonds prior to their scheduled maturities. Source of Payment The Bonds are payable from the proceeds of a continuing,direct annual ad valorem tax, levied within the limits prescribed by law, against taxable property located within the City. In the Bond Ordinance, the City covenants to levy a tax sufficient to pay the principal of and interest on the Bonds, with full allowance being made for delinquencies and costs of collection. Collected taxes will be placed in the Debt Service Fund and used to pay principal of and interest on the Bonds. Authorization of Bonds The Bonds are issued pursuant to the authority of the Bond Ordinance to be adopted by the City Council on the date of sale and Article 717k, Vernon's Texas Civil Statutes, as amended. 8 Escrow Agreanent The City will enter into an escrow agreement(the"Escrow Agreement")with Texas Commerce Bank, National Association, Houston, Texas, pursuant to which a portion of the proceeds of the Bonds will be invested in certain securities of the United States of America(the "Escrowed Obligations"),deposited in an escrow fund, and applied to provide for scheduled payments of principal of and interest on the Refunded Bonds until their maturity or prior redemption. By the deposit of the Escrowed Obligations and cash with the Escrow Agent pursuant to the Escrow Agreement, the City will have defeased the Refunded Bonds. In the opinion of Bond Counsel, as a result of such deposit, firm banking and financial arrangements will have been made for the discharge and final payment of the Refunded Bonds pursuant to the Escrow Agreement, and such Refunded Bonds will be deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. The Refunded Bonds The table below is a description of the bonds to be refunded of the following series (collectively the "Refunded Bonds"): a Principal Maturity Call Series Amount Date Date/Price 1978 $ 900,000 03/01/94-1997 09/01/93 ® 100 1985 $ 800,000 03/01/96-2001 03/01/95 ® 100 1986 $ 2,850,000 03/01/98-2003 03/01/97® 100 1988 $ 1,250,000 03/01/99-2003 03/01/98® 100 Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: Bond Issue Proceeds $ Accrued Interest Total Sources of Funds USES OF FUNDS: Purchase of Escrowed Obligations for Escrow Fund $ Escrow Starting Balance Accrued Interest Expenses: Underwriter Discount $ Bond Insurance Other Issuance Expenses Total Uses of Funds a 9 Future Borrowing Following the issuance of the Bonds, there will remain no bonds authorized by the electorate. Currently, the City has no plans to authorize the issuance of additional bonds. 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 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 outstanding bonds, the Bonds, and any future obligations. Registered Owners' Remedies and Effects of Bankruptcy Texas law provides that if the City defaults in the payment of the principal of or interest on any of the Bonds when due, fails to make payments required by the Bond Order into the Debt Service Fund or defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Bond Order, any registered owner shall be entitled at any time to seek a writ of mandamus from a court of competent jurisdiction compelling and requiring the City Council to observe and perform any covenant, obligation or condition prescribed by the Bond Ordinance. Such right is in addition to other rights the registered owners of the Bonds may be provided by the laws of the State of Texas. The Bond Ordinance does not specifically provide for remedies to a registered owner in the event of a City default, nor does it provide for the appointment of a trustee to protect and enforce the interests of the registered owners. There is no provision for arri leration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. Although the registered owners could obtain a judgment against the City, such a judgment could not be enforced by direct levy and execution against the City's property. Further, the registered owners cannot themselves foreclose on property within the City or sell property within the City in order to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the registered owners may be further limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions, such as the City, and by general principles of equity which permit the exercise of judicial discretion. LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Texas law provides that the Bonds 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 the sinking funds of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas. Texas law also provides that the Bonds are eligible to secure deposits of any public funds of the state or any political subdivision or public agency of the state, and are lawful and sufficient security for the deposits to the extent of their market value so long as they are rated at least "A" or the equivalent by a nationally recognized rating agency. The City has made no investigation of other laws, rules, regulations, or investment criteria which might apply to any such institutions or entities or which might limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes. The City has made no review of laws in other states to determine whether the Bonds are legal investments for various institutions in those states. 10 CITY DEBT General The following tables and calculations relate to the Bonds and to all other debt of the City. The City and various other political subdivisions of government which overlap all or a portion of the City are empowered to incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of property within the City. —, Bonded Indebtedness 1992 Certified Assessed Valuation(100% of Estimated Market Value) $ 654,804,750(a) Direct Debt Outstanding City Debt(as of March 1, 1993) $ 13,924,4000) The Bonds 6,465,000(c) ..., Total Direct Debt $ 20,389.400 Interest& Sinking Fund Balance (as of March 1, 1993) $ 1,140.537 (a) Certified by Brazoria County Appraisal District. (b) Excludes the refunded bonds. (c) Preliminary amount, subject to change. Pro-Forma Debt Service Requirements The following schedule sets forth the current total debt service requirements of the City, less the debt service on the Refunded Bonds, plus the principal and interest requirements on the Bonds. I Ecs: Debt Fiscal Year Service On Total New Ending Current Total Refunded The Bonds Debt _ 9-30 Debt Service Bonds Principal(a) Interest(b) Service 1993 $ 2,487,696 $ 198,263 $ 105,000 $ 89,553 $ 2,483,986 1994 2,480,557 591,225 90,000 265,170 2,244,502 _ 1995 2,038,499 580,525 320,000 259,405 2,037,379 1996 2,029,015 709,331 460,000 247,175 2,026,859 1997 2,028,798 596,663 360,000 232,835 2,024,970 1998 2,035,359 865,900 650,000 213,248 2,032,707 1999 2,024,404 1,126,873 945,000 181,038 2,023,569 2000 2,027,831 1,128,588 985,000 140,488 2,024,731 2001 2,029,134 1,124,096 1,025,000 96,248 2,026,286 2002 2,026,001 826,688 770,000 55,090 2,024,403 2003 2,020,288 775,313 755,000 18,498 2,018,473 2004 2,026,663 2,026,663 2005 2,028,049 2,028,049 2006 2,025,458 2,025,458 2007 2,031,930 2,031,930 2008 2,031,300 2,031,300 2009 2,032,800 2,032,800 Total $35,403,782 $8,523,465 $6,465,000 112.213.114j $35,14 ,4 065 r Average Annual Requirements (1994-2009) $2,041,255 Maximum Annual Requirement (1994) $2,244,502 (a) Preliminary amount, subject to change. 11 Estimated Overlapping Debt The following table indicates the indebtedness, defined as outstanding bonds payable from ad valorem taxes, of governmental entities overlapping the District and the estimated percentages and amounts of such indebtedness attributable to property within the District. The information is based upon data secured from individual jurisdictions and/or the Texas Municipal Reports published by the Municipal Advisory Council of Texas. Such figures do not, indicate the tax burden levied by the applicable taxing jurisdictions for operation and maintenance or for other purposes. Overlapping Taxing Jurisdiction Debt as of 3-1-93 Percent Amount Brazoria County $ 34,917,503 6.97% $ 2,433,750 Harris County 616,850,000 0.02 123,370 Harris County Toll Road 539,118,301 0.02 107,824 Harris County Flood Control 305,236,660 0.02 61,047 Pearland I.S.D. 38,890,000 66.77 25,966,853 Port of Houston 102,880,000 0.02 20.576 TOTAL ESTIMATED OVERLAPPING DEBT $28,713,420 The City 20,389,400 TOTAL DIRECT AND ESTIMATED OVERLAPPING DEBT $49,102,820 Debt Ratios Direct and Estimated Overlapping Direct Debt Debt Per 1992 Certified Assessed Valuation ($654,804,750) 3.11% 7.50% Per Capita (23,016) $886 $2,133 12 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 "FINANCIAL OPERATIONS OF THE DISTRICT - Sources of Revenue". 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; and (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 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. 13 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 is 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 disabled or over 65 years of age are entitled to apply for an additional exemption from market value of their residential homestead of$12,500. This over 65 exemption amounted to $19,472,920 from the 1992 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 thereafter. The City has elected not to grant this additional exemption for the 1992 tax year. An eligible owner of agricultural and timberland may apply to have such properties which meet certain requirements appraised on the basis of productivity value or market value, whichever is less. The loss of value due to property values based on productivity value on the 1992 tax roll approximate $18,292,360. 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 has the option to take official action to override the exemption and to continue taxing the property exempted by the amendment. The City's City Council took such official action to tax the property in 1990 and to disallow the exemption for 1991 and all future years. The City Council may elect to allow the exemption in subsequent years which could result in a reduction of the City's tax base. 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 has transferred the function of the collection of its taxes to the Pearland Independent School District. By September 1 of each year, or as soon thereafter as practicable, the rate of taxation is set by the City Council of the City 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 exci is 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. 14 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, however, the City does not permit such payments. Collection of Delinquent Taxes Taxes levied by the City are a personal obligation of the property on January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the City, having the power to tax the property. The City's tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. In the event a taxpayer fails to make timely payment of taxes due the City, the City may file suit to foreclose its lien securing payment of the tax, to enforce personal liability for the tax, or both. Whether a lien of the United States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law. In the absence of such federal law, the City's tax lien takes priority over a tax lien of the United States. The ability of the City to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units,the foreclosure sale price attributable to market conditions,the taxpayer's right to redeem the property within two years of foreclosure, or by bankruptcy proceedings which restrain the collection of a taxpayer's debts. (See "THE BONDS - Property Owned by the Resolution Trust Corporation.") Property Owned By the Resolution Trust Corporation "Financial Institutions Reform, Recovery and Enforcement Act of 1989" ("FIRREA") contains certain provisions which affect the time for protesting property valuations, the fixing of tax liens, and the collection of penalties and interest on delinquent taxes on real property owned by the Resolution Trust Company ("RTC"). Under FIRREA, real property held by the RTC is still subject to ad valorem taxation, but such act states that (i) no real property of the FDIC or RTC shall be subject to foreclose or sale without the consent of the FDIC or RTC and no involuntary lien shall attach to such property, (ii)the FDIC or RTC shall not be liable for any penalties or fines, including those arising from the failure to pay any real property tax when due, and (iii) not withstanding failure of a person to challenge an appraisal in accordance with State law, such value shall be determined as of the period for which such tax is imposed. 15 Historical Analysis of Tax Collection - Collection Ratios - Tax Rate % of Collections Tax Assessed Per $100 of Adjusted Current Current and Fiscal Year Year Valuation Assessed Valuation Tax Levy Year Prior Years Ending 9-30 1985 $591,810,120 $0.600 $3,544,618 96.92 98.79 1986 1986 554,727,670 .700 3,902,598 96.99 99.07 1987 1987 558,477,970 .735 4,103,794 96.97 99.06 1988 1988 562,461,502 .825 4,640,320 98.04 100.24 1989 1989 576,486,290 .825 4,756,012 97.45 98.86 1990 1990 575,624,520 .800 4,604,996 98.24 99.99 1991 1991 617,887,160 .800 4,943,097 97.80 98.97 1992 1992 654,804,750 .797 5,218,794 (a) (a) 1993 (a) In process of collection. - Tax Rate Distribution- 1992 1991 1990 1989 1988 1987 1986 1985 Maintenance $0.40078 $0.41 $0.378 $0.340 $0.310 $0.275 $0.246 $0.269 Debt Service .39622 .39 .422 .485 .515 .460 .454 .331 Total $0.79700 $0.80 0.800 $0.825 0.825 $0.735 $0.700 $0.600 - Analysis of Delinquent Taxes - The following is an analysis, by tax year, of taxes delinquent as of September 30, 1991. Outstanding Delinquent Taxes Adjusted Percentage Tax Year as of September 30, 1991 Tax y Lev of Tax Levy 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 1985 192,446 3,544,618 5.43 1984 166,389 3,145,445 5.29 1983 129,716 2,842,011 4.56 1982 89,685 2,729,115 3.29 1981 76,189 (a) 3.73 (a) Various levies & percentages. 16 - Delinquent Tax Collection Procedures - . In addition to the legal procedures and penalties described under "Authority for Taxation", the City 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 s - Tax Base Distribution- 1992 Tax Roll 1991 Tax Roll 1990 Tax Roll Type of Property Amount % Amount % Amount % Residential $450,666,700 65.07% $409,034,280 62.43% $377,044,890 61.69% Acreage 34,557,620 4.99 36,016,050 5.50 37,219,370 6.09 Vacant Lots/Tracts 18,390,780 2.66 20,153,170 3.08 23,082,590 3.78 Farm & Ranch 2,735,520 .39 2,659,500 .40 2,571,840 .42 Commercial/Industrial 163,589,240 23.62 163,291,570 24.92 149,950,310 24.54 Utilities 21,329,290 3.08 19,984,330 3.05 19,920,410 3.26 Other 1,300,900 .19 1,406,480 .21 1,359,760 .22 Gross Asessed Value $692,570,050 $655,198,970 $611,149,080 Less: Exemptions (37,765,300) (37,311,810) (35,524,560) Net AssPcsed Value 651804 750 $617,887,160 $575,624,520 - Principal Taxpayers - 1992 1991 1990 Taxpayer Tyne of Property Tax Roll Tax Roll Tax Roll W.R. Grace Co. (Chance Collar& Homco) Oil Field Equipment $16,520,060 $17,326,460 $13,289,360 Hausman - Banfield Prop. Apartments 8,331,730 8,510,660 8,637,250 Southwestern Bell Telephone Utility 8,069,960 7,842,000 8,127,950 Houston Lighting& Power Co. Utility 6,344,890 5,696,540 5,307,890 Wal-Mart Shopping Center 6,252,350 5,792,570 5,086,470 Whispering Winds, Ltd. & Assoc. Apartments & Townhomes 5,161,960 5,161,960 5,161,960 ., Energy Coatings Company Pipe Coating & Storage 5,130,470 4,867,480 4,510,830 Houston Helicopter/Baker Prop. Air Transport 4,738,250 (a) (a) Ron Carter Chevrolet Co. Automobile Dealership 4,145,220 5,468,820 6,586,680 Aggreko, Inc. Mobile Temperature Control 3,982,450 4,648,600 (a) K-Mart Inc. Shopping Center (a) 3,974,380 3,787,190 Windmill Park Apts. #1 & #2 Apartments (a) (a) 4,485,440 Total Ten Principal Taxpayers $68,677,340 $69,289,470 $64,981,020 Percentage Ten Principal Taxpayers Comprise of their Respective Tax Rolls 10.49% 11.21% 12.89% (a) Not a principal taxpayer in such tax year. 17 - Tax Adequacy - Average Annual Debt Service Requirements based on Total New Debt Service (1994/2009) $2,041,255 Tax Rate of$0.329 per $100 assessed valuation against the 1992 Certified Assessed Valuation, at 95% collection, produces $2,046,592" Maximum Annual Debt Service Requirements based on Total New Debt Service (in the year 1994) $2,244,502 Tax Rate of$0.361 per $100 assessed valuation against the 1992 Certified Assessed Valuation, at 95% collection, produces $2,245,653 Estimated Overlapping Taxes Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the property which has been taxed, which lien is on a parity with any tax lien on such property in favor of the City. In addition to ad valorem taxes required to retire the aforementioned direct and estimated overlapping debt, certain taxing jurisdictions including those mentioned in Estimated Overlapping Debt are also authorized by Texas law to assess, levy, and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue purposes. Set forth below is an estimation of ad valorem taxes levied on a $50,000 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. 1992 Tax Estimated Taxing Jurisdictions Rate/$100 1992 Tax Bill The City $0.79700 $ 398.50 Brazoria County .31607 158.04 Brazoria County Drainage District No. 4 .13350 66.75 Brazoria County Education District .92500 462.50 Pearland Independent School District .67500 337.50 Estimated Total 1992 Tax Bill $2.84657 $1,423.29 18 Sales Tax - Authority- The City has adopted the provisions of Article 1066c,Vernon's Texas Civil Statutes, as amended, which grants the City the power to impose and levy a 1% sales tax. The City may not pledge the proceeds from the Sales Tax as security for the Bonds. - 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 1980 $ 863,670 (1979) $0.534 56.20% 1981 1,075,582 (1980) 0.612 57.51 1982 1,133,869 (1981) 0.344 55.52 1983 820,623 (1982) 0.301 30.69 1984 1,107,194 (1983) 0.265 38.96 1985 1,133,396 (1984) 0.263 36.25 1986 991,896 (1985) 0.168 28.04 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 en �" 19 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, are pledged to pay principal and interest on the Bonds. Fiscal Year Ended September 30, 1992 1991 1990 1989 1988 REVENUES General Property Taxes $2,502,055 $2,184,234 $1,990,236 $1,838,580 $1,528,117 Penalties & Interest 49,047 60,762 57,895 71,420 60,303 Sales Taxes 1,704,160 1,548,190 1,460,341 1,212,455 1,150,291 Franchises 1,077,130 753,493 693,302 642,180 623,632 Licenses & Permits 296,725 277,260 267,962 139,418 143,198 Interest 196,030 222,069 213,659 161,323 63,184 Charges for Servic s 1,115,488 (a) (a) (a) 858,071 Fines & Forfeitures 315,085 257,781 212,538 265,062 234,687 Intergovernmental -0- -0- -0- -0- 12,500 Miscellaneous 371,742 191,434 194,803 175,776 200,754 Total Revenues $7,627,462 $5,495,223 $5,090,730, $4,506,214 $4,874,737 EXPENDITURES General Government $1,591,133 $1,286,016 $1,104,528 $1,004,376 $ 1,055,090 Police 1,979,188 1,800,812 1,385,354 1,296,526 1,317,699 Fire 120,354 117,519 112,677 108,912 133,134 Public Safety 368,378 344,266 281,113 307,938 324,372 Streets & Drainage 578,310 644,091 751,594 585,833 746,677 Sanitation 1,147,749 (a) (a) (a) 560,141 Public Works 567,695 502,315 425,159 383,850 525,066 Community Services 464,376 378,645 413.879 350,476 394,294 Total $6,234,662 $5,073,658 $4,474,302 $4,037,911 $5,056,473 (a) Sanitation revenues and expenditures reported in Enterprise Fund. General Fund and Debt Service Fund Balance for the Past Five Fiscal Years Fiscal Year Ended September 30, 1992 1991 1990 1989 1988 General Fund $4,136,446 $2,834,251 $2,021,098 $1,062,052 $ 271,347 Debt Service Fund $1,255,094 $1,012,765 $ 893,878 $ 764,512 $ 622,168 20 Pension Fund The City participates in the Texas Municipal Retirement System (TMRS), an agency operated by the State of Texas. Employees of municipal governmental entities who participate in TMRS contribute a fixed percentage, currently 5% of their gross pay, and the municipal employer contributes twice such sum to TMRS. 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 March 1, 1993, the City employed 157 full-time employees and 6 part-time employees. All full-time employees are covered by TMRS and the City's contribution for this fiscal year as of September 30, 1992, amounted to approximately $265,711 which includes amortization of prior service cost over 25 years. The City had an unfunded accrued liability for prior service benefits in the amount of approximately $954,375 as of September 30, 1992. The liability for prior service benefits will be amortized over a period of twenty-five years of 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, 1992, 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 C.V. (Vic) Coppinger 3 years 1993 Chairman/President Mayor Westside National Bank D.A. Miller Jr. 4 years 1995 Professor Mayor Pro Tem Alvin Community College Benny Frank 2 year 1994 Construction Administrator Council Member RWS Architecture Randy Weber 3 years 1993 Owner, Council Member Weber's Air & Heat Joy Colson 2 year 1994 Homemaker Council Member David L. Smith 1 years 1995 Real Estate Broker Council Member 21 Administration Under provisions of the Charter, the 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 Council, and be responsible for its administration; (3) Prepare and submit to Council a complete report on the finances and administrative activities of the City; (4) Keep Council advised of the financial condition and future needs of the City and make appropriate recommendations; and (5) Perform such other necessary duties as prescribed by the Charter or required by Council. Members of the administrative staff are described below: City Manager - Paul Grohman - Mr. Groham was appointed City Manager in June 1992 and has ten years experience as 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. Director of Administrative Support- Glen R. Erwin- Mr. Erwin was appointed administrative assistant to the City Manager in 1992. 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-Janet S. Eastburn -Ms. Eastburn has served as Director of Finance since April 1, 1986. She was appointed to Assistant Director of Finance in 1982 and has been employed in the City's Finance Department for 22 years. For the past four years the City has received from the Government Finance Officers Association of the United States and Canada the "Distinguished Budget Presentation Award", and since 1976 the "Certificate of Achievement for Excellence in Financial Reporting." Ms. Eastburn is currently attending the University of Houston Clear Lake. She is also a member of the Gulf Coast Chapter of Government Finance Officers Association, Government Finance Officers Association of Texas, and Government Finance Officers Association of the United States and Canada. 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 Vinson & Elkins L.L.P. Houston, Texas Certified Public Accountants Lairson, Stephens & Reimer, P.C. Houston, Texas 22 LEGAL MATTERS Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings prepared incident to the authorization and issuance of the Bonds, 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 Bonds, 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 Vinson&Elkins L.L.P., Bond Counsel, to the effect that, based upon an examination of such transcript, the Bonds 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 Bonds 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. The opinion of Bond Counsel is expected to be reproduced on the back panel of the Bonds 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 Bonds and is a true and correct copy of the original opinion. Errors or omissions in the printing of such legal opinion on the Bonds shall not affect the validity of the Bonds nor constitute cause for the failure or refusal by the Underwriter to accept delivery of and pay for the Bonds. No-Litigation Certificate The City will furnish to the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by an authorized officer of the City, 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 Bonds; restraining or enjoining the issuance, execution or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds; in any manner questioning the authority or proceedings for the issuance, execution,or delivery of the Bonds; or affecting the validity of the Bonds. No Material Adverse Change The obligations of the Underwriter to take and pay for the Bonds, and of the City to deliver the Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition(financial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX MATTERS Tax Exemption In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, ( ii) certain "original issue discount" on the Bonds is excludable from gross income for federal income tax purposes under existing law as described more fully in "Tax Accounting Treatment of Original Issue Discount Bonds" and (iii)the Bonds are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "(M "), and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the "adjusted current earnings' adjustment for corporations. 23 The Code imposes a number of requirements that must be satisfied for interest on state or local obligations, such as the Bonds,to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds and the source of repayment of bonds, limitations on the investment of bond proceeds prior to expenditure, a requirement that excess arbitrage earned on the investment of bond proceeds be paid periodiaslly to the United States and a requirement that the issuer file an information report with the Internal Revenue Service. The City has covenanted in the Bond Ordinance that it will comply with these requirements. Bond Counsel's opinion will assume continuing compliance with the covenants of the Bond Ordinance pertaining to those sections of the Code which affect the exclusion from gross income of interest on the Bonds for federal income tax purposes and, in addition,will rely on representations by the City with respect to matters solely within the knowledge of the City, which Bond Counsel has not independently verified. If the City should fail to comply with the covenants in the Bond Ordinance or if the foregoing representations should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. The Code imposes a 20% alternative minimum tax on the "alternative minimum taxable income" of a corporation(other than any S corporation,regulated investment company, REIT, or REMIC), if the amount of such alternative minimum tax is greater than the amount of the corporation's regular income tax. The "Superfund Revenue Act of 1986" also imposes an additional .12% "environmental tax" on the alternative minimum taxable income of a corporation in excess of$2,000,000. Generally, a corporation's alternative minimum taxable income includes 75% of the amount by which a corporation's "adjusted current earnings" exceeds its other alternative minimum taxable income. Because interest on tax-exempt obligations, such as the Bonds, is included in a corporation's "adjusted current earnings," ownership of the Bonds could subject a corporation to alternative minimum tax consequences. Under the Code, taxpayers are required to report on their returns the amount of tax-exempt interest, such as interest on the Bonds and original issue discount with respect to the Bonds, received or accrued during the year. Except as stated above, Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on, or disposition of, the Bonds. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations. In addition, certain foreign corporations doing business in the United States may be subject to the "branch profits tax" on their effectively-connected earnings and profits, including tax-exempt interest such as interest on the Bonds. These categories of prospective purchasers should consult their own tax advisors as to the applicability of these consequences. Tax Accounting Treatment of Original Issue Discount Bonds The initial public offering prices of certain Bonds(the "Original Issue Discount Bonds") may be less than the principal amounts of such Bonds. In the opinion of Bond Counsel, under existing law and based upon the assumptions herein after stated: (a) The difference between (i) the amount payable at the maturity of each Original Issue Discount Bond and (ii) the initial offering price to the public of each such Bond constitutes original issue discount with respect to such Bond in the hands of an owner who has purchased such Bond at the initial offering price in the initial public offering of the Bonds; and 24 (b) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Bond equal to that portion of the amount of such original issue discount allocable to the period that such Bond continues to be owned by such owner. In the event of the redemption, sale or other taxable disposition of such Bond prior to stated maturity,however, the amount realized by such owner in excess of the basis for such Bond in the hands of such owner(adjusted upward by the portion of the original issue discount allocable to the period for which such Bond was held by such initial owner) is includable in gross income. Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Bonds under the caption "Tax Exemption' generally applies, except as otherwise provided below, to original issue discount on an Original Issue Discount Bond held by an owner who purchased such Bond at the initial offering price in the initial public offering of the Bonds, and should be considered in connection with the discussion in this portion of the Official Statement. Under existing law, the original discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof(in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to the sum of the issue price plus the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less the amount payable as current interest during such accrual period on such Bonds. The foregoing opinion is based on the assumptions, that (a) the Underwriter has purchased the Bonds for contemporaneous sale to the general public and not for investment purposes, (b)all of the Original Issue Discount Bonds have been offered, and a substantial amount of each maturity thereof has been sold to the general public in arm's-length transactions for a cash price (and with no other consideration being included) equal to the initial offering prices thereof stated on the cover page of this Official Statement, and (c) the respective initial offering prices of the Original Issue Discount Bonds to the general public are equal to the fair market value thereof. Neither the City nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. QUALIFIED TAX-EXEMPT OBLIGATIONS Under section 265 of the Code, no deduction is allowed in the calculation of the federal income tax of a financial institution for the portion of such financial institution's interest expense paid or incurred on indebtedness which is deemed under the Code to have been incurred or continued to acquire or carry an investment in tax-exempt obligations acquired after August 7, 1986. An exception to the foregoing provision is provided in the Code for "qualified tax-exempt obligations," which includes tax-exempt obligations, such as the Bonds, if such obligations are (a) designated by the issuer as "qualified tax-exempt obligations" and (b) issued by a political subdivision for which the aggregate amount of tax-exempt obligations (not including private activity bonds other than "qualified 501(c)(3) bonds") to be issued by such political subdivision and all entities aggregated with the issuer under the Code during the calendar year is not expected to exceed $10 million. The City expects to designate the Bonds as 'qualified tax-exempt obligations" and has represented that the aggregate amount of tax-exempt obligations(including the Bonds)issued by the City and the entities aggregated with the City under the Code during calendar year 1993 is not expected to exceed $10 million and that the City and entities aggregated with the City under the Code have not designated more than$10 million in "qualified tax-exempt obligations" (including the Bonds) during calendar year 1993. Notwithstanding the applicability of this exception, the financial institutions acquiring the Bonds will continue to be subject to rules in effect under prior law which disallows the deduction of 20 percent of the interest expense allocable to tax-exempt obligations, including the Bonds. 25 VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION The accuracy of(a) the arithmetical computations of the adequacy of the maturing principal amounts of and interest on the escrowed obligations and other securities and certain other available funds to pay, when due, the principal or redemption price and interest on the Refunded Bonds and(b)the mathematical computations supporting the conclusion of Bond Coun i l that the Bonds are not "arbitrage bonds" under Section 148 of the Code will be verified by KPMG Peat Marwick, Certified Public Accountants. In making such verification,KPMG Peat Marwick has relied upon information and assumptions supplied by the City and on interpretations of the Code provided by Bond Counsel. 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 BONDS," "LEGAL MATTERS," and "TAX MA 1-1 ERS," solely to determine whether such information fairly and accurately describes the Bonds, the Bond 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 Bonds, the City will furnish the Underwriter a certificate, executed by the City Secretary and Mayor, acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement, on the date thereof and on the date of delivery were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or neressary 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 Bonds. All changes in the affairs of the City and other matters described in the Official Statement subsequent to the delivery of the Bonds and all information with respect to the resale of the Bonds shall be the responsibility of the Underwriter. 26 a a 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. /s/ Mayor City of Pearland ATTEST: /s/ City Secretary City of Pearland a a 27 r 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. , 7 - City Economics - The City of Pearland is a commercial center located in the northeast corner of Brazoria County, bordering the PI 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 $55,000. There are approximately 392 business establishments located within the City which are rated by Dun and Bradstreet. Three banks within the City held combined deposits of$208,964,000 as of June 30, 1992, up from$183,201,000 as of December 31, 1991. - Building Permits - (Source - City of Pearland) Residential Commercial Other (a) Total Value Total Value Total Value Total Value 1973 140 $ 5,253,000 20 $ 511,750 130 $ 390,405 290 $ 6,155,155 1974 117 4,310,900 19 1,171,700 144 496,428 280 5,979,028 1975 237 9,501,800 170 2,844,800 156 1,142,600 563 13,489,200 1976 295 14,188,100 268 5,471,893 197 1,109,387 760 20,769,380 . 1977 386 21,489,824 31 2,759,699 282 3,514,385 698 27,763,908 1978 491 23,298,945 160 8,414,422 270 3,113,533 921 34,826,900 1979 207 13,024,664 36 7,150,700 386 2,167,264 629 22,342,628 1980 94 7,485,570 18 2,204,200 495 3,007,071 607 12,696,841 1981 67 5,950,754 21 7,589,359 359 8,613,123 447 22,153,236 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 375 35,380,128 15 2,424,000 416 12,123,394 806 47,503,523 (a) Includes Apartments. - Bank Deposits for City of Pearland - (Source -Texas Banking Red Book and the City) 6-30-92 12-31-91 12-31-1990 12-31-1989 12-31-1988 12-31-1987 12-31-1986 Pearland State Bank $111,467,000 S97,422,000 $ 83,332,945 $ 80,106,851 $ 72,396,348$ 70,953,000 $ 65,571,667 First National Bank 43,738,000 37,219,000 33,370,000 32,508,913 29,602,406 28,933,296 29,948,197 West Side National 53,759,000 48,560,000 44,561,847 43,126,587 36,642,176 31,490,813 29,382,923 .. Total $208,964,000 $183,201,000 $161,264,792 $155,742,351 $138,640,930$131,377,109 $124,902,787 Manufacturing and Commerce Employment in 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. (Source: Texas Municipal Report and Brazosport Industrial Committee.) Also adding to the general economy of the county are fishing, tourism and recreation activities and agribusiness. Varner-Hogg State Park attracts approximately 50,000 to 85,000 visitors during each season. 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. Major Employees Industrial activities within the District 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 the following is a list of the industrial employers located within the District with employment numbers above 8. Name Product Employment American Accents, Inc. Structural steel fabrication 10- 19 Birdsong Printing Inc. Fabricated vinyl & Polyurethane banners 10- 19 Chance Collar Co. Drill collars, rotary subs & well fishing 50- 99 & cutting tools Chemical Solutions Intl Corp Blended nonhazardous chemicals 10- 19 Columns Inc. Aluminum colonial style structural columns 20- 49 Compositech Inc. Mining machinery & equipment 20- 49 Davis-Lynch Inc. Oil well floating& cementing equipment 100-249 Deepco Electronic oil well surveying inclinometer systems 10- 19 Energy Coatings Co. Anticorrosive pipe coatings 100-249 Gate Concrete Products Co. Asphalt paving mixtures 20- 49 Isothermal Protective Coatings Inc. Acrylic latex roof coatings 20- 49 Kelley Wigglers Inc. Artificial fishing lures 10- 19 Koza's Inc. Embroidering for the trade 50- 99 Machining Specialists Inc. Machine shop jobbing 10- 19 Markload Syst. Inc. Electronic anchor-tensioning systems for the offshore oil 10- 49 and gas industry Matrix Mfg. Inc. Plastic injection molds 10- 19 Metallurgical Technologies, Inc. Metal powder for thermal sprays 20- 49 NRG Products Mfg. Corp. Metal window screens & Doors, oil field 100-249 shaker screens Omni Industrial Services Laminated plastic sheet, plate & profile shapes 10- 19 Pauluhn Electric Mfg. Co. Inc. Industrial & marine signaling devices and 100-249 lighting fixtures Pro-Line Machine & Repair Inc. Construction materials handling equipment 20- 49 including grapple, drag & clamshell buckets, vertical conveyors Replacement Parts Corporation Special mechanical packing, including compressor 20- 49 rod & piston packing Rodlin Valve Specialists Inc. Replacement parts for control valves 20- 49 Scot Gasket Co. of Texas Inc. Metal gaskets 10- 19 Smith Municipal Supplies Inc. Polyester film identification emblems for vehicles 10- 19 Star Cooling Tower Services Inc. Redwood atmospheric& mechinical cooling towers 20- 49 Texas Honing Inc. Hones metal tubing 20- 49 West, L R Mfg Co. Aluminum exhaust louvers for ceilings & walls 20- 49 Brazona County, (the "County)is a Gulf Coast County comprising the Brazoria Primary Metropolitan Statistical Area, which is a component of the Houston-Galveston-Brazona CMSA. The economy is bated 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 Texas Almanac, 1990-91, 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 Number % Chance 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 Marketin2 Survey of Buying Power (a) Houston-Galveston — Brazoria CMSA Brazoria County Population(12-31-91) (000's) Total Population 3,784.7 194.3 — Median Age (of population) 30.6 31.1 %18-24 10.1 9.1 %25-34 19.1 18.7 %35-49 23.2 22.9 %50-Over 18.4 19.8 Number of Households 1,354.4 65.0 Retail Sales (1991) (000's) Food 6,396,316 307,484 Eating and Drinking 2,682,921 90,314 General Merchandise 3,418,995 175,692 Furniture, Furnishings, Appliances 1,279,191 23,435 Automotive 6,905,585 288,170 — Drug 879,582 37,397 Total Retail Sales 27,831,634 1,135,072 Effective Buyin2 Income (1991) Total Effective Buying Income ("EBI) (000's) 60,394,220 2,698,507 Median Household EBI 35,372 36,422 %Household EBI — $10,000to $19,999 14.5 13.8 $20,000- $34,999 23.3 24.3 $35,000- $49,999 18.7 21.3 $50,000 and Over 31.7 30.7 (a) Statistical data from "Sales & Marketing Management - 1992 Survey of Buying Power", copyright in 1992 Sales Management Survey of Buyinc Power: Further reproduction is forbidden. APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY COMPREHENSIVE ANNUAL FINANCIAL REPORT CITY OF PEARLAND, TEXAS For the fiscal year ended September 30, 1992 Prepared by Finance Department Janet S. Eastburn City Treasurer CONTENTS Page INTRODUCTORY SECTION Certificate of Achievement for Excellence in Financial Reporting 8 Statement of Continued Compliance with Certificate of Achievement for Excellence in Financial Reporting Requirements 9 Letter of Transmittal 11 Organization Chart 17 Principal Officials 18 FINANCIAL SECTION Independent Auditors' Report 20 General Purpose Financial Statements Combined Balance Sheet - All Fund Types and Account Groups 24 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types 28 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General and Debt Service Fund Types 30 Combined Statement of Revenues, Expenses and Changes in Retained Earnings - All Proprietary Fund Types (Enterprise Funds) 32 Combined Statement of Cash Flows - All Proprietary Fund Types (Enterprise Funds) 34 Notes to Financial Statements 35 -3- 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, 1991 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. �NGE 0fF��F9 �� OF '� WRTED STATES v tr- � � �o �+ s President � cmcso cutive Director -8- Cfluj o1 o ©aI©n d TEXAS P. O. Box 2068 • Pearland, Texas 77588-2068 • 485-2411 STATEMENT OF CONTINUED COMPLIANCE WITH CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING REQUIREMENTS November 4, 1992 r 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, 1991. 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 for the year ended September 30, 1992 continues to conform to Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. )-7,- I n et S. Eastburn City Treasurer -9- 1Cn p © II© d of 0). P. O. Box 2068 • Peoriond, Texas 77588-2068 • 485-2411 To the Citizens of the City of Pearland Pearland, Texas The comprehensive annual financial report of the City of Pearland, Texas for the fiscal year ended September 30, 1992, 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 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 multiyear basis. This report includes all funds and account groups of the City. 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. In addition to general government activities, the City provides water, sewer and sanitation services. Pearland Volunteer Fire Department, Pearland Area Emergency Medical Service, Pearland Independent School District, Brazoria County, Harris County Hospital District, Harris County, Harris County Flood Control, and Port of Houston Authority have not met the established criteria for inclusion in the reporting entity, and accordingly are excluded from this report. ECONOMIC CONDITION AND OUTLOOK The City of Pearland lies fifteen miles southeast of downtown Houston in the northeast corner of Brazoria County. Pearland is accessible by way of four major highways and is six miles from the World's 27th busiest airport (Hobby Airport). Because of its location, Pearland has seen continued growth in residential, commercial and light industrial development over the last decade. While its location has spurred economic growth and development, it also has been a factor in the economic decline that the City has experienced over the past few years. The major factors that contributed to the economic decline recently began to turn around. Oil prices stabilized and Pearland and the surrounding cities are making an effort to diversify the local economy. The city is seeing a major residential boom, expecting nearly 600 residential units (Single Family and Multi-Family) to be built in calendar 1992. An increase in sales tax has also been seen with this growth. -11- Due to the expansion of Beltway 8 over the next three years, residential building should continue to climb. Beltway 8, in addition to existing Highway 288, gives the City an opportunity to provide a short commute to downtown Houston, the Medical Center, and the NASA area. The general economy has a major impact on the financial operations of the City. With the stabilization of the economy, the City will be able to strengthen its financial position and meet the , challenges today and in the future. MAJOR INTTIATIYES For the Year. Pearland is a City that endeavors to keep abreast of the needs of its citizens and provide services which will maintain or enhance their quality of life. During the year, the City made a number of capital purchases and started or completed various capital improvement projects. For the Future. The bright economic outlook will enable the City to improve its operations during the coming year. The City Council held its first-ever Goals Setting Strategic Planning workshop in 1992. Among the goals coming from the goals setting are: 1) Landscape Ordinance; 2) The Need for Impact Fees; 3) Improving Drainage; 4) Re-endeavor to Improve our Streets and Build New Thoroughfares. A major concern in the quality of life addressed by the City is crime prevention and a strong law enforcement presence. Department Focus Administration The administrative staff has worked towards developing a team concept in management. Persons from the lowest rank through the City Manager are involved in decision-making in trying to solve the City's problems. Every member of the City management staff has received supervisory training this year. For many of these people, it is their first exposure to doctrines of management, even though they have been responsible to manage people for several years. Through attrition, we have upgraded the experience level as well as the educational level of the management staff. One year ago, the management staff had no college degrees--today they have nine degrees total. The years of total experience in these positions are also reflected in a very favorable light. Working with the adage that quality saves you money rather than cost you money, we have taken a great step forward. 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. -12- 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. r 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 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: Percent Increase of Percent (Decrease) Increase Revenue Sources Amount of Total Over 1990-91 (Decrease) Property taxes and penalties $ 4,940,887 48.9% $ 259,870 5.6% Sales taxes 1,704,160 16.9 155,970 10.7 Franchise and gross receipts taxes 1,077,689 10.7 324,196 43.0 Licenses and permits 296,725 2.9 19,465 7.0 Fines and forfeitures 315,085 3.1 57,304 22.2 Charges for services 1,115,488 11.0 1,115,488 N/A p Interest 273,212 2.7 (67,028) (19.7) Other 371.742 3.7 180,308 106.2 TOTAL $10,094,988 100.0% $2,045,573 25.4% r The most significant percentage increase in revenue was derived from charges for revenue. The increase was due to the privitization of the Sanitation Department. Sales tax revenue was up 10.7 percent and franchise tax revenue increased 43.0 percent. Both of these factors indicate that the Pearland economy is growing. The increase in franchise tax was partially due to a one time change in how payments were made. Allocations of property tax levy by purpose for 1991-92 fiscal year and the preceding two fiscal years are as follows (amount per $100/assessed value): Purpose 1991-92 1990-91 1989-90 General Fund $.410 $.378 $.340 General Obligation Debt .390 .422 .485 TOTAL TAX RATE $.800 $.800 $.825 -13- The expenditures for the general fund 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. Percent Increase of Percent (Decrease) Increase Function Amount of Total Over 1990-91 (Decrease) General governmental $1,591,133 17.3 % $ 305,123 23 .7 % Public safety 2,467,920 26.9 205,323 9.1 Public works 2,293,754 25.0 1,147,348 100.1 Community services 464,376 5.1 85,731 22.6 Debt service 2,361,609 25.7 1,592 0.1 TOTAL $9,178,792 100.0 X $1 ,745,117 23 .5 % The general government expenditures for fiscal year 1991-92 were higher than for fiscal year 1990- 91. The most significant increase was in public works which was the result of privitization of the Sanitation Department. General Fund Balance. The fund balance of the general fund increased by 45.9 percent in 1992. The $1,302,195 increase provides the government with a fund balance that is in excess of 120 working days of expenditures. This increase should significantly reduce the likelihood of the government entering the short-term debt market for current operating expenditures. Enterprise Operations. The government's enterprise operations are comprised of the Water and Sewer System. (1) Water and Sewer System. During the year ended September 30, 1992, the City's Water and Sewer System reported an increase of $148,532 in operating revenues or 5.1 percent from the prior year. Operating expenses increased during fiscal year 1991-92 because of a general increase in the cost of supplies and an increase in maintenance costs. Comparative data for the past two fiscal years are presented in the following schedule. 1991-92 1990-91 Operating revenue $3,087,856 $2,939,324 Operating expenses (before depreciation) 2,237,005 2 ,111 ,197 Operating income (before depreciation) $_ 850,851 $ 828,197 Number of customers (water) 6,610 6,200 Average monthly water and sewer bill $54 $53 -14- 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, 1992 were as follows: Ratio of Debt to Assessed Value Debt (100 Percent of Per Description Amount Present Market) Capita Net direct debt $22,308,175 4.51 $ 969 Overlapping debt 26,124,144 4.23 1,135 TOTAL DIRECT AND OVERLAPPING DEPT $48,432,319 8.74 $2,104 Total outstanding tax supported debt (general obligation bonds, certificates of obligation and capital leases payable) at September 30, 1992 totaled $23,398,361. Debt service funds in the amount of $1,090,186 were available at September 30, 1992. 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. Yields on certificates of deposit ranged from 2.90 percent to 5.48 percent during the year. Certificate of deposit and cash amounts which exceed FDIC coverage are collateralized by securities owned by the City's depository. All collateral on deposits was held by the financial institution's trust department in the City's name. All investments held by the City during the year and at September 30, 1992, 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, P.C., CPAs was selected by the City Council. This requirement has been complied with, and the auditor's opinion has been included in this report. Awards. The Government Finance Officers Association of the United States and Canada(GFOA)has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland, Texas for its comprehensive annual financial report for the fiscal year ended September 30, 1991. 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. -15- 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. Acknowledgments. The preparation of this report on a timely basis was accomplished with the efficient and dedicated services of the entire staff of the Finance Department. I express my appreciation to all members of the Department who assisted and contributed to its preparation. I also 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, GTO.AA-Cit . Eastburn reasurer November 4, 1992 -16- i i i I i i i s i s . m i _• i i i i CITY HANACER _L_ 1 1 1 _-l____ DIV. DIR. DIV. DIR. ADIIIN. ENS POLICE FIRE ENGINEERING 'UBLIC WORKS SUPPORT SERVICES L t - 1 _ [ 1 1 PUBLIC PLANNING/ HUNAN FINANCE CITY WORKS CODE ENF. PARKS FLEET RESOURCE SEC. CONSTRUCTIOI - HEALTH WATER PROD. STREETS 6 SANITATION INSP./ TAX t1UNICIPAL UTILITY SANITARIAN WU TREAT. DRAINAGE COURT BILLING ORGANIZATIONAL PLAN PRINCIPAL OFFICIALS CITY OF PEARLAND, TEXAS September 30, 1992 MAYOR C. V. (Vic) Coppinger Mayor Pro Tern Councilman Position No. 3 Randy K. Weber Councilman Councilman Position No. 1 Position No. 2 D. A. Miller, Jr. Benny J. Frank Councilman Councilman Position No. 4 Position No. 5 Joy E. Colson David L.Smith City Manager Paul W. Grohman City Secretary City Treasurer Tax Collector Pat Jones Janet S. Eastburn Barbara Lenamon 1 -18- 1 1 i 1 i i i 1 1 i LAIRSON•STEPHENS•REIMER,P.C. Trusted Business Advisors Since 19-11 INDEPENDENT AUDITORS' REPORT Honorable Mayor and Members of City Council City of Pearland, Texas We have audited the accompanying general purpose financial statements of the City of Pearland, Texas and the combining, individual fund and account group financial statements of the City as of and for the year ended September 30, 1992, as listed in the table of contents. 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. 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, 1992 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 principals. Also, in our opinion, the combining, individual fund and account group financial statements referred to above present fairly,in all material respects,the financial position of each of the combining, individual funds and account groups of the City of Pearland, Texas at September 30, 1992, and the results of operations of such funds and the cash flows of individual proprietary and similar trust funds for the year then ended, in conformity with generally accepted accounting principles. Certified Public Accountants 1',16 Mangum,Suite 300 Houston.Tcxas 7'092 Tel(713)681-8500 Fax(713)681.9043 -21- Honorable Mayor and Members of City Council City of Pearland, Texas Page Two Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole and on the combining, individual fund and account group financial statements. The accompanying financial information listed as schedules 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, individual fund and account group financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements of each of the respective individual funds and account groups, taken as a whole. 4., 4v P, C- / 1 I •-/->'77-7/. Houston, Texas November 4, 1992 -22- a St FTspzy c aSti t ;23- CITY OF PEARLAND, TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1992 GOVERNMENTAL FUND TYPES DEBT CAPITAL GENERAL SERVICE PROJECTS ASSETS AND OTHER DEBITS ASSETS Cash - (including certificates of deposit 1992 - $9,435,506 1991 - $7,756,803) $4,802,950 $1 ,085,405 $5,081 ,014 Receivables - less allowances for uncollectibles Taxes 139,075 164,908 Accounts 21,265 Accrued interest 41,390 4,781 12,553 Assessments 43,249 Due from other funds 362 Prepaid expenditures 24,463 Restricted assets Cash - (including certificates of deposit 1992 - $565,610; 70,855 1991 - $565,610) General fixed assets - at cost Property, plant and equipment Cost Less allowance for depreciation OTHER DEBITS Amount available in debt service fund Amount to be provided for retirement of general long-term debt TOTAL ASSETS AND OTHER DEBITS '5,099,998 $1 ,255,094 $ 137, 178 -24- l of 2 PROPRIETARY TOTALS FUND TYPES ACCOUNT GROUPS (MEMORANDUM ONLY) GENERAL FIXED GENERAL LONG- ENTERPRISE ASSETS TERM DEBT 1992 1991 $2,298,765 $13,268,134 $10,287,707 303 ,983 278,501 387,148 408,413 378,460 31 ,954 90,678 116,259 43,249 43 ,249 40,648 41,010 149,522 24,463 13,146 672,095 742,950 712,308 $19,076,247 19,076,247 17,663,024 16,163 ,650 16,163 ,650 17,098,528 4,632,518 (4,632,518) (4,300.577) 11 ,531,132 11 ,531,132 12,797,951 $ 1 ,090,186 1 ,090,186 1,012,765 22,308,175 22,308.175 _21 ,385.833 $14,961,742 $19,076,247 $23,398,361 $68,928,620 $64,838,725 See notes to financial statements. -25- CITY OF PEARLAND, TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1992 GOVERNMENTAL FUND TYPES DEBT CAPITAL GENERAL SERVICE PROJECTS LIABILITIES. EQUITY AND OTHER CREDITS LIABILITIES Accounts payable $ 326,246 Capital lease - Accrued salaries 34,570 Accrued compensated absences 349,934 Due to other funds 41 ,010 Payable from restricted assets 70,855 Deferred revenues 140,937 $ 164,908 $ 43 ,249 Certificates of obligation - Revenue bonds - less current portion - General obligation bonds - TOTAL LIABILITIES 963,552 164,908 43,249 EQUITY AND OTHER CREDITS Contributed capital Investment in general fixed assets Retained earnings Reserved For revenue bond retirement For capital expenditures Unreserved Fund balances Reserved For prepaid expenditures 24,463 For debt service 1,090,186 Unreserved Designated For capital expenditures 989,748 5,093,929 Undesignated 3 ,122,235 TOTAL EQUITY AND OTHER CREDITS 4,136,446 1 ,090,186 5,093 ,929 TOTAL LIABILITIES, EQUITY AND OTHER CREDITS $5,099,998 $1 ,255,094 $5,137,178 -26- 2of2 PROPRIETARY TOTALS FUND TYPES ACCOUNT GROUPS (MEMORANDUM ONLY) GENERAL FIXED GENERAL LONG- ENTERPRISE ASSETS TERM DEBT 1992 1991 $ 30,085 $ 356,331 $ 381,681 $ 43,361 43,361 83,598 7,623 42,193 121,233 58,493 408,427 429,870 41,010 149,522 381,485 452,340 427,158 349,094 323,861 2,225,000 2,225,000 2,425,000 1,520,000 - 1,520,000 1,645,000 - 21,130,000 21,130,000 19.890.000 1,997,686 23,398,361 26,567,756 25,876,923 11,723,901 11,723,901 12,604,920 $19,076,247 19,076,247 17,663,024 422,845 422,845 405,150 138,150 138,150 39,650 679,160 679.160 889,371 1,240,155 1,240,155 1,334,171 24,463 13,146 1,090,186 1,012,765 6,083,677 3,839,451 3.122.235 2,494.325 12,964,056 19,076.247 42.360.864 38,961.802 $14,961,742 $19,076.247 $23.398.361 $68,928,620 $64,838,725 See notes to financial statements. -27- CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -ALL GOVERNMENTAL FUND TYPES Year ended September 30, 1992 GOVERNMENTAL FUND TYPES DEBT CAPITAL GENERAL SERVICE PROJECTS REVENUES Taxes - (including penalties and interest) $5,332,392 $2,390,344 Licenses and permits 296,725 Interest on investments 196,030 77,182 $ 173,702 Fines and forfeitures 315,085 Street assessments 409 Capital recovery fee 2,277 Charges for services 1,115,488 Other 371,742 6,104 TOTAL REVENUES 7,627,462 2,467,526 182,492 EXPENDITURES Current General government 1 ,591,133 Public safety 2,467,920 Public works 2,293,754 Community services 464,376 Capital outlay 564,771 Debt service Principal retirement 1,000,237 Interest and fiscal charges 1 ,361,372 TOTAL EXPENDITURES 6,817,183 2,361,609 564,771 REVENUES OVER (UNDER) EXPENDITURES 810,279 105,917 (382,279) OTHER FINANCING SOURCES Proceeds from certificates of obligation Proceeds from capital lease Proceeds from refunding bonds Bond defeasance costs Operating transfers in 303,496 - 14,662 Operating transfers out (14,662) (28,496) (19,882) Proceeds from G.O. Bonds 2,000,000 Bond issue expenses (31 ,243) REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES 1,099,113 77,421 1,581 ,258 Fund balances at beginning of year 2,834,251 1 ,012,765 3,512,671 Intergovernmental Transfers 203 ,082 FUND BALANCES AT END OF YEAR $4,1 36 $1 ,090,186 $5,093 ,929 -28- i TOTALS (MEMORANDUM ONLY) 1992 1991 $ 7,722,736 $ 6,782,700 296,725 277,260 446,914 474,790 315,085 257,781 409 - 2,277 - 1,115,488 377.846 241.760 10,277,480 8,234,291 i 1,591,133 1,286,010 2,467,920 2,262,597 • 2,293,754 1,146,406 464,376 378,645 564,771 264,867 • 1,000,237 1,157,338 1.361.372 1.202.679 9.743.563 7.698.542 — 533,917 535,749 2,125,000 7,377,399 (7,377,339) 318,158 391,588 (63,040) (75,288) 2,000,000 (31.243) (39.195) 2,757,792 2,937,854 7,359,687 4,421,833 203.082 $10.320.561 $ 7.359.687 See notes to financial statements. -29- CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES- BUDGET AND ACTUAL - GENERAL AND DEBT SERVICE FUND TYPES Year ended September 30, 1992 GENERAL FUND VARIANCE- FAVORABLE BUDGET ACTUAL (UNFAVORABLE) REVENUES Taxes - (including penalties and interest) $4,944,587 $5,332,392 $ 387,805 Licenses and permits 272,197 296,725 24,528 Interest on investments 153,078 196,030 42,952 Fines and forfeitures 267,650 315,085 47,435 Charges for services - 1,115,488 1 ,115,488 Other 322,150 371,742 49,592 TOTAL REVENUES 5,959,662 7,627,462 1 ,667 ,800 EXPENDITURES Current General government 1,437,889 1 ,591 ,133 (153,244) Public safety 2,653,184 2,467,920 185,264 Public works 1,728,862 2,293 ,754 (564,892) Community services 414,727 464,376 (49,649) Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES 6,234,662 6,817,183 (582,521) REVENUES OVER (UNDER) EXPENDITURES (275,000) 810,279 1 ,085,279 OTHER FINANCING SOURCES Proceeds from refunding bonds Bond defeasance costs Operating transfers in 303,496 303,496 Operating transfers out (14,662) 14,662) REVENUES AND OTHER SOURCES OVER EXPENDITURES $ (275,000) 1 ,099,113 $ 1 ,374,j13 Fund balances at October 1, 1991 2,834,251 Intergovernmental Transfers 203 ,082 FUND BALANCES AT SEPTEMBER 30, 1992 l4,136,446 -30- DEBT SERVICE FUND VARIANCE- FAVORABLE BUDGET ACTUAL (UNFAVORABLE) $2,361,848 $2,390,344 $28,496 47,500 77,182 29,682 2,409,348 2,467,526 58,178 1,004,863 1,000,237 4,626 1.356.985 1.361.372 (4.387) 2.361.848 2.361.609 239 47,500 105,917 58,417 (28.496) (28.496) $ 47.500 77,421 $29.921 1,012,765 $1 090 186 See notes to financial statements. -31- CITY OF PEARLAND, TEXAS COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUNDS) 1 of 2 Years ended September 30, 1992 and 1991 1992 1991 Operating revenues Water sales and services $1 ,755,328 $1,674,772 Sewer charges and services 1 ,332,528 1 ,264,549 Sanitation charges and services 1 .044.130 3,087,856 3,983,454 Operating expenses Water and sewer treatment Personal services 239,252 254,970 Supplies and other 108,329 79,393 Other charges and services 3 ,603 96,900 Contractual services 602,533 455,834 953,717 887 ,097 Water and sewer public works Personal services 114,063 102,160 102,160 Distribution and collection Personal services 172,373 165,374 Supplies and other 45,333 42,473 Other charges and services 79,833 291,504 Contractual services 31,413 229 328,952 499,580 Water and sewer accounting Personal services 239,124 205,947 Supplies and other 7,191 8,192 Other charges and services 1,312 5,277 Contractual services 20,138 17 ,262 267,765 236,678 Water and sewer construction Personal services 196,220 142,339 Supplies and other 17,889 12,097 Other charges and services 342 4,989 Contractual services 68,935 4.216 283 ,386 163,641 Sanitation Personal services - 310,196 Supplies and other - 207,719 Other charges and services - 64,613 Contractual services - 177,808 - 760,336 Other expenses 289,122 348.262 2.237.005 2,997,754 OPERATING INCOME BEFORE DEPRECIATION 850,851 985,700 -32- CITY OF PEARLAND, TEXAS COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS- ALL PROPRIETARY FUND TYPES (ENTERPRISE FUNDS) 2 of 2 Years ended September 30, 1992 and 1991 1992 1991 Depreciation $ 461.057 $ 517.876 OPERATING INCOME 389,794 467,824 Non-operating revenues (expenses) Miscellaneous revenue 24,249 18,345 Interest revenue 116,795 152,370 Interest expense (105.242) (111.584) 35.802 59.131 INCOME BEFORE OPERATING TRANSFER 425,596 526,955 Operating transfer out (275,000) (316,300) Operating transfer in 19.882 NET INCOME 170,478 210,655 Retained earnings at beginning of year 1,334,171 1,123,516 Intergovernmental Transfer (264.494) - RETAINED EARNINGS AT END OF YEAR $1.240.155 $1.334.171 See notes to financial statements. -33- CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUNDS) Years ended September 30, 1992 and 1991 1992 1991 Cash flows from operating activities Cash received from customers and users $3 ,076,131 $ 3,864,020 Cash paid to suppliers (1 ,350,028) (1 ,713 ,686) Cash paid to employees (1.035,535) (1 .031 .622) Net Cash Provided By Operating Activities 690,568 1 ,118,712 Cash flows from noncapital financing activities Operating transfers (255,118) (316,300) Sanitation assets transferred (203,082) - Cash flows from capital and related financing activities Purchase of fixed assets (136,669) (93,934) Principal payments - bonds (120,000) (110,000) Interest paid (105,242) (111 .584) Net Cash Used For Capital And Related Financing Activities (820,111) (315,518) Cash flows from investing activities Interest received 116,795 163 ,908 Other 24.249 18,345 Net Cash Provided From Investing Activities 141,044 182,253 Net increase in cash 11,501 669,147 Cash balance at beginning of year 2s959,359 2,290.212 CASH BALANCE AT END OF YEAR $2 ,970,860 $2 ,959,359 Operating income $ 389,794 $ 467,824 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense 461 ,057 517,876 (Increase) decrease in accounts receivable (11 ,725) (14,550) (Increase) decrease in due from other funds 108,884 136,530 Increase in customer deposits 21,450 31 ,596 Increase (decrease) in accounts payable (204,389) (194,823) Increase (decrease) in compensated absences payable (40,489) 15,936 Increase in accrued payroll 41,637 Increase in accrued compensated absences from restricted accounts (34,014) Total adjustments 300,774 650,888 NET CASH PROVIDED OPERATING ACTIVITIES $ 690,568 $1 , 118,712 -34- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1992 1. ORGANIZATION The City of Pearland, Texas 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY In defining the reporting entity the City has considered the following criteria: (1)oversight responsibility which includes (a) financial interdependency, (b) selection of governing authority, (c) designation of management, (d) ability to significantly influence operations, and (e) accountability for financial matters, (2) scope of public service and (3) special financing relationships. The reporting entity is composed of the operational units (General, Debt Service, Capital Projects, and Enterprise Funds) of the City. The governmental units listed below were considered but excluded, because they did not materially meet the criteria listed above: Pearland Independent School District Harris County Hospital District Brazoria County Harris County Port of Houston Authority Harris County Flood Control Of the additional component units considered for inclusion in the reporting entity,only two had a positive response to the first criteria presented above. The Pearland Volunteer Fire Department and the Pearland Area Emergency Service are dependent on the City for financial support which falls under oversight responsibility in the criteria listed above. The City includes as a part of the reporting unit the financial support it provides the department but does not report its operations because the City does not select its governing authority or management and does not significantly influence operations. Further, the entities are not accountable to the City for financial matters and the entities' scope of public service is greater than the City of Pearland. Therefore,in the opinion of the City's management,these two entities are not includable in the reporting entity. B. FUND ACCOUNTING The City of Pearland uses funds and account groups to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. -35- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 2 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) B. FUND ACCOUNTING(continued) A fund is a separate accounting entity with a self-balancing set of accounts. An account group is designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. Funds are classified into two categories: (1) governmental and (2) proprietary. Each category is divided into separate "fund types." The following is a description of the fund types and the account groups used by the City in the accompanying financial statements: GOVERNMENTAL FUND TYPES General Fund The General Fund is used to account for all financial transactions which are not accounted for in another fund. The principal sources of revenue of the General Fund are property taxes,sales and use taxes, franchises,and fines and forfeitures. Expenditures are for general government, public safety, public works and other community services. Debt Service Fund The Debt Service Fund is used to account for resources for and the payment of interest and principal on all general obligation debts of the City. The primary source of revenue for debt service is general property taxes. Capital Projects Fund The Capital Projects Fund is used to account for the receipt and expenditure of resources for acquisition and construction of major capital facilities. The principal resources of the Capital Projects Fund are capital grants, certificates of obligation and proceeds from the sale of bonds. PROPRIETARY FUND TYPES Enterprise Fund (Water and Sewer) The Water and Sewer Fund is used to account for operations of the Water and Sewer Department. The fund is intended to be self-supporting through user charges. -36- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 3 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) B. FUND ACCOUNTING(continued) ACCOUNT GROUPS General Fixed Assets This account group is established to account for the fixed assets owned by the City exclusive of those relating to Proprietary Fund operations. Expenditure transactions to acquire general fixed assets occur in the General Fund and Capital Projects Fund. General Long-Term Debt a This account group is used to account for the City's liability for general obligation bonds, certificates of obligation,notes payable,and time warrants due at varying dates through the year 2003. a C. BASIS OF ACCOUNTING The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a current financial resources measurement focus. With this measurement focus,only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., a expenditures and other financing uses) in net assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included in the balance sheet. Fund equity (i.e., net total assets) is segregated in to contributed capital and retained earnings components. Proprietary fund- type operating statements present increases (e.g. revenues) and decreases (e.g. expenses) in net total assets. The City employs the modified accrual basis of accounting in all funds except the Proprietary Funds. The modified accrual basis recognizes revenues that are susceptible to accrual (i.e., when they become both 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 be used to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. The Proprietary Funds use the accrual basis of accounting recognizing revenues when earned and expenses when incurred. -37- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS -4 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) C. BASIS OF ACCOUNTING(continued) The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. In subsequent periods, when both revenue recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. The accounting procedures and policies relating to specific items are described as follows: 1. Unbilled revenues for water, sewer and sanitation services are accrued when earned. 2. General property taxes are recorded when they become available. Property taxes receivable have been recorded as deferred revenues at September 30, 1992. Property taxes collected within sixty days subsequent to September 30, 1992 have not been recorded as revenue as the amount was 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 two 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. Sales and use taxes and franchise revenue are recorded when received since normally they are not measurable until received. 4. Long-term debt is recognized as a liability of a governmental fund when due, or when resources have been accumulated in the debt service fund for payment early in the following year. 5. Capital recovery fees earned are charges for capital improvements required by new growth and construction. The fees are recognized in the accounting period in which they become both measurable and available to finance expenditures of the fiscal period. -38- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS-5 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) D. BUDGETS Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted for the general and debt service funds. All annual appropriations lapse at fiscal year end. Formal budgetary integration is not employed for the Capital Projects Fund because effective budgetary control is alternatively achieved through general obligation bond indenture provisions and Council authorization for individual capital projects. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting - under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation- is utilized in the governmental funds. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. There were no encumbrances at September 30, 1992. E. CASH AND INVESTMENTS Cash includes amounts in demand deposits as well as certificates of deposit. Statutes authorize the City to invest in direct obligations of the U.S. Government and fully collateralized certificates of deposit and other time deposits. Investments are stated at cost. In the Statements of Cash Flows, CASH refers to cash and cash equivalents, including demand deposits and investments in time deposits with maturities of three months or less. F. PREPAID EXPENDITURES Payments made to vendors for services that will benefit periods beyond September 30, 1992, are recorded as prepaid items. G. 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. -39- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 6 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) H. FIXED ASSETS Fixed assets are recorded at historical cost or at market value at the date donated. Costs incurred for the purchase or construction of general fixed assets are recorded as expenditures in the General and Capital Projects Funds. All such costs are capitalized in the General Fixed Assets Account Group. Public domain infrastructure,such as bridges, roads, drainage systems, sidewalks, lighting systems, etc., is capitalized. Amounts expended for property, plant and equipment in the Enterprise Funds are capitalized in the fixed asset accounts within that fund. Assets in the general fixed assets account group are not depreciated. Allowance for depreciation has been provided for plant and equipment of the Enterprise Funds using the straight-line method over the following estimated useful lives of the assets: Estimated Asset Useful Life Vehicles 3 years Office equipment 5 to 10 years Machinery and equipment 5 to 10 years Water and sewer system 3 to 50 years I. COMPENSATED ABSENCES Vested or accumulated vacation leave 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 of vested or accumulated vacation leave that are 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 until paid. Vested or accumulated vacation leave of proprietary funds is recorded as an expense and liability of those funds as the benefits accrue to employees. In accordance with the provisions of Statement of Financial Accounting Standards No. 43, Accounting for Compensated Absences,no liability is recorded for nonvesting accumulating rights to receive sick pay benefits. -40- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 7 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) J. LONG-TERM OBLIGATIONS Long-term debt is recognized as a liability of a governmental fund when due, or when resources have been accumulated in the debt service fund for payment early in the following year. For other long-term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. The remaining portion of such obligations is reported in the general long-term debt account group. Long-term liabilities expected to be financed from proprietary fund operations are accounted for in those funds. K. FUND EQUITY Contributed capital is recorded in proprietary funds that have received capital grants or contributions from developers,customers or other funds. Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. Designated fund balances represent tentative plans for future use of financial resources. L INTERFUND TRANSACTIONS Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. All other interfund transactions,except quasi-external transactions and reimbursements,are reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. M. '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 generally accepted accounting principles. .14 -41- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 8 September 30, 1992 3. LEGAL COMPLIANCE - BUDGETS The City follows procedures in establishing the budgetary data reflected in the financial statements as follows: A. The City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October 1 which must be adopted before the preceding September 15. The operating budget includes proposed expenditures and the means of financing them. B. Public hearings are conducted to obtain taxpayer comments. C. The budget is legally enacted by pacsage of an ordinance. D. The City Manager is authorized to transfer budgeted amounts between object classes within departments within any fund. However any changes in the total approved budget for each department(i.e., the legal level of budgetary control)must be approved by the City Council. E. Budgeted amounts as shown in this report are as originally adopted or as amended during the year by the City Council and City Manager. F. Appropriations lapse at year-end. G. Several supplemental budgetary appropriations were necessary during the year ended September 30, 1992. 4. DEPOSITS AND INVESTMENTS At September 30, 1992, the amount of the City's deposits was $10,186,529 and the bank balance was $10,279,742. Of the bank balance, $200,000 was covered by federal depository insurance. The remainder was covered by collateral held by the City's agent in the City's name in the trust department of banks(other than the City's depository bank). The securities pledged as collateral were obligations of the U.S. Treasury, federal agencies and local governments. The City had no other investments. -42- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 9 September 30, 1992 5. RECEIVABLES Debt Capital General Service Projects Enterprise Total Receivables Taxes $139,075 $164,908 $303 ,983 Accounts 21 ,265 - $392,148 413,413 Interest 41 ,390 4,781 $12,553 31,954 90,678 Assessments - - 43,249 - 43 ,249 Gross receivables 201 ,730 169,689 55,802 424,102 851 ,323 Less allowance for uncollectibles (5,000) (5,000) Net receivables $201 730 p69,689 $55,802 $419,102 $846,323 The taxes receivable account represents delinquent taxes. No allowance for uncollectible has been recorded for taxes receivable since a tax lien is attached to property when the taxes levied are not paid. Due From/To Other Funds Receivable Fund Payable Fund Amount Enterprise General $40,648 Capital Projects General 362 $40,010 As of September 30, 1992, the City held restricted assets for the following purposes: Description Amount General Fund Accrued compensated absences $ 70,000 Municipal court escrow 855 TOTAL GENERAL FUND $ 70,855 Enterprise Fund Meter deposits $216,485 Revenue bond interest, sinking and reserve fund 125,000 Accrued compensated absences 40,000 TOTAL ENTERPRISE FUND §381 ,485 -43- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 10 September 30, 1992 6. CHANGES IN FIXED ASSETS The changes in general fixed assets during the year ended September 30, 1992 are summarized as follows: Balance at Balance at Oct. 1. 1991 Additions Retirements Transfers Sept. 30, 1992 Land $ 1,040,483 $ 57,236 $ 1,097,719 Buildings 6,275,924 $ 379,107 7,010 6,662,041 Improvements 7,430,043 346,507 387,652 8,164,202 Equipment 2,839,552 284,092 (520,064) 490,533 3 ,094,112 Construction in progress 77,022 242,523 (261 ,372) - 58,173 TOTAL $_17,663,024 $1,252,229 $,(781,436) $942,431 $19,076,247 At September 30, 1992, there were two projects in progress. The projects were (1) a drainage study on various drainage problems in the City and (2) expansion of street projects. The changes in Enterprise Fund fixed assets during the year ended September 30, 1992 are summarized as follows: Balance at Balance at Oct. 1. 1991 Additions Retirements Transfers Sept. 30, 1992 Land $ 246,307 $ (57,236) $ 189,071 Equipment 1 ,008,414 $ 65,327 $(2,338) (609,530) 461,873 Buildings and improvements 15,843 ,807 73 ,680 (404,781) 15,512,706 17,098,528 139,007 (2,338) (1,071 ,547) 16,163 ,650 Less allowance for depreciation (4,300,577) (461,057) - 129,116 (4,632,518) TOTAL $12,797,951 $(322,050) $(2,338) $ (942,431) $11 ,531 ,132 Sources of Enterprise Fund fixed assets included contributions from the following (recorded as additions to contributed capital): Source Amount Contributed capital at October 1 , 1991 Municipality - purchased with proceeds of GO bonds $11 ,723 ,901 CONTRIBUTED CAPITAL AT SEPTEMBER 30, 1992 $11 ,723 ,901 -44- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 11 September 30, 1992 7. ACCRUED COMPENSATED ABSENCES As of September 30, 1992, accrued vacation pay and sick pay were as follows: General Enterprise Description Fund Fund Total Vacation pay $419,934 $98,493 $518,427 Sick pay Less amounts payable from restricted assets 70,000 40.000 110.000 BALANCE SEPTEMBER 30, 1992 $349,934 $58,493 $408,427 8. DEFERRED REVENUES Deferred revenue has been recorded as of September 30, 1992 as follows: Fund Description Amount General Delinquent taxes $140 937 Debt Service Delinquent taxes 164,908 Capital Projects Street assessments 43 .249 TOTAL $349,094 9. LONG-TERM DEBT The following is a summary of changes in long-term debt during the year ended September 30, 1992: Balance at Balance at Oct. 1. 1991 Additions Reductions Sept. 30. 1992 General Long-Term Debt Capital lease $ 83,598 $ 40,237 $ 43,361 Certificates of Obligation 2,425,000 200,000 2,225,000 General Obligation Bonds 19.890.000 $2.000,000 760.000 21,130.000 TOTAL GENERAL LONG-TERM DEBT 22,398,598 2,00.0,000 1,000,237 23,398,361 Revenue Bonds 1 .765.000 120.000 1.645.000 TOTAL LONG-TERM DEBT $24,163,598 $2,000,000 $1,120,237 $25,043 ,361 -45- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 12 September 30, 1992 9. LONG-TERM DEBT (continued) Long-term debt at September 30, 1992 was comprised of the following issues: Principal Balance Description Sept. 30. 1992 General Obligation Bonds 1964 Waterworks and Sanitary Sewer System Improvement Bonds due in annual installments of $35,000 to $55,000 through June 1 , 1994, with interest rates ranging from 3.80 to 3.90%. $ 110,000 1966 General Obligation Bonds due in annual installments of $15,000 to $100,000 through June 1 , 1995, with interest rates ranging from 4.30 to 4.40%. 175,000 1968 General Obligation Bonds due in annual installments of $25,000 to $50,000 through February 1, 1995, with interest rates ranging from 5.00 to 5.25%. 150,000 1975 General Obligation Bonds due in annual install- ments of $30,000 to $65,000 through February 1, 1993, with interest rates ranging from 5.90 to 6.5%. 65,000 1978 Permanent Improvement Bonds due in annual install- ments of $30,000 to $250,000 through March 1 , 1997, with interest rates ranging from 4.90 to 5.50%. 1 ,025,000 $12,060,000 Refunding Bonds, Series 1985 due in annual installments of $205,000 to $1 ,280,000, with interest rates ranging from 5.50 to 8.80%. 1 ,780,000 1986 Public Improvement Bonds due in annual installments of $50,000 to $500,000 through March 1 , 2003 , with interest rates ranging from 6.50 to 8.50%. 4,025,000 1988 Public Improvement Bonds due in annual installments of $50,000 to $250,000, with interest rates ranging from 6.80 to 8.80%. 1 ,800,000 1991 Refunding Bonds due in annual installments of $315,000 to $1 ,820,000, with interest rates ranging from 7.10 to 7.35%. 10,000,000 1991 Street Improvement Bonds due in annual installments of $80,000 to $260,000 with interest rates ranging from 6.00 to 8.00% 2 ,000,000 $21 ,130,000 -46- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 13 September 30, 1992 9. LONG-TERM DEBT (continued) Principal Balance Description Sept. 30. 1992 Certificates of Obligation 1981 Water Works System Certificates of Obligation due in annual installments of $100,000, with interest rates ranging from 9.25 to 9.75%. $ 100,000 1988 Landfill Certificates of obligation due in annual installments of $50,000 with an interest rate of 6.4%. 50,000 1991 Tax and Revenue Certificate of Obligation due in annual installments of $50,00 to $220,000, with interest rates ranging from 6.3 to 7.8%. 2.075.000 $ 2,225,000 Capital Lease Capital lease payable to Citicorp North America for the purchase of a gradall due in quarterly installments of $11,215.70, with interest at 7.50%. 43.361 TOTAL GENERAL LONG-TERM DEBT Minimum future lease payments are as follows; Total Lease Payments Principal Interest 1993 $44,863 $43,361 $1,502 $44.863 $43,301 1 502 Revenue Bonds 1978 Water and Sewer Bonds due in annual installments of $90,000 to $200,000, with interest rates ranging from 5.40 to 6.40%. Y 1.645.000 TOTAL LONG-TERM DEBT $25.043.361, -47- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 14 September 30, 1992 9. LONG-TERM DEBT(continued) —' The annual requirements to amortize general obligation bonds and certificates of obligation outstanding at September 30, 1992, including interest payments of$12,050,270,are as follows: Year Ending General Long- Revenue Sept. 30 Tern Debt Bonds Total 1993 $ 2,537,557 $ 224,090 $ 2,761,647 1994 2,480,555 222,090 2,702,645 1995 2,038,498 224,680 2,263,178 1996 2,029,014 226,560 2,255,574 1997 2,028,798 227,710 2,256,508 1998 and Thereafter 24.334,209 1,119,630 25.453,839 $35,448,631 $2,224,760 $37,693,391 The amount of $1,090,186 is available in the Debt Service Fund to service the general obligation bonds. The amount of $422,845 in the Enterprise Fund is restricted to service revenue bonds. Debt service requirements of revenue bonds is provided from net revenue to the Enterprise Fund. There are a number of limitations and restrictions contained in the various bond indentures. The City is in compliance with all significant limitations and restrictions. 10. EMPLOYEE RETIREMENT SYSTEM The City of Pearland 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 570 administered by TMRS, an agent multiple- employer public employee retirement system. Statewide Texas Municipal Retirement System Plan Description and Provisions All of the City's full-time employees participate in the Texas Municipal Retirement System, a nontraditional, joint contributory, defined contribution plan. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits,with interest. At the date the plan began,the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to _ establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%,or 200%)of the employee's accumulated contributions. In addition, the City can grant 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 -48- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 15 September 30, 1992 10. EMPLOYEE RETIREMENT SYSTEM (continued) Plan Description and Provisions (continued) 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. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions 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 with 25 or more 1 years of service regardless of age. The plan also provides death and disability benefits. A member is vested after 10 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. Description of Funding Policy The contribution rate for the employees is 5%, and the City matching percent is currently 200 percent, both as adopted by the governing body of the City. Under the state law governing TMRS, the City contribution rate is annually determined by the actuary. Part of the City contribution rate(the normal cost)is to fund the currently accruing monetary credits, with the other part (the prior service contribution rate) calculated as the level percent of payroll needed to amortize the unfunded actuarial liability over the remainder of the plan's 25- year amortization period. When the City periodically adopts updated service credits and increases in annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. Currently,the unfunded actuarial liability is being amortized over the 25-year period which began January, 1992. 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 1991 was $3,556,944, and the City's contributions were based on a payroll of$3,530,891. Both the City and the covered employees made the required contributions, amounting to $265,711 (7.58% of covered payroll for the months in calendar year 1991 and 7.51% for the months in calendar year 1992) for the City and $176,484(5%) for the employees. The City's contributions consisted of$194,644 for normal cost and $71,067 for amortization of the unfunded actuarial accrued liability. The normal cost contribution rates for 1991 and 1992 were 5.52% and 5.51% and the rates to amortize the unfunded actuarial accrued liability for 1991 and 1992 were 2.06% and 2.00%. The City adopted changes in the plan since the previous actuarial valuation, which had the effect of increasing the City's contribution rate for 1992 by .51% of payroll. -49- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 16 September 30, 1992 10. EMPLOYEE RETIREMENT SYSTEM (continued) 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(GASBS No. 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. The pension benefit obligation shown below is similar in nature to the standardized disclosure .,. measure required by GASBS No. 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, 1991. 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 114.1% of book value as of December 31, .. 1991. Pension Benefit Obligation Annuitants currently receiving benefits $ 633,204 Terminated employees 815,494 Current employees �. Accumulated employee contributions including allocated invested earnings 1,263,102 Employer-financed vested 1,419,814 Employer-financed nonvested 506,471 Total 4,638,085 Net Assets Available for Benefits, at Book Value 3,683,710 Unfunded Pension Benefit Obligation $ 954,375 -50- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 17 September 30, 1992 10. EMPLOYEE RETIREMENT SYSTEM (continued) Pension Benefit Obligation 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 changes in actuarial assumptions since the previous actuarial valuation, which had the effect of increasing the pension benefit obligation by $165,402. Trend Information Trend information for the three years ended December 31, 1989, 1990 and 1991, respectively, is as follows: available assets were sufficient to fund 74.55%, 77.19 percent and 79.42%of the pension benefit obligation. The unfunded pension benefit obligation represented 30.54%, 29.38%and 20.58%of the annual payroll for employees covered by TMRS for 1989, 1990 and 1991, respectively. Presenting the unfunded pension benefit obligation as a percentage of annual covered payroll approximately adjust for the effects of inflation for analysis purposes. In addition, for the three years ended December 31, 1989, 1990 and 1991 the City's contributions to the system were 5.91%, 7.48% and 7.53%, respectively, of annual covered payroll. Nine year historical trend information is presented in the statistical section of this Comprehensive Annual Financial Report. 11. LITIGATION As of September 30, 1992,the City was either a defendant or co-defendant in several lawsuits. It is the opinion of City Management and legal counsel that any ultimate liability to the City from these lawsuits will not be material. 12. INTERGOVERNMENT TRANSFER- SANITATION DEPARTMENT On October 1, 1992, the City transferred from the Enterprise Fund assets totaling $1,415,413 to the General Fund and the General Fixed Asset Account Group which represents the Sanitation Department. The General Fund received assets and equity in the amount of $203,082 and the General Fixed Assets received assets including contributed capital, in the amount of$942,431. -51- T OFFICIAL STATEMENT DATED APRIL 8, 1993 r IN THE OPINION OF BOND COUNSEL, INTEREST ON THE BONDS IS EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES UNDER EXISTING LAW AND THE BONDS ARE NOT PRIVATE ACTIVITY BONDS.SEE "TAX MATTERS"FOR A DISCUSSION OF THE OPINION OF BOND COUNSEL, INCLUDING A DESCRIPTION OF ALTERNATIVE MINIMUM TAX CONSE- r QUENCES FOR CORPORATIONS. NEW ISSUE Ratings: Standard & Poor's Corporation (FGIC) ..."AAA" so Moody's Investors Service, Inc. (FGIC) ..."Aaa" See "Municipal Bond Insurance" herein $6,510,000 iir CITY OF PEARLAND (Brazoria and Harris Counties, Texas) REFUNDING BONDS, SERIES 1993 The City will designate the Bonds as "Qualified Tax Exempt Obligations" for financial institutions. r Dated: May 1, 1993 Interest on the Bonds maturing in the years 1993 through 2003, both inclusive (the "Bonds") will accrue from May 1, 1993,and will be payable March 1 and September 1 of each year, commencing September 1, 1993. The Bonds are referred to herein as the "Bonds" or the "Series 1993 Refunding Bonds". Principal of the Bonds is payable at the principal corporate trust office of Ameritrust Texas, National Association, Houston, Texas, the paying agent/registrar iA (the "Registrar"), upon surrender of the Bonds for payment. Interest on the Bonds is 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 on the close of business as of the 15th day of the calendar month next preceding each interest payment date (the "Record Date"). The Bonds will be issued only in fully registered form, in denominations of$5,000 of principal amount or any • integral multiple thereof. The Bonds are not subject to redemption prior to their scheduled maturities. A Municipal Bond Guaranty Insurance Policy guaranteeing payment of the principal of and interest on the Bonds on the stated payment dates will be issued Financial Guaranty Insurance Company. ye mom FGIC. P Service mark used by Financial Guaranty Insurance Company,a private company not affiliated with any U.S.government agency. PRINCIPAL AMOUNTS, MATURITIES, INTEREST RATES AND PRICES wo Initial Initial Principal Interest Reoffering Principal Interest Reoffering Amount Maturity Rate Yield(a) Amount Maturity Rate Yield(a) $ 115,000 9/01/93 2.65% 2.65% $ 950,000 3/01/99 4.10% 4.20% 95,000 3/01/94 3.00 3.00 990,000 3/01/00 4.25 4.35 Pr 320,000 3/01/95 3.20 3.20 1,030,000 3/01/01 4.40 4.50 465,000 3/01/96 3.50 3.50 770,000 3/01/02 4.50 4.65 365,000 3/01/97 3.80 3.80 755,000 3/01/03 4.625 4.80 655,000 3/01/98 4.00 4.00 I (a) The initial yields and prices are established by,and are the sole responsibility of the Underwriter (hereinafter defined) and may subsequently be changed. _ The proceeds of the Bonds will be applied to refund certain outstanding bonds of the City of Pearland, Texas (the "City"), and to pay certain costs incurred in connection with the issuance of the Bonds (See "THE BONDS — Sources and Uses of Funds").The Bonds,when issued,will constitute valid and binding obligations of thelaw City andtaxable will be payable solely from the proceeds of an annual ad valorem tax, levied within the limits prescribed by against property A within the city. The Bonds are offered when, as and if issued by e.itn legal matte s b Vinsone&Elkins L.L.P., Houst n,Texas,Bond the Attorney General of Texas and the approval oferta g Underwriterhe Counsel. Certain legal mattes will b Delivery of he Bondsis ant pat d to be Taylor, on o�l about May l l,n1993.L.L.P' Houston, Texas. See "LEGAL MATT MASTERSON MORELAND SAUER WHISMAN, INC. r COASTAL SECURITIES LTD. TABLE OF CONTENTS Page USE OF INFORMATION IN OFFICIAL STATEMENT 3 SALE AND DISTRIBUTION OF THE BONDS 3 Underwriting 3 Prices and Marketability 3 Securities Laws 3 BOND INSURANCE 4 Payment Pursuant to Municipal Bond New Issue Insurance Policy 4 MUNICIPAL BOND RATINGS 5 OFFICIAL STATEMENT SUMMARY 6 SELECTED FINANCIAL INFORMATION 7 THE BONDS 8 General 8 Optional Redemption 8 '. Source of Payment 8 Authorization of Bonds 8 Escrow Agreement 9 The Refunded Bonds 9 Sources and Uses of Funds 9 Future Borrowing 10 Registered Owners' Remedies and Effects of Bankruptcy 10 .. LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS 10 CITY DEBT 11 General 11 Bonded Indebtedness 11 Debt Service Requirements 11 Estimated Overlapping Debt 12 Debt Ratios 12 TAX DATA 13 General 13 Property Tax Code and County-Wide Appraisal District 13 Tax Rate Limitations 13 Property Subject to Taxation by the City 14 Notice and Hearing Procedures 14 Levy and Collection of Taxes 14 Collection of Delinquent Taxes 15 Property Owned By the Resolution Trust Corporation 15 Historical Analysis of Tax Collection 16 Analysis of Tax Base 17 Estimated Overlapping Taxes 18 Sales Tax 19 SELECTED FINANCIAL DATA 20 Historical Operations of the City's General Fund 20 General Fund and Debt Service Fund Balance for the Past Five Fiscal Years 20 Pension Fund 21 Financial Statements 21 ADMINISTRATION OF THE CITY 21 Mayor and City Council 21 Administration 22 Consultants 22 LEGAL MATTERS 23 Legal Opinions 23 No-Litigation Certificate 23 No Material Adverse Change 23 TAX MATTERS 23 Tax Exemption 23 Tax Accounting Treatment of Original Issue Discount Bonds 24 QUALIFIED TAX-EXEMPT OBLIGATIONS 25 VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION 26 GENERAL CONSIDERATIONS 26 Sources and Compilation of Information 26 Certification as to Official Statement 26 Updating of Official Statement 27 APPENDIX A - ECONOMIC AND DEMOGRAPHIC CHARACTERISTICS APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY USE OF INFORMATION IN OFFICIAL STATEMENT No dealer, broker, salesman or other person has been authorized by the City or the Underwriter 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 or the Underwriter. 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. SALE AND DISTRIBUTION OF THE BONDS Underwriting Masterson Moreland Sauer Whisman,Inc. and Coastal Securities Ltd. (referred to herein as the "Underwriter") have agreed to purchase the Bonds from the City for $6,418,537.95,plus accrued interest on the Current Interest Bonds to the date of delivery. Prices and Marketability The delivery of the Bonds is conditioned upon the receipt by the City of a certificate executed and delivered by the Underwriter on or before the date of delivery of the Bonds stating the prices at which a substantial amount of the Bonds of each maturity have been sold to the public. For this purpose, the term "public" shall not include any person who is a bond house, broker or similar person acting in the capacity of underwriter or wholesaler. The City has no control over trading of the Bonds after a bona fide offering of the Bonds is made by the Underwriter at the yields specified on the cover page. Information concerning reoffering yields or prices is the responsibility of the Underwriter. The prices and other terms respecting the offering and sale of the Bonds may be changed from time to time by the Underwriter after the Bonds are released for sale, and the Bonds may be offered and sold at prices other than the initial offering price, including sales to dealers who may sell the Bonds into investment accounts. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS 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 For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document as the same may be supplemented or corrected by the City from time-to-time, may be treated as an OFFICIAL STATEMENT with respect to the Bonds 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 Bonds, shall constitute a 'FINAL OFFICIAL STATEMENT" of the City with respect to the Bonds, as such term is defined in Rule 15c2-12. 3 No registration statement relating to the Bonds has been filed with the Securities and Exchange Commission under the Securities Act of 1933,as amended, in reliance upon the exemptions provided thereunder. The Bonds have not been registered or qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been registered or qualified under the securities laws of any other jurisdiction.The City assumes no responsibility for registration or qualification of the Bonds under the securities laws of any other jurisdiction in which the Bonds may be offered, sold or otherwise transferred. This disclaimer of responsibility for registration or qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration or qualification provisions in such other jurisdictions. MUNICIPAL BOND INSURANCE Payment Pursuant to Municipal Bond New Issue Insurance Policy Concurrently with the issuance of the Bonds, Financial Guaranty Insurance Company ("Financial Guaranty") will issue its Municipal Bond New Issue Insurance Policy for the Bonds(the "Policy"). The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Bonds which has become due for payment, but shall be unpaid by reason of nonpayment by the City. Financial Guaranty will make such payments to Citibank,N.A., or its successor as its agent(the "Fiscal Agent"), on the later of the date on which such principal and interest is due or on the business day next following the day on which Financial Guaranty shall have received telephonic or telegraphic notice, subsequently confirmed in writing or written notice by registered or certified mail, from an owner of Bonds or the Paying Agent of the nonpayment of such amount by the City. The Fiscal Agent will disburse such amount due on any Bond to its owner upon receipt by the Fiscal Agent of evidence satisfactory to the Fiscal Agent of the owner's right to receive payment of the principal and interest due for payment and evidence, including any appropriate instruments of assignment, that all of such owner's right to payment of such principal and interest shall be vested in Financial Guaranty. The term "nonpayment" in respect of a Bond includes any payment of principal or interest made to an owner of a Bond which has been recovered from such owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. The Policy is a non-cancellable and the premium will be fully paid at the time of delivery of the Bonds. The Policy covers failure to pay principal of the Bonds on their respective stated maturity dates, or dates on which the same shall have been duly called for mandatory sinking fund redemption, and not on any other date on which the Bonds may have been accelerated, and covers the failure to pay an installment of interest on the stated date for its payment. The Official Statement contains a section regarding the ratings assigned to the Bonds and references should be made to such section for a discussion of such ratings and the basis for their assignment to the Bonds. References should be made to the description of the City and the Bonds for a discussion of the ratings, if any, assigned to such entity's outstanding parity debt that is not secured by credit enhancement and the circumstances, if any, under which the City is required to provide additional or substitute credit enhancement, and related matters. The Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation(the "Corporation"),a Delaware holding company. The Corporation is a subsidiary of General Electric Capital Corporation ("GE Capital"). Neither the Corporation nor GE Capital is obligated to pay the debts of or the claims against Financial Guaranty. Financial Guaranty is a monoline financial guaranty insurer domiciled in the State of New York and is subject to regulation by the State of New York Insurance Department. As of December 31, 1992, the total capital and surplus of Financial Guaranty was approximately$621,000,000. Financial Guaranty prepares financial statements on the basis 4 of both statutory accounting principles and generally accepted accounting principles. Copies of such financial statements may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New York 10006, Attention: Communications Department(telephone number: (212)312-3000)or to the New York State Insurance Department at 160 West Broadway, 18th Floor, New York, New York 10013, Attention: Property Companies Bureau (telephone number: (212) 602-0389). MUNICIPAL BOND RATINGS Fitch Investors Service, Inc., Moody's Investors Service and Standard & Poor's Corporation have assigned ratings of"AAA", "Aaa" and "AAA", respectively, to the Bonds,with the understanding that, upon delivery of the Bonds, the Financial Guaranty Policy will be issued by Financial Guaranty. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Fitch Investors Service, Inc., One State Street Plaza, New York, New York 1004; Moody's Investors Service, Inc.,99 Church Street, New York, New York 10007; Standard &Poor's Corporation, 25 Broadway, New York, New York 10004. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any downward revision or withdrawal of either or both ratings may have an adverse effect on the market price of the Bonds. 5 OFFICIAL STATEMENT SUMMARY The following material is a summary of certain information contained herein and is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Official Statement. The reader should refer particularly to sections that are indicated for more complete information. GENERAL The Issuer The City of Pearland is a municipal corporation of the State of Texas located within Brazoria & Harris Counties, Texas. The Bonds $6,510,000.00 Refunding Bonds, Series 1993, are dated May 1, 1993, and mature September 1, 1993 and March 1, 1994 through March 1, 2003. See "THE BONDS - General." Payment of Interest Interest on the Bonds accrues from May 1, 1993, and is payable September 1, 1993, and on each September 1 and March 1 thereafter until maturity. Other Characteristics The Bonds are issued in fully registered form. The Bonds will be issued in denominations of $5,000 of principal amount or integral multiples thereof. The Bonds are not subject to redemption prior to their scheduled maturities. Source of Payment Principal of and interest on the Bonds are payable from the proceMs of a continuing,direct annual ad valorem tax, levied within the limits prescribed by law against taxable property located within the City. See "THE BONDS - Source of Payment." Use of Proceeds Proceeds of the Bonds will be applied to advance refund a portion of the City's $1,860,000 Permanent Improvement Bonds, Series 1978(the "Series 1978 Bonds"); a portion of the City's$12,060,000 Refunding Bonds, Series 1985(the "Series 1985 Bonds"); $4,500,000 Public Improvement Bonds, Series 1986 (the "Series 1986 Bonds"); and $2,000,000 Public Improvement Bonds,Series 1988(the "Series 1988 Bonds")or collectively(the "Refunded Bonds"). In addition, the proceiTis will be used to pay the costs of issuance of the Bonds. See "THE BONDS - Sources and Uses of Funds." Ratings Moody's Investors Service, Inc. (FGIC) "Aaa" Standard&Poor's Corporation(FGIC) "AAA" Qualified Tax-Exempt Obligations The City will designate the Bonds as Qualified Tax-Exempt Obligations for Financial Institutions. See "QUALIFIED TAX-EXEMPT OBLIGATIONS" herein. Payment Record The City has never defaulted on the timely payment of principal of and interest on its bonds. 6 I SELECTED FINANCIAL INFORMATION (Unaudited) 1992 Certified Assessed Valuation $ 654,804,750(a) (100% of market value as of January 1, 1992) '" See "TAX DATA" and "TAXING PROCEDURES." Direct Debt: .. Outstanding Bonds (as of March 1, 1992) $ 13,924,400(b) The Bonds 6,510,000 Total $ 20,435,400 'H Estimated Overlapping Debt $ 28,713,420 Direct and Estimated Overlapping Debt S 49,148,820 ., Debt Service Fund Balance (as of March 1, 1992) $ 1,140,537 Ratio of Direct Debt to • 1992 Certified Assessed Valuation ($654,804,750) . 3.12% 1992 Population(23,016) $ 888 Ratio of Direct and Estimated '" Overlapping Debt to • 1992 Certified Assessed Valuation ($654,804,750) . 7.51% 1992 Population(23,016) $2,135 (a) Certified by the Brazoria County Appraisal District. (b) Excludes the refunded bonds. if 11 r 7 THE BONDS General The following is a description of some of the terms and conditions of the Bonds, which description is qualified in its entirety by the form of the Bonds contained in the ordinance of the City Council of the City authorizing the issuance of the Bonds (the "Bond Ordinance"). A copy of the Bond Ordinance may be obtained upon request to the City. The Bonds are dated May 1, 1993, will mature on September 1, 1993 and thereafter on March 1 in the years and in the principal or maturity amounts indicated on the first page hereof. The interest rates for the Bonds are also shown on the first page hereof. Principal of the Bonds will be payable at the principal corporate trust office of Ameritrust Texas, National Association, Houston, Texas, the paying agent/registrar (the "Registrar"), upon surrender of the Bonds for payment. Interest on the Bonds accrues from May 1, 1993 (or the most recent interest payment date to which interest has been paid or duly provided for) and is payable each September 1 and March 1 thereafter until maturity. Interest on the Bonds is 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 as of the close of business on the 15th day of the calendar month next preceding each interest payment date (the "Record Date"). The Bonds are issued only in fully registered form. The Bonds will be issued in denominations of$5,000 principal amount, or integral multiples thereof. The Bonds are transferable only on the bond register kept by the Registrar upon surrender and reissuance. The Bonds are exchangeable for an equal principal amount or maturity amount of Bonds of the same maturity in any authorized denomination upon surrender of the Bonds to be exchanged at the principal corporate trust office of the Registrar. The City has agreed to replace mutilated, destroyed, lost or stolen Bonds upon surrender of the mutilated Bonds,or receipt of satisfactory evidence of such destruction, loss or theft, and receipt by the City and the Registrar of security or indemnity to hold them harmless. The City or the Registrar may require payment of taxes, governmental charges and other expenses in connection with any such replacement. Optional Redemption The City does not reserve the right to redeem the Bonds prior to their scheduled maturities. Source of Payment The Bonds are payable from the proceeds of a continuing,direct annual ad valorem tax, levied within the limits prescribed by law, against taxable property located within the City. In the Bond Ordinance, the City covenants to levy a tax sufficient to pay the principal of and interest on the Bonds, with full allowance being made for delinquencies and costs of collection. Collected taxes will be placed in the Debt Service Fund and used to pay principal of and interest on the Bonds. Authorization of Bonds The Bonds are issued pursuant to the authority of the Bond Ordinance to be adopted by the City Council on the date of sale and Article 717k, Vernon's Texas Civil Statutes, as amended. 8 Escrow Agreement The City will enter into an escrow agreement(the"Escrow Agreement")with Texas Commerce Bank, National Association, Houston, Texas, pursuant to which a portion of the proceeds of the Bonds will be invested in certain securities of the United States of America (the "Escrowed Obligations"),deposited in an escrow fund , and applied to provide for scheduled payments of principal of and interest on the Refunded Bonds until their maturity or prior redemption. By the deposit of the Escrowed Obligations and cash with the Escrow Agent pursuant to the Escrow Agreement, the City will have defeased the Refunded Bonds. In the opinion of Bond Counsel, as a result of such deposit, firm banking and financial arrangements will have been made for the discharge and final payment of the Refunded Bonds pursuant to the Escrow Agreement, and such Refunded Bonds will be deemed to be fully paid and no longer outstanding, except for the purpose of being paid from the funds provided therefor in such Escrow Agreement. The Refunded Bonds The table below is a description of the bonds to be refunded of the following series (collectively the "Refunded Bonds"): Principal Maturity Call Series Amount Date Date/Price 1978 $ 900,000 03/01/94-1997 09/01/93 ® 100 1985 $ 800,000 03/01/96-2001 03/01/95 t 100 1986 $ 2,850,000 03/01/98-2003 03/01/97® 100 1988 $ 1,250,000 03/01/99-2003 03/01/98 a 100 r Sources and Uses of Funds The proceeds from the sale of the Bonds will be applied as follows: SOURCES OF FUNDS: FP Par Amount of the Bonds $6,510,000.00 Original Issue Discount (36,127.05) Accrued Interest 7,455.45 Total Sources of Funds $6,481,328.40 USES OF FUNDS: Purchase of Escrowed Obligations for Escrow Fund $6,293,000.00 Escrow Starting Balance 6.20 Accrued Interest 7,455.45 Expenses: Underwriter Discount $ 55,335.00 Bond Insurance 30,625.82 Other Issuance Expenses 94,905.93 Total Uses of Funds $6 481,328.40 9 r Future Borrowing Following the issuance of the Bonds, there will remain no bonds authorized by the electorate. Currently, the City has no plans to authorize the issuance of additional bonds. 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 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 outstanding bonds, the Bonds, and any future obligations. Registered Owners' Remedies and Effects of Bankruptcy Texas law provides that if the City defaults in the payment of the principal of or interest on any of the Bonds when due, fails to make payments required by the Bond Order into the Debt Service Fund or defaults in the observance or performance of any of the covenants, conditions, or obligations set forth in the Bond Order, any registered owner shall be entitled at any time to seek a writ of mandamus from a court of competent jurisdiction compelling and requiring the City Council to observe and perform any covenant, obligation or condition prescribed by the Bond Ordinance. Such right is in addition to other rights the registered owners of the Bonds may be provided by the laws of the State of Texas. The Bond Ordinance does not specifically provide for remedies to a registered owner in the event of a City default, nor does it provide for the appointment of a trustee to protect and enforce the interests of the registered owners. There is no provision for acceleration of maturity of the Bonds in the event of default and, consequently, the remedy of mandamus may have to be relied upon from year to year. Although the registered owners could obtain a judgment against the City, such a judgment could not be enforced by direct levy and execution against the City's property. Further, the registered owners cannot themselves foreclose on property within the City or sell property within the City in order to pay the principal of and interest on the Bonds. The enforceability of the rights and remedies of the registered owners may be further limited by laws relating to bankruptcy, reorganization or other similar laws of general application affecting the rights of creditors of political subdivisions, such as the City, and by general principles of equity which permit the exercise of judicial discretion. LEGAL INVESTMENT AND ELIGIBILITY TO SECURE PUBLIC FUNDS IN TEXAS Texas law provides that the Bonds 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 the sinking funds of cities, towns, villages, school districts, and other political subdivisions or public agencies of the State of Texas. Texas law also provides that the Bonds are eligible to sure deposits of any public funds of the state or any political subdivision or public agency of the state, and are lawful and sufficient security for the deposits to the extent of their market value so long as they are rated at least "A" or the equivalent by a nationally recognized rating agency. The City has made no investigation of other laws, rules, regulations, or investment criteria which might apply to any such institutions or entities or which might limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes. The City has made no review of laws in other states to determine whether the Bonds are legal investments for various institutions in those states. 10 CITY DEBT General The following tables and calculations relate to the Bonds and to all other debt of the City. The City and various other political subdivisions of government which overlap all or a portion of the City are empowered to incur debt to be paid from revenues raised or to be raised by taxation against all or a portion of property within the City. Bonded Indebtedness 1992 Certified Assessed Valuation (100% of Estimated Market Value) $ 654,804,750(a) Direct Debt — Outstanding City Debt (as of March 1, 1993) $ 13,924,400(b) The Bonds 6,510,000 Total Direct Debt $ 20.35.400 — Interest & Sinking Fund Balance (as of March 1, 1993) $ _1,140,537 (a) Certified by Brazoria County Appraisal District. (b) Excludes the refunded bonds. Debt Service Requirements The following schedule sets forth the current total debt service requirements of the City, less the debt service on the Refunded Bonds, plus the principal and interest requirements on the Bonds. Less: Debt Fiscal Year Service On Total New Ending Current Total Refunded The Bonds Debt 9-30 Debt Service Bonds Principal Interest Service 1993 $ 2,487,696 $ 198,263 $ 115,000 $ 89,465 $ 2,493,898 1994 2,480,557 591,225 95,000 263,924 2,248,256 1995 2,038,499 580,525 320,000 257,379 2,035,353 1996 2,029,015 709,331 465,000 244,121 2,028,805 1997 2,028,798 596,663 365,000 229,049 2,026,184 1998 2,035,359 865,900 655,000 209,014 2,033,473 1999 2,024,404 1,126,873 950,000 176,439 2,023,970 2000 2,027,831 1,128,588 990,000 135,926 2,025,169 2001 2,029,134 1,124,096 1,030,000 92,229 2,027,267 2002 2,026,001 826,688 770,000 52,244 2,021,557 r 2003 2,020,288 775,313 755,000 17,459 2,017,434 2004 2,026,663 2,026,663 2005 2,028,049 2,028,049 2006 2,025,458 2,025,458 2007 2,031,930 2,031,930 2008 2,031,300 2,031,300 2009 , 2,032,800 2,032.800 Total $35,403,782 $8,523,465 $6,510,000 $1,767,249 3 5,157,566 Average Annual Requirements (1994-2009) $1,921,392 ' Maximum Annual Requirement (1994) $2,248,256 11 Estimated Overlapping Debt The following table indicates the indebtedness, defined as outstanding bonds payable from ad valorem taxes, of governmental entities overlapping the District and the estimated percentages and amounts of such indebtedness attributable to property within the District. The information is based upon data secured from individual jurisdictions and/or the Texas Municipal Reports published by the Municipal Advisory Council of Texas. Such figures do not indicate the tax burden levied by the applicable taxing jurisdictions for operation and maintenance or for other purposes. Overlapping Taxing Jurisdiction Debt as of 3-1-93 Percent Amount Brazoria County $ 34,917,503 6.97% $ 2,433,750 Harris County 616,850,000 0.02 123,370 Harris County Toll Road 539,118,301 0.02 107,824 Harris County Flood Control 305,236,660 0.02 61,047 Pearland 1.S.D. 38,890,000 66.77 25,966,853 Port of Houston 102,880,000 0.02 20,576 TOTAL ESTIMATED OVERLAPPING DEBT $28,713,420 The City 20,435,400 TOTAL DIRECT AND ESTIMATED OVERLAPPING DEBT $49,148.820 Debt Ratios Direct and Estimated Overlapping Direct Debt Debt Per 1992 Certified Assessed Valuation ($654,804,750) 3.12% 7.51% Per Capita (23,016) $888 $2,135 12 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 "FINANCIAL OPERATIONS OF THE DISTRICT - a Sources of Revenue". 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; and (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 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%o collection. 13 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 is 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 purpos.s; 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 disabled or over 65 years of age are entitled to apply for an additional exemption from market value of their residential homestead of$12,500. This over 65 exemption amounted to $19,472,920 from the 1992 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 thereafter. The City has elected not to grant this additional exemption for the 1992 tax year. An eligible owner of agricultural and timberland may apply to have such properties which meet certain requirements appraised on the basis of productivity value or market value, whichever is less. The loss of value due to property values based on productivity value on the 1992 tax roll approximate $18,292,360. 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 has the option to take official action to override the exemption and to continue taxing the property exempted by the amendment. The City's City Council took such official action to tax the property in 1990 and to disallow the exemption for 1991 and all future years. The City Council may elect to allow the exemption in subsequent years which could result in a reduction of the City's tax base. 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 has transferred the function of the collection of its taxes to the Pearland Independent School District. By September 1 of each year, or as soon thereafter as practicable, the rate of taxation is set by the City Council of the City 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. 14 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, however, the City does not permit such payments. Collection of Delinquent Taxes Taxes levied by the City are a personal obligation of the property on January 1 of the year for which the tax is imposed. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the City, having the power to tax the property. The City's tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. In the event a taxpayer fails to make timely payment of taxes due the City, the City may file suit to foreclose its lien securing payment of the tax, to enforce personal liability for the tax, or both. Whether a lien of the United States is on a parity with or takes priority over a tax lien of the City is determined by applicable federal law. In the absence of such federal law, the City's tax lien takes priority over a tax lien of the United States. The ability of the City to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units,the foreclosure sale price attributable to market conditions,the taxpayer's right to redeem the property within two years of foreclosure, or by bankruptcy proceedings which restrain the collection of a taxpayer's debts. (See "THE BONDS - Property Owned by the Resolution Trust Corporation.") Property Owned By the Resolution Trust Corporation "Financial Institutions Reform, Recovery and Enforcement Act of 1989" ("FIRREA") contains certain provisions which affect the time for protesting property valuations, the fixing of tax liens, and the collection of penalties and interest on delinquent taxes on real property owned by the Resolution Trust Company ("RTC"). Under FIRREA, real property held by the RTC is still subject to ad valorem taxation, but such act states that (i) no real property of the FDIC or RTC shall be subject to foreclose or sale without the consent of the FDIC or RTC and no involuntary lien shall attach to such property, (ii)the FDIC or RTC shall not be liable for any penalties or fines, including those arising from the failure to pay any real property tax when due, and (iii)not withstanding failure of a person to challenge an appraisal in accordance with State law, such value shall be determined as of the period for which such tax is imposed. S �" 15 Historical Analysis of Tax Collection 1 - Collection Ratios - Tax Rate % of Collections Tax Assessed Per $100 of Adjusted Current Current and Fiscal Year Year Valuation Assessed Valuation Tax Levy Year Prior Years Ending 9-30 1985 $591,810,120 $0.600 $3,544,618 96.92 98.79 1986 1986 554,727,670 .700 3,902,598 96.99 99.07 1987 1987 558,477,970 .735 4,103,794 96.97 99.06 1988 1988 562,461,502 .825 4,640,320 98.04 100.24 1989 1989 576,486,290 .825 4,756,012 97.45 98.86 1990 1990 575,624,520 .800 4,604,996 98.24 99.99 1991 1991 617,887,160 .800 4,943,097 97.80 98.97 1992 1992 654,804,750 .797 5,218,794 (a) (a) 1993 (a) In process of collection. - Tax Rate Distribution- 1992 1991 1990 1989 1988 1987 1986 1985 Maintenance $0.40078 $0.41 $0.378 $0.340 $0.310 $0.275 $0.246 $0.269 Debt Service .39622 .39 .422 .485 .515 .460 .454 .331 Total $0.79700 12,11 0.800 0.825 0.825 $0.735 $0.700 $0.600 - Analysis of Delinquent Taxes - The following is an analysis, by tax year, of taxes delinquent as of September 30, 1991. Outstanding Delinquent Taxes Adjusted Percentage Tax Year as of September 30, 1991 Tax Levy of Tax Levy 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 1985 192,446 3,544,618 5.43 1984 166,389 3,145,445 5.29 1983 129,716 2,842,011 4.56 1982 89,685 2,729,115 3.29 1981 76,189 (a) 3.73 (a) Various levies & percentages. 16 I r - Delinquent Tax Collection Procedures - E In addition to the legal procedures and penalties described under "Authority for Taxation", the City retained a. 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 "' - Tax Base Distribution- 1992 Tax Roll 1991 Tax Roll 1990 Tax Roll Type of Property Amount % Amount % Amount % Residential $450,666,700 65.07% $409,034,280 62.43% $377,044,890 61.69% Acreage 34,557,620 4.99 36,016,050 5.50 37,219,370 6.09 Vacant Lots/Tracts 18,390,780 2.66 20,153,170 3.08 23,082,590 3.78 Farm & Ranch 2,735,520 .39 2,659,500 .40 2,571,840 .42 Commercial/Industrial 163,589,240 23.62 163,291,570 24.92 149,950,310 24.54 Utilities 21,329,290 3.08 19,984,330 3.05 19,920,410 3.26 . Other 1,300,900 .19 1,406,480 .21 1,359.760 .22 Gross Assessed Value $692,570,050 $655,198,970 $611,149,080 al I ass: Exemptions (37.765,300) (37.311,810) (35,524,560) Net Assessed Value $654,804,750 $617,887,160 $575,624,520 - Principal Taxpayers - 1992 1991 1990 Taxpayer Type of Property Tax Roll Tax Roll Tax Roll W.R. Grace Co. (Chance Collar& Homco) Oil Field Equipment $16,520,060 $17,326,460 $13,289,360 f Hausman - Banfield Prop. Apartments 8,331,730 8,510,660 8,637,250 Southwestern Bell Telephone Utility 8,069,960 7,842,000 8,127,950 Houston Lighting& Power Co. Utility 6,344,890 5,696,540 5,307,890 Wal-Mart Shopping Center 6,252,350 5,792,570 5,086,470 Whispering Winds, Ltd. & Assoc. Apartments &Townhomes 5,161,960 5,161,960 5,161,960 Energy Coatings Company Pipe Coating& Storage 5,130,470 4,867,480 4,510,830 r Houston Helicopter/Baker Prop. Air Transport 4,738,250 (a) (a) Ron Carter Chevrolet Co. Automobile Dealership 4,145,220 5,468,820 6,586,680 Aggreko, Inc. Mobile Temperature Control 3,982,450 4,648,600 (a) as K-Mart Inc. Shopping Center (a) 3,974,380 3,787,190 Windmill Park Apts. #1 & #2 Apartments (a) (a) 4,485,440 Total Ten Principal Taxpayers $68,677,340 162221E2 64 981 020 Po Percentage Ten Principal Taxpayers Comprise of their Respective Tax Rolls 10.49% 11.21% 12.89% a (a) Not a principal taxpayer in such tax year. 17 PP - Tax Adequacy - Average Annual Debt Service Requirements based on Total New Debt Service (1994/2009) $1,921,392 Tax Rate of$0.309 per $100 assessed valuation against the 1992 Certified Assessed Valuation, at 95% collection, produces $1,922,179 Maximum Annual Debt Service Requirements based on Total New Debt Service (in the year 1994) $2,248,256 Tax Rate of$0.362 per $100 assessed valuation against the 1992 Certified Assessed Valuation, at 95% collection, produces $2,251,874 Estimated Overlapping Taxes Under Texas law, if ad valorem taxes levied by a taxing authority become delinquent, a lien is created upon the property which has been taxed, which lien is on a parity with any tax lien on such property in favor of the City. In addition to ad valorem taxes required to retire the aforementioned direct and estimated overlapping debt, certain taxing jurisdictions including those mentioned in Estimated Overlapping Debt are also authorized by Texas law to assess, levy, and collect ad valorem taxes for operation, maintenance, administrative and/or general revenue purposes. Set forth below is an estimation of ad valorem taxes levied on a $50,000 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. 1992 Tax Estimated Taxing Jurisdictions Rate/$100 1992 Tax Bill The City $0.79700 $ 398.50 Brazoria County .31607 158.04 Brazoria County Drainage District No. 4 .13350 66.75 Brazoria County Education District .92500 462.50 Pearland Independent School District .67500 337.50 Estimated Total 1992 Tax Bill $2.84657 $1.423.29 18 Sales Tax - Authority - The City has adopted the provisions of Article 1066c,Vernon's Texas Civil Statutes,as amended,which grants the City the power to impose and levy a 1% sales tax. The City may not pledge the proceeds from the Sales Tax -. as security for the Bonds. - 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 1980 $ 863,670 (1979) $0.534 56.20% 1981 1,075,582 (1980) 0.612 57.51 _ 1982 1,133,869 (1981) 0.344 55.52 1983 820,623 (1982) 0.301 30.69 1984 1,107,194 (1983) 0.265 38.96 1985 1,133,396 (1984) 0.263 36.25 1986 991,896 (1985) 0.168 28.04 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 a ,.. 19 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, are pledged to pay principal and interest on the Bonds. Fiscal Year Ended September 30, 1992 1991 1990 1989 1988 REVENUES General Property Taxes $2,502,055 $2,184,234 $1,990,236 $1,838,580 $1,528,117 Penalties & Interest 49,047 60,762 57,895 71,420 60,303 Sales Taxes 1,704,160 1,548,190 1,460,341 1,212,455 1,150,291 Franchise-s 1,077,130 753,493 693,302 642,180 623,632 Licenses & Permits 296,725 277,260 267,962 139,418 143,198 Interest 196,030 222,069 213,659 161,323 63,184 Charges for Services 1,115,488 (a) (a) (a) 858,071 Fines & Forfeitures 315,085 257,781 212,538 265,062 234,687 Intergovernmental -0- -0- -0- -0- 12,500 Miscellaneous 371,742 191,434 194,803 175,776 200,754 Total Revenues $7,627,462 $5.495.223 $5,090,730 $4,506.214 $4.874,737 EXPENDITURES General Government $1,591,133 $1,286,016 $1,104,528 $1,004,376 $ 1,055,090 Police 1,979,188 1,800,812 1,385,354 1,296,526 1,317,699 Fire 120,354 117,519 112,677 108,912 133,134 Public Safety 368,378 344,266 281,113 307,938 324,372 Streets & Drainage 578,310 644,091 751,594 585,833 746,677 Sanitation 1,147,749 (a) (a) (a) 560,141 Public Works 567,695 502,315 425,159 383,850 525,066 Community Services 464,376 378,645 413,879 350,476 394,294 Total $6,234,662 $5,073,658 $4,474,302 $4,037,911 $5,056,473 (a) Sanitation revenues and expenditures reported in Enterprise Fund. General Fund and Debt Service Fund Balance for the Past Five Fiscal Years Fiscal Year Ended September 30, 1992 1991 1990 1989 1988 General Fund $4,136,446 $2,834,251 $2,021,098 $1,062,052 $ 271,347 Debt Service Fund $1,255,094 $1,012,765 $ 893,878 $ 764,512 $ 622,168 20 Pension Fund The City participates in the Texas Municipal Retirement System(TMRS), an agency operated by the State of Texas. Employees of municipal governmental entities who participate in TMRS contribute a fixed percentage, currently 5% of their gross pay, and the municipal employer contributes twice such sum to TMRS. 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 March 1, 1993, the City employed 157 full-time employees and 6 part-time employees. All full-time employees are covered by TMRS and the City's contribution for this fiscal year as of September 30, 1992, amounted to approximately $265,711 which includes amortization of prior service cost over 25 years. The City had an unfunded accrued liability for prior service benefits in the amount of approximately $954,375 as of = September 30, 1992. The liability for prior service benefits will be amortized over a period of twenty-five years of 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, 1992, 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 a C.V. (Vic) Coppinger 3 years 1993 Chairman/President Mayor Westside National Bank • D.A. Miller Jr. 4 years 1995 Professor Mayor Pro Tem Alvin Community College Benny Frank 2 year 1994 Construction Administrator Council Member RWS Architecture Randy Weber 3 years 1993 Owner, Council Member Weber's Air& Heat Joy Colson 2 year 1994 Homemaker Council Member David L. Smith 1 years 1995 Real Estate Broker Council Member 21 Administration Under provisions of the Charter, the 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 Council, and be responsible for its administration; (3) Prepare and submit to Council a complete report on the finances and administrative activities of the City; (4) Keep Council advised of the financial condition and future needs of the City and make appropriate recommendations; and (5) Perform such other necessary duties as prescribed by the Charter or required by Council. Members of the administrative staff are described below: City Manager - Paul Grohman - Mr. Groham was appointed City Manager in June 1992 and has ten years experience as 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. Director of Administrative Support-Glen R. Erwin -Mr. Erwin was appointed administrative assistant to the City Manager in 1992. 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-Janet S. Eastbum-Ms. Eastburn has served as Director of Finance since April 1, 1986. She was appointed to Assistant Director of Finance in 1982 and has been employed in the City's Finance Department for 22 years. For the past four years the City has received from the Government Finance Officers Association of the United States and Canada the "Distinguished Budget Presentation Award", and since 1976 the "Certificate of Achievement for Excellence in Financial Reporting." Ms. Eastbum is currently attending the University of Houston Clear Lake. She is also a member of the Gulf Coast Chapter of Government Finance Officers Association, Government Finance Officers Association of Texas, and Government Finance Officers Association of the United States and Canada. 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 Vinson & Elkins L.L.P. Houston, Texas Certified Public Accountants Lairson, Stephens & Reimer, P.C. Houston, Texas Financial Advisor Rauscher Pierce Refsnes, Inc. Houston, Texas 22 LEGAL MATTERS Legal Opinions The City will furnish the Underwriter a transcript of certain certified proceedings prepared incident to the authorization and issuance of the Bonds, 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 Bonds, 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 Iegal opinion of Vinson & Elkins L.L.P., Bond Counsel, to the effect that, based upon an examination of such transcript, the Bonds 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 Bonds 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. The opinion of Bond Councl is expected to be reproduced on the back panel of the Bonds 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 Bonds and is a true and correct copy of the original opinion. Errors or omissions in the printing of such legal opinion on the Bonds shall not affect the validity of the Bonds nor constitute cause for the failure or refusal by the Underwriter to accept delivery of and pay for the Bonds. No-Litigation Certificate The City will furnish to the Underwriter a certificate, dated as of the date of delivery of the Bonds, executed by an authorized officer of the City, 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 Bonds; restraining or enjoining the issuance, execution or delivery of the Bonds; affecting the provisions made for the payment of or security for the Bonds;in any manner questioning the authority or proceedings for the issuance, execution, or delivery of the Bonds; or affecting the validity of the Bonds. No Material Adverse Change The obligations of the Underwriter to take and pay for the Bonds, and of the City to deliver the Bonds, are subject to the condition that, up to the time of delivery of and receipt of payment for the Bonds, there shall have been no material adverse change in the condition(financial or otherwise) of the City subsequent to the date of sale from that set forth or contemplated in the Preliminary Official Statement, as it may have been supplemented or amended through the date of sale. TAX MATTERS Tax Exemption In the opinion of Vinson & Elkins L.L.P., Bond Counsel, (i) interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, ( ii) certain "original issue discount" on the Bonds is excludable from gross income for federal income tax purposes under existing law as described more fully in "Tax Accounting Treatment of Original Issue Discount Bonds" and (iii)the Bonds are not "private activity bonds" under the Internal Revenue Code of 1986, as amended (the "Code"), and interest on the Bonds is not subject to the alternative minimum tax on individuals and corporations, except as described below in the discussion regarding the "adjusted current earnings" adjustment for corporations. 23 (b) Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Bond equal to that portion of the amount of such original issue discount allocable to the period that such Bond continues to be owned by such owner. I" In the event of the redemption, sale or other taxable disposition of such Bond prior to stated maturity,however, the amount realized by such owner in excess of the basis for such Bond in the hands of such owner(adjusted upward by the portion of the original issue discount allocable to the period for which such Bond was held by such initial • owner) is includable in gross income. Because original issue discount is treated as interest for federal income tax purposes, the discussion regarding interest on the Bonds under the caption "Tax Exemption" generally applies, except as otherwise provided below,to original issue discount on an Original Issue Discount Bond held by an owner who purchased such Bond at the initial offering price in the initial public offering of the Bonds, and should be considered in connection with the discussion in this portion of the Official Statement. Under existing law, the original discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof(in amounts calculated as described below for each six-month period ending on the date before the semi-annual anniversary dates of the date of the Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other disposition thereof. The amount to be added to basis for each accrual period is equal to the sum of the issue price plus the amount of original issue discount accrued in prior periods multiplied by the yield to stated maturity(determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less the amount payable as current interest during such accrual period on such Bonds. The foregoing opinion is based on the assumptions, that (a) the Underwriter has purchased the Bonds for • contemporaneous sale to the general public and not for investment purposes, (b) all of the Original Issue Discount Bonds have been offered, and a substantial amount of each maturity thereof has been sold to the general public in arm's-length transactions for a cash price (and with no other consideration being included) equal to the initial offering prices thereof stated on the cover page of this Official Statement, and (c) the respective initial offering prices of the Original Issue Discount Bonds to the general public are equal to the fair market value thereof. Neither the City nor Bond Counsel warrants that the Original Issue Discount Bonds will be offered and sold in accordance with such assumptions. QUALIFIED TAX-EXEMPT OBLIGATIONS Under section 265 of the Code, no deduction is allowed in the calculation of the federal income tax of a financial institution for the portion of such financial institution's interest expense paid or incurred on indebtedness which is deemed under the Code to have been incurred or continued to acquire or carry an investment in tax-exempt obligations acquired after August 7, 1986. An exception to the foregoing provision is provided in the Code for • "qualified tax-exempt obligations," which includes tax-exempt obligations, such as the Bonds, if such obligations are (a) designated by the issuer as "qualified tax-exempt obligations" and (b) issued by a political subdivision for which the aggregate amount of tax-exempt obligations (not including private activity bonds other than "qualified a 501(c)(3) bonds") to be issued by such political subdivision and all entities aggregated with the issuer under the Code during the calendar year is not expected to exceed $10 million. The City expects to designate the Bonds as "qualified tax-exempt obligations" and has represented that the aggregate amount of tax-exempt obligations(including the Bonds)issued by the City and the entities aggregated with the City under the Code during calendar year 1993 is not expected to exceed $10 million and that the City and entities aggregated with the City under the Code have not designated more than$10 million in "qualified tax-exempt obligations" (including the Bonds) during calendar year 1993. Notwithstanding the applicability of this exception, the financial institutions acquiring the Bonds will continue to be subject to rules in effect under prior law which disallows the deduction of 20 percent of the interest expense allocable to tax-exempt obligations, including the Bonds. a 25 a VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION The accuracy of computations performed by Rauscher Pierce Refsnes, Inc. relating to (a) the arithmetical computations of the adequacy of the maturing principal amounts of and interest on the escrowed obligations and other securities and certain other available funds to pay, when due, the principal or redemption price and interest on the Refunded Bonds and (b) the mathematical computations supporting the conclusion of Bond Counsel that the Bonds are not "arbitrage bonds" under Section 148 of the Code will be verified by KPMG Peat Marwick, Certified Public Accountants. In making such verification, KPMG Peat Marwick has relied upon information and assumptions supplied by the City and on interpretations of the Code provided by Bond Counsel. KPMG Peat Marwick has restricted its procedures to examining the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of future events. 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 BONDS," "LEGAL MATTERS," and "TAX MATTERS," solely to determine whether such information fairly and accurately describes the Bonds, the Bond 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 Bonds, the City will furnish the Underwriter a certificate, executed by the City Secretary and Mayor, acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement, on the date thereof and on the date of delivery were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading; and (c) insofar as the descriptions and statements, including financial data contained in this Official Statement, of or pertaining to entities other than the City and their activities are concerned, such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect. 26 °� 'EARl - � _ z Cfluj o� @.© II©nd EXPS P. O. Box 2068 • Peoriond, Texas 77588-2068 . 485-2411 a STATEMENT OF CONTINUED COMPLIANCE WITH CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING REQUIREMENTS a November 4, 1992 a 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, 1991. 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 for the year ended September 30, 1992 continues to conform to Certificate of Achievement Program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. I it .30k / et S. Eastburn a City Treasurer a a -9- oiPEARS Cn Y C4 P ©'rII© 'd IIhP- v -' TEXAS P. O. Box 2068 • Pearland, Texas 77588-2068 . 485-241 1 To the Citizens of the City of Pearland Pearland, Texas The comprehensive annual financial report of the City of Pearland, Texas for the fiscal year ended September 30, 1992, 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 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 multiyear basis. This report includes all funds and account groups of the City. 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. /111 In addition to general government activities, the City provides water, sewer and sanitation services. Pearland Volunteer Fire Department, Pearland Area Emergency Medical Service, Pearland Independent School District, Brazoria County,Harris County Hospital District, Harris County, Harris County Flood Control, and Port of Houston Authority have not met the established criteria for inclusion in the reporting entity, and accordingly are excluded from this report. ECONOMIC CONDITION AND OUTLOOK The City of Pearland lies fifteen miles southeast of downtown Houston in the northeast corner of Brazoria County. Pearland is accessible by way of four major highways and is six miles from the World's 27th busiest airport (Hobby Airport). Because of its location, Pearland has seen continued growth in residential, commercial and light industrial development over the last decade. T While its location has spurred economic growth and development, it also has been a factor in the economic decline that the City has experienced over the past few years. The major factors that contributed to the economic decline recently began to turn around. Oil prices stabilized and Pearland and the surrounding cities are making an effort to diversify the local economy. The city is seeing a major residential boom, expecting nearly 600 residential units (Single Family and Multi-Family) to be built in calendar 1992. An increase in sales tax has also been seen with this growth. • -11- Due to the expansion of Beltway 8 over the next three years, residential building should continue to climb. Beltway 8, in addition to existing Highway 288, gives the City an opportunity to provide a short commute to downtown Houston, the Medical Center, and the NASA area. The general economy has a major impact on the financial operations of the City. With the stabilization of the economy, the City will be able to strengthen its financial position and meet the challenges today and in the future. MAJOR INITIATIVES For the Year. Pearland is a City that endeavors to keep abreast of the needs of its citizens and provide services which will maintain or enhance their quality of life. During the year, the City made a number of capital purchases and started or completed various capital improvement projects. For the Future. The bright economic outlook will enable the City to improve its operations during the coming year. The City Council held its first-ever Goals Setting Strategic Planning workshop in 1992. Among the goals coming from the goals setting are: 1) Landscape Ordinance; 2) The Need for Impact Fees; 3) Improving Drainage; .. 4) Re-endeavor to Improve our Streets and Build New Thoroughfares. A major concern in the quality of life addressed by the City is crime prevention and a strong law enforcement presence. MIR Department Focus Administration The administrative staff has worked towards developing a team concept in management. Persons from the lowest rank through the City Manager are involved in decision-making in trying to solve the City's problems. Every member of the City management staff has received supervisory training this year. For many of these people, it is their first exposure to doctrines of management, even though they have been responsible to manage people for several years. Through attrition, we have upgraded the experience level as well as the educational level of the management staff. One year ago,the management staff had no college degrees--today they have nine _ degrees total. The years of total experience in these positions are also reflected in a very favorable light. Working with the adage that quality saves you money rather than cost you money, we have taken a great step forward. 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. -12- 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 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: Percent Increase of Percent (Decrease) Increase Revenue Sources Amount of Total Over 1990-91 (Decrease) Property taxes and penalties $ 4,940,887 48.9% $ 259,870 5.6% Sales taxes 1,704,160 16.9 155,970 10.7 Franchise and gross receipts -• taxes 1,077,689 10.7 324,196 43.0 Licenses and permits 296,725 2.9 19,465 7.0 Fines and forfeitures 315,085 3.1 57,304 22.2 Charges for services 1,115,488 11.0 1,115,488 N/A Interest 273,212 2.7 (67,028) (19.7) Other 371,742 3.7 180,308 106.2 TOTAL $10,094,988 100.0% 12.045,573 25.4% a The most significant percentage increase in revenue was derived from charges for revenue. The increase was due to the privitization of the Sanitation Department. Sales tax revenue was up 10.7 percent and franchise tax revenue increased 43.0 percent. Both of these factors indicate that the Pearland economy is growing. The increase in franchise tax was partially due to a one time change in how payments were made. Allocations of property tax levy by purpose for 1991-92 fiscal year and the preceding two fiscal years are as follows (amount per $100/assessed value): a Purpose 1991-92 1990-91 1989-90 General Fund $.410 $.378 $.340 General Obligation Debt .390 .422 .485 TOTAL TAX RATE $.800 $.800 $.825 17 ir -13- The expenditures for the general fund 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. Percent Increase of Percent (Decrease) Increase Function Amount of Total Over 1990-91 (Decrease) General governmental $1 ,591,133 17.3 % $ 305,123 23.7 % Public safety 2,467,920 26.9 205,323 9.1 Public works 2,293,754 25.0 1 ,147 ,348 100.1 Community services 464,376 5.1 85,731 22.6 Debt service 2,361 ,609 25.7 1 ,592 0.1 TOTAL $9,178,792 100.0 % $1 ,745,117 23 .5 % The general government expenditures for fiscal year 1991-92 were higher than for fiscal year 1990- 91. The most significant increase was in public works which was the result of privitization of the Sanitation Department. General Fund Balance. The fund balance of the general fund increased by 45.9 percent in 1992. The $1,302,195 increase provides the government with a fund balance that is in excess of 120 working days of expenditures. This increase should significantly reduce the likelihood of the government entering the short-term debt market for current operating expenditures. Enterprise Operations. The government's enterprise operations are comprised of the Water and Sewer System. (1) Water and Sewer System. During the year ended September 30, 1992, the City's Water and Sewer System reported an increase of $148,532 in operating revenues or 5.1 percent from the prior year. Operating expenses increased during fiscal year 1991-92 because of a general increase in the cost of supplies and an increase in maintenance costs. Comparative data for the past two fiscal years are presented in the following schedule. 1991-92 1990-91 Operating revenue $3 ,087,856 $2,939,324 Operating expenses (before depreciation) 2,237,005 2, 111 , 197 Operating income (before depreciation) $ 850,851 $ 828,197 Number of customers (water) 6,610 6,200 Average monthly water and sewer bill $54 $53 -14- 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, 1992 were as follows: Ratio of Debt to Assessed Value Debt (100 Percent of Per Description Amount Present Market) Capita Net direct debt $22,308,175 4.51 $ 969 Overlapping debt 26.124,144 4.23 1 .135 TOTAL DIRECT AND OVERLAPPING DEPT $48,432,319 8.74 $2.104 Total outstanding tax supported debt (general obligation bonds, certificates of obligation and capital leases payable) at September 30, 1992 totaled $23,398,361. Debt service funds in the amount of $1,090,186 were available at September 30, 1992. 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. Yields on certificates of deposit ranged from 2.90 percent to 5.48 percent during the year. Certificate of deposit and cash amounts which exceed FDIC coverage are collateralized by securities owned by the City's depository. All collateral on deposits was held by the financial institution's trust department in the City's name. All investments held by the City during the year and at September 30, 1992, 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, P.C., CPAs was selected by the City Council. This requirement has been complied with, and the auditor's opinion has been included in this report. Awards. The Government Finance Officers Association of the United States and Canada(GFOA)has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pearland, Texas for its comprehensive annual financial report for the fiscal year ended September 30, 1991. 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. -15- 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. Acknowledgments. The preparation of this report on a timely basis was accomplished with the efficient and dedicated services of the entire staff of the Finance Department. I express my appreciation to all members of the Department who assisted and contributed to its preparation. I also 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, ----Clilijk. 1 2..c.ato,_ . CJ t S. Eastburn Ci y Treasurer November 4, 1992 IOW ONE NAP MED M. OW OW -16- a I g a 0 r r r r a I i r g 1 1 r a r CITY IIANACER I 1 I, I 1 . DIV. DIR. DIV. DIR. ADII[N. Fsi POLICE FIRE ENGINEERING 'UBLIC WORKS • SUPPORT SERVICES 1 I l PUBLIC PLANNING/ HUMAN FINANCE CITY WORKS CODE ENF. PARKS FLEET RESOURCE SEC. CONSTItUCTIOI - HEALTH WATER PROD. STREETS 6 SANITATION INSP./ TAX I1UNICIPAL UTILITY SANITARIAN COURT BILLINGWW TREAT. DRAINAGE . Of2GANIZATIONAI. PLAN PRINCIPAL OFFICIALS CITY OF PEARLAND, TEXAS September 30, 1992 MAYOR C. V. (Vic) Coppinger Mayor Pro Tem Councilman Position No. 3 Randy K. Weber Councilman Councilman Position No. 1 Position No. 2 D. A. Miller, Jr. Benny J. Frank Councilman Councilman Position No. 4 Position No. 5 Joy E. Colson David L.Smith City Manager Paul W. Grohman City Secretary City Treasurer Tax Collector Pat Jones Janet S. Eastburn Barbara Lenamon -18- a MIK a VIM FINANCIAL SECTION a a -19- LAIRSON•STEPHENS•REIMER,P.C. Trusted Business Advisors Since 19-0 INDEPENDENT AUDITORS' REPORT Honorable Mayor and Members of City Council City of Pearland, Texas We have audited the accompanying general purpose financial statements of the City of Pearland, Texas and the combining, individual fund and account group financial statements of the City as of and for the year ended September 30, 1992, as listed in the table of contents. 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. 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, 1992 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 principals. Also, in our opinion, the combining, individual fund and account group financial statements referred to above present fairly,in all material respects, the financial position of each of the combining, individual funds and account groups of the City of Pearland, Texas at September 30, 1992, and the results of operations of such funds and the cash flows of individual proprietary and similar trust funds for the year then ended, in conformity with generally accepted accounting principles. F I Certified PublicAccountants 1716 Mangum,Suite 300 Houstoo,Texas 77092 Tel.(713)681-8500 Fax(713)681-9043 -21- Honorable Mayor and Members of City Council City of Pearland, Texas Page Two Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole and on the combining, individual fund and account group financial statements. The accompanying financial information listed as schedules 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, individual fund and account group financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements of each of the respective individual funds and account groups, taken as a whole. /--aA,/t,z/Sq / )e,e-tmii-Z. e, C- I Houston, Texas November 4, 1992 -22- a a GENERAL PURPOSE FINANCIAL STATEMENTS a v -23- CITY OF PEARL.A.ND, TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1992 GOVERNMENTAL FUND TYPES DEBT CAPITAL GENERAL SERVICE PROJECTS ASSETS AND OTHER DEBITS ASSETS Cash - (including certificates of deposit 1992 - $9,435,506 1991 - $7,756,803) $4,802 ,950 $1 ,085,405 $5,081 ,014 Receivables - less allowances for uncollectibles Taxes 139,075 164,908 Accounts 21,265 Accrued interest 41 ,390 4,781 12,553 Assessments 43 ,249 Due from other funds 362 Prepaid expenditures 24,463 Restricted assets Cash - (including certificates of deposit 1992 - $565,610; 70,855 1991 - $565,610) General fixed assets - at cost Property, plant and equipment Cost Less allowance for depreciation OTHER DEBITS Amount available in debt service fund Amount to be provided for retirement of general long-term debt TOTAL ASSETS AND OTHER DEBITS $5,099,998 $1 ,255,094 $5,137 ,178 -24- 1 of 2 PROPRIETARY TOTALS FUND TYPES ACCOUNT GROUPS (MEMORANDUM ONLY) GENERAL FIXED GENERAL LONG- ENTERPRISE ASSETS TERM DEBT 1992 1991 $2,298,765 $13,268,134 $10,287,707 303,983 278,501 387,148 408,413 378,460 31,954 90,678 116,259 43,249 43,249 40,648 41 ,010 149,522 24,463 13,146 672,095 742,950 712,308 $19,076,247 19,076,247 17,663 ,024 16,163,650 16,163,650 17,098,528 4,632,518 (4,632,518) (4,300,577) 11,531,132 11,531 ,132 12,797,951 $ 1,090,186 1,090,186 1,012,765 22,308,175 22.308,175 21 ,385,833 $14,961,742 $19,076,247 $23 ,398,361 $68,928,620 $64,838,725 See notes to financial statements. -25- CITY OF PEARLAND, TEXAS COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS September 30, 1992 GOVERNMENTAL FUND TYPES DEBT CAPITAL GENERAL SERVICE PROJECTS LIABILITIES, EQUITY AND OTHER CREDITS LIABILITIES Accounts payable $ 326,246 Capital lease Accrued salaries 34,570 Accrued compensated absences 349,934 Due to other funds 41 ,010 Payable from restricted assets 70,855 Deferred revenues 140,937 $ 164,908 $ 43 ,249 Certificates of obligation - Revenue bonds - less current portion - General obligation bonds - TOTAL LIABILITIES 963 ,552 164,908 43 ,249 EQUITY AND OTHER CREDITS Contributed capital Investment in general fixed assets Retained earnings Reserved For revenue bond retirement For capital expenditures Unreserved Fund balances Reserved For prepaid expenditures 24,463 For debt service 1 ,090,186 Unreserved Designated For capital expenditures 989,748 5,093 ,929 Undesignated 3 ,122,235 TOTAL EQUITY AND OTHER CREDITS 4,136,446 1 ,090,186 5,093 ,929 TOTAL LIABILITIES, EQUITY AND OTHER CREDITS $5,099,998 $1 ,255,094 $5, 137, 178 -26- i 2of2 PROPRIETARY TOTALS FUND TYPES ACCOUNT GROUPS (MEMORANDUM ONLY) GENERAL FIXED GENERAL LONG- ENTERPRISE ASSETS TERM DEBT 1992 1991 . $ 30,085 $ 356,331 $ 381,681 $ 43,361 43,361 83 ,598 7,623 42,193 121,233 58,493 408,427 429,870 41,010 149,522 381,485 452,340 427,158 349,094 323 ,861 - 2,225,000 2,225,000 2,425,000 1,520,000 - 1,520,000 1 ,645,000 - 21,130,000 21 ,130.000 19,890,000 1,997,686 23,398,361 26,567,756 25,876,923 11 ,723 ,901 11,723,901 12,604,920 $19,076,247 19,076,247 17,663 ,024 422,845 422,845 405,150 138,150 138,150 39,650 679,160 679.160 889.371 1,240,155 1 ,240,155 1,334,171 24,463 13,146 1,090,186 1,012,765 6,083 ,677 3,839,451 3 ,122,235 2,494,325 12,964,056 19,076,247 42,360,864 38,961 ,802 $14,961 ,742 $19,076,247 $23 ,398,361 $68,928,620 $64,838,725 See notes to financial statements. .. -27- CITY OF PEARLANND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES Near ended September 30, 1992 GOVERNMENTAL FUND TYPES DEBT CAPITAL GENERAL SERVICE PROJECTS REVENUES Taxes - (including penalties and interest) $5,332,392 $2,390,344 Licenses and permits 296,725 Interest on investments 196,030 77,182 $ 173 ,702 Fines and forfeitures 315,085 Street assessments 409 Capital recovery fee 2 ,277 Charges for services 1,115,488 Other 371 ,742 6,104 TOTAL REVENUES 7 ,627,462 2,467,526 182,492 EXPENDITURES Current General government 1 ,591 ,133 Public safety 2,467,920 Public works 2,293 ,754 Community services 464,376 Capital outlay 564,771 Debt service Principal retirement 1,000,237 Interest and fiscal charges 1,361 ,372 TOTAL EXPENDITURES 6,817 ,183 2,361 ,609 564,771 REVENUES OVER (UNDER) EXPENDITURES 810,279 105,917 (382,279) OTHER FINANCING SOURCES Proceeds from certificates of obligation Proceeds from capital lease Proceeds from refunding bonds Bond defeasance costs Operating transfers in 303 ,496 - 14,662 Operating transfers out (14,662) (28,496) (19,882) Proceeds from G.O. Bonds 2 ,000,000 Bond issue expenses (31 ,243) REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES 1 ,099,113 77,421 1 ,581 ,258 Fund balances at beginning of year 2,834,251 1 ,012,765 3 ,512,671 Intergovernmental Transfers 203 ,082 FUND BALANCES AT END OF YEAR $4,136,446 $1 ,090,186 $5,093 ,929 -28- TOTALS (MEMORANDUM ONLY) 1992 1991 $ 7,722,736 $ 6,782,700 296,725 277,260 446,914 474,790 315,085 257,781 409 - 2,277 - 1,115,488 377.846 241.760 10,277,480 8,234,291 1,591,133 1,286,010 2,467,920 2,262,597 2,293,754 1,146,406 464,376 378,645 564,771 264,867 1,000,237 1,157,338 1,361,372 1,202,679 9.743 .563 7,698,542 533,917 535,749 2,125,000 7,377,399 (7,377,339) 318,158 391,588 (63,040) (75,288) 2,000,000 (31 .243) (39,195) 2,757,792 2,937,854 7,359,687 4,421,833 203,082 $10,320,561 $ 7,359,687 See notes to financial statements. -29- I 1 CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL AND DEBT SERVICE FUND TYPES Year ended September 30, 1992 1 GENERAL FUND VARIANCE- FAVORABLE BUDGET ACTUAL (UNFAVORABLE) REVENUES wi Taxes - (including penalties and interest) $4,944,587 $5,332,392 $ 387 ,805 Licenses and permits 272,197 296,725 24,528 Interest on investments 153 ,078 196,030 42,952 Fines and forfeitures 267 ,650 315,085 47 ,435 Charges for services - 1 ,115,488 1 ,115 ,488 Other 322 ,150 371,742 49,592 TOTAL REVENUES 5,959,662 7 ,627,462 1 ,667 ,800 EXPENDITURES Current General government 1 ,437,889 1 ,591 ,133 (153 ,244) Public safety 2,653 ,184 2,467,920 185,264 Public works 1,728,862 2,293,754 (564,892) Community services 414,727 464,376 (49,649) Debt service Principal retirement Interest and fiscal charges TOTAL EXPENDITURES 6,234,662 6,817 ,183 (582 ,521) REVENUES OVER (UNDER) EXPENDITURES (275,000) 810,279 1 ,085,279 OTHER FINANCING SOURCES Proceeds from refunding bonds Bond defeasance costs Operating transfers in 303 ,496 303 ,496 Operating transfers out (14,662) 14,662) REVENUES AND OTHER SOURCES OVER EXPENDITURES $ (275,000) 1 ,099,113 $ 1 ,374,113 Fund balances at October 1, 1991 2,834,251 Intergovernmental Transfers 203 ,082 FUND BALANCES AT SEPTEMBER 30, 1992 $4,136,446 -30- DEBT SERVICE FUND VARIANCE- FAVORABLE BUDGET ACTUAL (UNFAVORABLE) $2,361,848 $2,390,344 $28,496 47,500 77,182 29,682 2,409,348 2,467,526 58,178 1,004,863 1,000,237 4,626 1,356.985 1.361,372 (4,387) - 2.361.848 2.361,609 239 47,500 105,917 58,417 a (28.496) (28,496) $ 47.500 77,421 $29,921 a 1,012,765 $1 090 186 See notes to financial statements. -31- CITY OF PEARLAND, TEXAS COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUNDS) 1 of 2 Years ended September 30, 1992 and 1991 1992 1991 Operating revenues Water sales and services $1 ,755,328 $1,674,772 Sewer charges and services 1 ,332,528 1 ,264,549 Sanitation charges and services 1 ,044,130 3 ,087 ,856 3 ,983 ,454 Operating expenses Water and sewer treatment Personal services 239,252 254,970 Supplies and other 108,329 79,393 Other charges and services 3 ,603 96,900 Contractual services 602,533 455,834 953 ,717 887 ,097 Water and sewer public works Personal services 114,063 102 ,160 102 ,160 Distribution and collection Personal services 172,373 165,374 Supplies and other 45,333 42,473 Other charges and services 79,833 291 ,504 Contractual services 31 ,413 229 328,952 499,580 Water and sewer accounting Personal services 239,124 205,947 Supplies and other 7 ,191 8, 192 Other charges and services 1 ,312 5,277 Contractual services 20,138 17,262 267 ,765 236,678 Water and sewer construction Personal services 196,220 142 ,339 Supplies and other 17,889 12 ,097 Other charges and services 342 4,989 Contractual services 68,935 4,216 283 ,386 163 ,641 Sanitation Personal services - 310, 196 Supplies and other - 207,719 Other charges and services - 64,613 Contractual services - 177 ,808 - 760,336 Other expenses 289,122 348,262 2,237,005 2,997 ,754 OPERATING INCOME BEFORE DEPRECIATION 850,851 985,700 -32- CITY OF PEARLAND, TEXAS COMBINED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUNDS) 2 of 2 Years ended September 30, 1992 and 1991 1992 1991 Depreciation $ 461,057 $ 517,876 OPERATING INCOME 389,794 467,824 Non-operating revenues (expenses) Miscellaneous revenue 24,249 18,345 Interest revenue 116,795 152,370 Interest expense (105.242) (111.584) 35,802 59,131 INCOME BEFORE OPERATING TRANSFER 425,596 526,955 r Operating transfer out (275,000) (316,300) Operating transfer in 19.882 - NET INCOME 170,478 210,655 Retained earnings at beginning of year 1,334,171 1,123,516 Intergovernmental Transfer (264.494) - RETAINED EARNINGS AT END OF YEAR $1,240.155 $1 ,334,171 r P P See notes to financial statements. r -33- CITY OF PEARLAND, TEXAS COMBINED STATEMENT OF CASH FLOWS - ALL PROPRIETARY FUND TYPES (ENTERPRISE FUNDS) Years ended September 30, 1992 and 1991 1992 1991 Cash flows from operating activities Cash received from customers and users $3 ,076,131 $ 3 ,864,020 Cash paid to suppliers (1 ,350,028) (1 ,713 ,686) Cash paid to employees (1 ,035,535) (1 ,031 ,622) Net Cash Provided By Operating Activities 690,568 1 ,118,712 Cash flows from noncapital financing activities Operating transfers (255,118) (316,300) Sanitation assets transferred (203 ,082) - Cash flows from capital and related financing activities Purchase of fixed assets (136,669) (93 ,934) Principal payments - bonds (120,000) (110,000) Interest paid (105,242) (111 ,584) Net Cash Used For Capital And Related Financing Activities (820,111) (315,518) Cash flows from investing activities Interest received 116,795 163 ,908 Other 24,249 18,345 Net Cash Provided From Investing Activities 141 ,044 182,253 Net increase in cash 11 ,501 669,147 Cash balance at beginning of year 2,959,359 2,290,212 CASH BALANCE AT END OF YEAR $2,970,860 $2,959,359 Operating income $ 389,794 $ 467,824 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense 461 ,057 517,876 (Increase) decrease in accounts receivable (11,725) (14,550) (Increase) decrease in due from other funds 108,884 136,530 Increase in customer deposits 21 ,450 31 ,596 Increase (decrease) in accounts payable (204,389) (194,823) Increase (decrease) in compensated absences payable (40,489) 15,936 Increase in accrued payroll 41 ,637 Increase in accrued compensated absences from restricted accounts (34,014) Total adjustments 300,774 650,888 NET CASH PROVIDED OPERATING ACTIVITIES $ 690,568 $1 , 118,712 -34- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS September 30, 1992 1. ORGANIZATION The City of Pearland, Texas 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY In defining the reporting entity the City has considered the following criteria: (1)oversight responsibility which includes (a) financial interdependency, (b) selection of governing authority, (c) designation of management, (d) ability to significantly influence operations, and (e) accountability for financial matters, (2) scope of public service and (3) special financing relationships. The reporting entity is composed of the operational units (General, Debt Service, Capital Projects, and Enterprise Funds) of the City. The governmental units listed below were considered but excluded, because they did not materially meet the criteria listed above: Pearland Independent School District Harris County Hospital District Brazoria County Harris County Port of Houston Authority Harris County Flood Control Of the additional component units considered for inclusion in the reporting entity, only two had a positive response to the first criteria presented above. The Pearland Volunteer Fire Department and the Pearland Area Emergency Service are dependent on the City for financial support which falls under oversight responsibility in the criteria listed above. The City includes as a part of the reporting unit the financial support it provides the department but does not report its operations because the City does not select its governing authority or management and does not significantly influence operations. Further, the entities are not accountable to the City for financial matters and the entities' scope of public service is greater than the City of Pearland. Therefore, in the opinion of the City's management,these two entities are not includable in the reporting entity. B. FUND ACCOUNTING The City of Pearland uses funds and account groups to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. -35- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 2 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) B. FUND ACCOUNTING(continued) A fund is a separate accounting entity with a self-balancing set of accounts. An account group is designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. Funds are classified into two categories: (1) governmental and (2) proprietary. Each category is divided into separate "fund types." The following is a description of the fund types and the account groups used by the City in the accompanying financial statements: GOVERNMENTAL FUND TYPES General Fund The General Fund is used to account for all financial transactions which are not accounted for in another fund. The principal sources of revenue of the General Fund are property taxes,sales and use taxes, franchises,and fines and forfeitures. Expenditures are for general government, public safety, public works and other community services. Debt Service Fund The Debt Service Fund is used to account for resources for and the payment of interest and principal on all general obligation debts of the City. The primary source of revenue for debt service is general property taxes. Capital Projects Fund The Capital Projects Fund is used to account for the receipt and expenditure of resources for acquisition and construction of major capital facilities. The principal resources of the Capital Projects Fund are capital grants, certificates of obligation and proceeds from the sale of bonds. PROPRIETARY FUND TYPES Enterprise Fund (Water and Sewer) The Water and Sewer Fund is used to account for operations of the Water and Sewer Department. The fund is intended to be self-supporting through user charges. a a -36- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 3 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) B. FUND ACCOUNTING(continued) ACCOUNT GROUPS General Fixed Assets This account group is established to account for the fixed assets owned by the City exclusive of those relating to Proprietary Fund operations. Expenditure transactions to acquire general fixed assets occur in the General Fund and Capital Projects Fund. General Long-Term Debt This account group is used to account for the City's liability for general obligation bonds, certificates of obligation,notes payable,and time warrants due at varying dates through the year 2003. C. BASIS OF ACCOUNTING The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a current financial resources measurement focus. With this measurement focus,only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net assets. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included in the balance sheet. Fund equity (i.e., net total assets) is segregated in to contributed capital and retained earnings components. Proprietary fund- type operating statements present increases (e.g. revenues) and decreases (e.g. expenses) in net total assets. The City employs the modified accrual basis of accounting in all funds except the Proprietary Funds. The modified accrual basis recognizes revenues that are susceptible to accrual (i.e., when they become both 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 be used to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general long-term debt are recorded as liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. The Proprietary Funds use the accrual basis of accounting recognizing revenues when earned and expenses when incurred. -37- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS -4 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) C. BASIS OF ACCOUNTING(continued) The City reports deferred revenue on its combined balance sheet. Deferred revenues arise when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period. In subsequent periods, when both revenue recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. The accounting procedures and policies relating to specific items are described as follows: 1. Unbilled revenues for water, sewer and sanitation services are accrued when earned. 2. General property taxes are recorded when they become available. Property taxes receivable have been recorded as deferred revenues at September 30, 1992. Property taxes collected within sixty days subsequent to September 30, 1992 have not been recorded as revenue as the amount was 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 two 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. Sales and use taxes and franchise revenue are recorded when received since normally they are not measurable until received. 4. Long-term debt is recognized as a liability of a governmental fund when due, or when resources have been accumulated in the debt service fund for payment early in the following year. 5. Capital recovery fees earned are charges for capital improvements required by new growth and construction. The fees are recognized in the accounting period in which they become both measurable and available to finance expenditures of the fiscal period. -38- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS -5 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) D. BUDGETS Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted for the general and debt service funds. All annual appropriations lapse at fiscal year end. Formal budgetary integration is not employed for the Capital Projects Fund because effective budgetary control is alternatively achieved through general obligation bond indenture provisions and Council authorization for individual capital projects. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting - under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation- is utilized in the governmental funds. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. There were no encumbrances at September 30, 1992. E. CASH AND INVESTMENTS Cash includes amounts in demand deposits as well as certificates of deposit. Statutes authorize the City to invest in direct obligations of the U.S. Government and fully collateralized certificates of deposit and other time deposits. Investments are stated at cost. In the Statements of Cash Flows, CASH refers to cash and cash equivalents, including demand deposits and investments in time deposits with maturities of three months or less. F. PREPAID EXPENDITURES Payments made to vendors for services that will benefit periods beyond September 30, 1992, are recorded as prepaid items. G. 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. a -39- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 6 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) H. FIXED ASSETS Fixed assets are recorded at historical cost or at market value at the date donated. Costs incurred for the purchase or construction of general fixed assets are recorded as expenditures in the General and Capital Projects Funds. All such costs are capitalized in the General Fixed Assets Account Group. Public domain infrastructure,such as bridges, roads, drainage systems, sidewalks, lighting systems, etc., is capitalized. Amounts expended for property, plant and equipment in the Enterprise Funds are capitalized in the fixed asset accounts within that fund. Assets in the general fixed assets account group are not depreciated. Allowance for depreciation has been provided for plant and equipment of the Enterprise Funds using the straight-line method over the following estimated useful lives of the assets: .- Estimated Asset Useful Life Vehicles 3 years Office equipment 5 to 10 years Machinery and equipment 5 to 10 years Water and sewer system 3 to 50 years I. COMPENSATED ABSENCES Vested or accumulated vacation leave 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 of vested or accumulated vacation leave that are 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 until paid. Vested or accumulated vacation leave of proprietary funds is recorded as an i expense and liability of those funds as the benefits accrue to employees. In accordance with the provisions of Statement of Financial Accounting Standards No. 43, Accounting for Compensated Absences,no liability is recorded for nonvesting accumulating rights to receive sick pay benefits. -40- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 7 September 30, 1992 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) J. LONG-TERM OBLIGATIONS Long-term debt is recognized as a liability of a governmental fund when due, or when resources have been accumulated in the debt service fund for payment early in the following year. For other long-term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. The remaining portion of such obligations is reported in the general long-term debt account group. Long-term liabilities expected to be financed from proprietary fund operations are accounted for in those funds. K. FUND EQUITY ._ Contributed capital is recorded in proprietary funds that have received capital grants or contributions from developers, customers or other funds. Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. Designated fund balances represent tentative plans for future use of financial resources. a L. INTE RFUND TRANSACTIONS .. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. ma All other interfund transactions,except quasi-external transactions and reimbursements,are reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as operating transfers. M. "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 generally accepted accounting principles. OMR -41- IOW CITY OF PEARLAND, TEXAS MEM NOTES TO FINANCIAL STATEMENTS - 8 September 30, 1992 3. LEGAL COMPLIANCE - BUDGETS The City follows procedures in establishing the budgetary data reflected in the financial statements as follows: A. The City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following October 1 which must be adopted before the preceding September 15. The operating budget includes proposed expenditures and the means of .. financing them. B. Public hearings are conducted to obtain taxpayer comments. C. The budget is legally enacted by passage of an ordinance. D. The City Manager is authorized to transfer budgeted amounts between object classes within — departments within any fund. However any changes in the total approved budget for each department(i.e.,the legal level of budgetary control)must be approved by the City Council. E. Budgeted amounts as shown in this report are as originally adopted or as amended during the year by the City Council and City Manager. F. Appropriations lapse at year-end. G. Several supplemental budgetary appropriations were necessary during the year ended September 30, 1992. -- 4. DEPOSITS AND INVESTMENTS At September 30, 1992, the amount of the City's deposits was $10,186,529 and the bank balance was $10,279,742. Of the bank balance, $200,000 was covered by federal depository insurance. The remainder was covered by collateral held by the City's agent in the City's name in the trust department of banks(other than the City's depository bank). The securities pledged as collateral were obligations of the U.S. Treasury, federal agencies and local governments. The City had no other investments. -42- VERIFICATION OF ACCURACY OF MATHEMATICAL COMPUTATION The accuracy of computations performed by Rauscher Pierce Refsnes, Inc. relating to (a) the arithmetical computations of the adequacy of the maturing principal amounts of and interest on the escrowed obligations and other securities and certain other available funds to pay, when due, the principal or redemption price and interest on the Refunded Bonds and (b) the mathematical computations supporting the conclusion of Bond Counsel that the Bonds are not "arbitrage bonds" under Section 148 of the Code will be verified by KPMG Peat Marwick, Certified Public Accountants. In making such verification, KPMG Peat Marwick has relied upon information and assumptions supplied by the City and on interpretations of the Code provided by Bond Counsel. KPMG Peat Marwick has restricted its procedures to examining the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information on which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of future events. 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 BONDS," "LEGAL MATTERS," and "TAX MATTERS," solely to determine whether such information fairly and accurately describes the Bonds, the Bond 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 Bonds, the City will furnish the Underwriter a certificate, executed by the City Secretary and Mayor, acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City contained in this Official Statement, on the date thereof and on the date of delivery were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, this Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary to make the statements herein, in the light of the circumstances under which they were made, not misleading; and (c) insofar as the descriptions and statements, including financial data contained in this Official Statement, of or pertaining to entities other than the City and their activities are concerned, such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect. 26 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 Bonds. All changes in the affairs of the City and other matters described in the Official Statement subsequent to the delivery of the Bonds and all information with respect to the resale of the Bonds shall be the responsibility of the Underwriter. 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. /s/ C. V. Coppinger Mayor City of Pearland ATTEST: /s/ Pat Jones City Secretary City of Pearland w. r 27 r 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. as i - City Economics - The City of Pearland is a commercial center located in the northeast corner of Brazoria County, bordering the P 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 $55,000. There are approximately 392 business establishments located within the City which are rated by Dun and Bradstreet. Three banks within the City held combined deposits of$208,964,000 as of June 30, 1992, up from $183,201,000 as of December 31, 1991. - Building Permits - (Source - City of Pearland) r Residential Commercial Other (a) Total Value Total Value Total Value Total Value 1973 140 $ 5,253,000 20 $ 511,750 130 $ 390,405 290 $ 6,155,155 1974 117 4,310,900 19 1,171,700 144 496,428 280 5,979,028 1975 237 9,501,800 170 2,844,800 156 1,142,600 563 13,489,200 1976 295 14,188,100 268 5,471,893 197 1,109,387 760 20,769,380 1977 386 21,489,824 31 2,759,699 282 3,514,385 698 27,763,908 1978 491 23,298,945 160 8,414,422 270 3,113,533 921 34,826,900 1979 207 13,024,664 36 7,150,700 386 2,167,264 629 22,342,628 1980 94 7,485,570 18 2,204,200 495 3,007,071 607 12,696,841 1981 67 5,950,754 21 7,589,359 359 8,613,123 447 22,153,236 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 Pm 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 r 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 375 35,380,128 15 2,424,000 416 12,123,394 806 47,503,523 (a) Includes Apartments. - Bank Deposits for City of Pearland - (Source - Texas Banking Red Book and the City) 6-30-92 12-31-91 12-31-1990 12-31-1989 12-31-1988 12-31-1987 12-31-1986 Pearland State Bank S111,467,000 $97,422,000 $ 83,332,945 $ 80,106,851 $ 72,396,348$ 70,953,000 $ 65,571,667 First National Bank 43,738,000 37,219,000 33,370,000 32,508,913 29,602,406 28,933,296 29,948,197 West Side National 53.759.000 48.560.000 44.561.847 43.126.587 36.642.176 31.490,813 29.382.923 Total $208,964,000 $183,201,000 $161,264,792 155 742,351 5138,640.9305131,377,109 V24,902,787 P Manufacturing and Commerce Employment in 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. (Source: Texas Municipal Report and Brazosport Industrial Committee.) Also adding to the general economy of the county are fishing, tourism and recreation activities and agribusiness. Varner-Hogg State Park attracts approximately 50,000 to 85,000 visitors during each season. 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. Major Employees Industrial activities within the District 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 the following is a list of the industrial employers located within the District with employment numbers above 8. Name Product Employment American Accents, Inc. Structural steel fabrication 10- 19 Birdsong Printing Inc. Fabricated vinyl& Polyurethane banners 10- 19 Chance Collar Co. Drill collars, rotary subs & well fishing 50- 99 & cutting tools Chemical Solutions Intl Corp Blended nonhazardous chemicals 10- 19 Columns Inc. Aluminum colonial style structural columns 20- 49 Compositech Inc. Mining machinery & equipment 20- 49 Davis-Lynch Inc. Oil well floating & cementing equipment 100-249 Deepco Electronic oil well surveying inclinometer systems 10- 19 Energy Coatings Co. Anticorrosive pipe coatings 100-249 Gate Concrete Products Co. Asphalt paving mixtures 20- 49 Isothermal Protective Coatings Inc. Acrylic latex roof coatings 20-49 Kelley Wigglers Inc. Artificial fishing lures 10- 19 Koza's Inc. Embroidering for the trade 50- 99 Machining Specialists Inc. Machine shop jobbing 10- 19 Markload Syst. Inc. Electronic anchor-tensioning systems for the offshore oil 10- 49 and gas industry Matrix Mfg. Inc. Plastic injection molds 10- 19 Metallurgical Technologies, Inc. Metal powder for thermal sprays 20-49 NRG Products Mfg. Corp. Metal window screens & Doors, oil field 100-249 shaker screens Omni Industrial Services Laminated plastic sheet, plate & profile shapes 10- 19 Pauluhn Electric Mfg. Co. Inc. Industrial & marine signaling devices and 100-249 lighting fixtures Pro-Line Machine & Repair Inc. Construction materials handling equipment 20-49 including grapple, drag & clamshell buckets, vertical conveyors Replacement Parts Corporation Special mechanical packing, including compressor 20- 49 rod & piston packing Rodlin Valve Specialists Inc. Replacement parts for control valves 20- 49 Scot Gasket Co. of Texas Inc. Metal gaskets 10- 19 Smith Municipal Supplies Inc. Polyester film identification emblems for vehicles 10- 19 Star Cooling Tower Services Inc. Redwood atmospheric& mechinical cooling towers 20- 49 Texas Honing Inc. Hones metal tubing 20- 49 West, L R Mfg Co. Aluminum exhaust louvers for ceilings & walls 20- 49 Brazoria County, (the "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 Texas Almanac, 1990-91, 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 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 (12-31-91) (000's) Total Population 3,784.7 194.3 Median Age (of population) 30.6 31.1 %18-24 10.1 9.1 %25-34 19.1 18.7 %35-49 23.2 22.9 %50-Over 18.4 19.8 Number of Households 1,354.4 65.0 '. Retail Sales (1991) (000's) Food 6,396,316 307,484 Eating and Drinking 2,682,921 90,314 General Merchandise 3,418,995 175,692 Furniture, Furnishings, Appliances 1,279,191 23,435 Automotive 6,905,585 288,170 Drug 879,582 37,397 Total Retail Sales 27,831,634 1,135,072 Effective Buying Income (1991) Total Effective Buying Income ("EBI) (000's) 60,394,220 2,698,507 Median Household EBI 35,372 36,422 %Household EBI $10,000 to $19,999 14.5 13.8 $20,000- $34,999 23.3 24.3 $35,000- $49,999 18.7 21.3 $50,000 and Over 31.7 30.7 (a) Statistical data from "Sales & Marketing Management - 1992 Survey of Buying Power", copyright in 1992 — Sales Management Survey of Buying Power: Further reproduction is forbidden. APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY I I IF IF I COMPREHENSIVE ANNUAL FINANCIAL REPORT IF CITY OF PEARLAND, TEXAS IFor the fiscal year ended September 30, 1992 I I I 1 I I I IPrepared by Finance Department iJanet S. Eastburn City Treasurer I I CONTENTS 1 4�y INTRODUCTORY SECTION Certificate of Achievement for Excellence in Financial Reporting 8 Statement of Continued Compliance with Certificate of Achievement for Excellence in Financial Reporting Requirements 9 Letter of Transmittal 11 Organization Chart 17 Principal Officials 18 FINANCIAL SECTION Independent Auditors' Report 20 General Purpose Financial Statements Combined Balance Sheet - All Fund Types and Account Groups 24 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types 28 Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General and Debt Service Fund Types 30 Combined Statement of Revenues, Expenses and Changes in Retained Earnings - All Proprietary Fund Types (Enterprise Funds) 32 Combined Statement of Cash Flows - All Proprietary Fund Types (Enterprise Funds) 34 Notes to Financial Statements 35 a a -3- 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, 1991 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. EOFFiC UMfTfD VMS T. Wr N X GNAOA O CONORArow s President cutive Director -8- CITY OF PEARLAN"D, TEXAS NOTES TO FINANCIAL STATEMENTS - 9 September 30, 1992 5. RECEIVABLES Debt Capital General Service Projects Enterprise Total Receivables Taxes $139,075 $164,908 $303 ,983 Accounts 21,265 - $392,148 413 ,413 Interest 41,390 4,781 $12,553 31 ,954 90,678 Assessments - - 43 ,249 - 43 ,249 Gross receivables 201,730 169,689 55,802 424,102 851 ,323 Less allowance for uncollectibles (5,000) (5,000) Net receivables $201 ,730 $169,689 $55,802 $419, 102 $846,323 The taxes receivable account represents delinquent taxes. No allowance for uncollectible has been recorded for taxes receivable since a tax lien is attached to property when the taxes levied are not paid. Due From/To Other Funds Receivable Fund Payable Fund Amount Enterprise General $40,648 Capital Projects General 362 $40,010 As of September 30, 1992, the City held restricted assets for the following purposes: Description Amount General Fund Accrued compensated absences $ 70,000 Municipal court escrow 855 TOTAL GENERAL FUND $ 70,855 Enterprise Fund Meter deposits $216,485 Revenue bond interest, sinking and reserve fund 125,000 Accrued compensated absences 40.000 TOTAL ENTERPRISE FUND $381 ,485 -43- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 10 September 30, 1992 6. CHANGES IN FIXED ASSETS The changes in general fixed assets during the year ended September 30, 1992 are summarized as follows: Balance at Balance at Oct. 1. 1991 Additions Retirements Transfers Sept. 30. 1992 Land $ 1,040,483 $ 57,236 $ 1 ,097,719 Buildings 6,275,924 $ 379,107 7,010 6,662,041 Improvements 7,430,043 346,507 387,652 8,164,202 Equipment 2,839,552 284,092 (520,064) 490,533 3 ,094,112 Construction .�. in progress 77,022 242,523 (261,372) - 58,173 TOTAL $17,663,024 $1,252,229 $(781,436) $942,431 $19,076,247 At September 30, 1992, there were two projects in progress. The projects were (1) a drainage study on various drainage problems in the City and (2) expansion of street projects. The changes in Enterprise Fund fixed assets during the year ended September 30, 1992 are summarized as follows: Balance at Balance at Oct. 1. 1991 Additions Retirements Transfers Sept. 30. 1992 Land $ 246,307 $ (57,236) $ 189,071 Equipment 1,008,414 $ 65,327 $(2,338) (609,530) 461,873 Buildings and improvements 15,843,807 73 ,680 (404,781) 15,512,706 17,098,528 139,007 2,338) (1,071,547) 16,163,650 Less allowance for depreciation (4,300,577) (461,057) - 129,116 (4,632,518) -� TOTAL $12,797,951 $(322,050) $(2,338) $ (942,431) $11 ,531 ,132 Sources of Enterprise Fund fixed assets included contributions from the following (recorded as additions to contributed capital): Source Amount _ Contributed capital at October 1, 1991 Municipality - purchased with proceeds of GO bonds $11 ,723 ,901 CONTRIBUTED CAPITAL AT SEPTEMBER 30, 1992 $11 ,723 ,901 -44- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 11 September 30, 1992 7. ACCRUED COMPENSATED ABSENCES As of September 30, 1992, accrued vacation pay and sick pay were as follows: General Enterprise Description Fund Fund Total Vacation pay $419,934 $98,493 $518,427 Sick pay Less amounts payable from restricted assets 70.000 40.000 110.000 BALANCE SEPTEMBER 30, 1992 $349,934 $58,493 $408,427 8. DEFERRED REVENUES Deferred revenue has been recorded as of September 30, 1992 as follows: Fund Description Amount General Delinquent taxes $140,937 Debt Service Delinquent taxes 164,908 Capital Projects Street assessments 43.249 TOTAL $349,094 9. LONG-TERM DEBT The following is a summary of changes in long-term debt during the year ended September 30, 1992: Balance at Balance at Oct. 1. 1991 Additions Reductions Sept. 30. 1992 General Long-Term Debt Capital lease $ 83,598 $ 40,237 $ 43,361 Certificates of Obligation 2,425,000 200,000 2,225,000 General Obligation Bonds 19.890.000 $2,000.000 760.000 21 .130.000 TOTAL GENERAL LONG-TERM DEBT 22,398,598 2,000,000 1,000,237 23 ,398,361 Revenue Bonds 1.765.000 120.000 1.645,000 TOTAL LONG-TERM DEBT $24,163 598 $2,000,000 $1,120,2s $25 043 ,361 -45- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 12 September 30, 1992 9. LONG-TERM DEBT (continued) Long-term debt at September 30, 1992 was comprised of the following issues: Principal Balance Description Sept. 30, 1992 General Obligation Bonds 1964 Waterworks and Sanitary Sewer System Improvement Bonds due in annual installments of $35,000 to $55,000 through June 1, 1994, with interest rates ranging from 3 .80 to 3.90%. $ 110,000 1966 General Obligation Bonds due in annual installments of $15,000 to $100,000 through June 1 , 1995, with interest rates ranging from 4.30 to 4.40%. 175,000 1968 General Obligation Bonds due in annual installments of $25,000 to $50,000 through February 1 , 1995, with interest rates ranging from 5.00 to 5.25%. 150,000 1975 General Obligation Bonds due in annual install- ments of $30,000 to $65,000 through February 1, 1993 , with interest rates ranging from 5.90 to 6.5%. 65,000 1978 Permanent Improvement Bonds due in annual install- ments of $30,000 to $250,000 through March 1, 1997, with interest rates ranging from 4.90 to 5.50%. 1,025,000 $12,060,000 Refunding Bonds, Series 1985 due in annual installments of $205,000 to $1,280,000, with interest rates ranging from 5.50 to 8.80%. 1 ,780,000 1986 Public Improvement Bonds due in annual installments of $50,000 to $500,000 through March 1, 2003 , with interest rates ranging from 6.50 to 8.50%. 4,025,000 1988 Public Improvement Bonds due in annual installments of $50,000 to $250,000, with interest rates ranging from 6.80 to 8.80%. 1 ,800,000 1991 Refunding Bonds due in annual installments of $315,000 to $1 ,820,000, with interest rates ranging from 7.10 to 7.35%. 10,000,000 1991 Street Improvement Bonds due in annual installments of $80,000 to $260,000 with interest rates ranging from 6.00 to 8.00% 2,000,000 $21 ,130,000 -46- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 13 September 30, 1992 9. LONG-TERM DEBT (continued) Principal Balance Description Sept. 30, 1992 Certificates of Obligation 1981 Water Works System Certificates of Obligation due in annual installments of $100,000, with interest rates ranging from 9.25 to 9.75%. $ 100,000 1988 Landfill Certificates of obligation due in annual installments of $50,000 with an interest rate of 6.4%. 50,000 1991 Tax and Revenue Certificate of Obligation due in annual installments of $50,00 to $220,000, with interest rates ranging from 6.3 to 7.8%. 2,075,000 $ 2,225,000 Capital Lease Capital lease payable to Citicorp North America for the purchase of a gradall due in quarterly installments of $11,215.70, with interest at 7.50%. 43 ,361 TOTAL GENERAL LONG-TERM DEBT Minimum future lease payments are as follows; Total Lease Payments Principal Interest 1993 $44,863 $43 ,361 $1,502 $44,863 $43 ,301 $1 ,502 Revenue Bonds 1978 Water and Sewer Bonds due in annual installments of $90,000 to $200,000, with interest rates ranging from 5.40 to 6.40%. 1 ,645,000 TOTAL LONG-TERM DEBT $25,043 ,361 -47- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 14 September 30, 1992 9. LONG-TERM DEBT(continued) The annual requirements to amortize general obligation bonds and certificates of obligation outstanding at September 30, 1992, including interest payments of$12,050,270, are as follows: Year Ending General Long- Revenue Sept. 30 Term Debt Bonds Total 1993 $ 2,537,557 $ 224,090 $ 2,761,647 1994 2,480,555 222,090 2,702,645 1995 2,038,498 224,680 2,263,178 1996 2,029,014 226,560 2,255,574 1997 2,028,798 227,710 2,256,508 1998 and Thereafter 24,334.209 1,119,630 25,453,839 §35,448,631 $$2,224,760 $37,693,391 The amount of $1,090,186 is available in the Debt Service Fund to service the general obligation bonds. The amount of $422,845 in the Enterprise Fund is restricted to service revenue bonds. Debt service requirements of revenue bonds is provided from net revenue to the Enterprise Fund. There are a number of limitations and restrictions contained in the various bond indentures. The City is in compliance with all significant limitations and restrictions. 10. EMPLOYEE RETIREMENT SYSTEM The City of Pearland 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 570 administered by TMRS, an agent multiple- employer public employee retirement system. Statewide Texas Municipal Retirement System Plan Description and Provisions All of the City's full-time employees participate in the Texas Municipal Retirement System, a nontraditional, joint contributory, defined contribution plan. Benefits depend upon the sum of the employee's contributions to the plan, with interest, and the City-financed monetary credits,with interest. At the date the plan began, the City granted monetary credits for service rendered before the plan began of a theoretical amount equal to two times what would have been contributed by the employee, with interest, prior to establishment of the plan. Monetary credits for service since the plan began are a percent (100%, 150%,or 200%)of the employee's accumulated contributions. In addition, the City can grant 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 -48- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 15 September 30, 1992 10. EMPLOYEE RETIREMENT SYSTEM (continued) Plan Description and Provisions (continued) 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. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions 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 with 25 or more years of service regardless of age. The plan also provides death and disability benefits. A member is vested after 10 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. Description of Funding Policy The contribution rate for the employees is 5%, and the City matching percent is currently 200 percent, both as adopted by the governing body of the City. Under the state law governing TMRS, the City contribution rate is annually determined by the actuary. Part of the City contribution rate(the normal cost) is to fund the currently accruing monetary credits, with the other part (the prior service contribution rate) calculated as the level percent of payroll needed to amortize the unfunded actuarial liability over the remainder of the plan's 25- year amortization period. When the City periodically adopts updated service credits and increases in annuities in effect, the increased unfunded actuarial liability is to be amortized over a new 25-year period. Currently,the unfunded actuarial liability is being amortized over the 25-year period which began January, 1992. 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 1991 was $3,556,944, and the City's contributions were based on a payroll of$3,530,891. Both the City and the covered employees made the required contributions, amounting to $265,711 (7.58% of covered payroll for the months in calendar year 1991 and 7.51% for the months in calendar year 1992) for the City and $176,484 (5%) for the employees. The City's contributions consisted of$194,644 for normal cost and $71,067 for amortization of the unfunded actuarial accrued liability. The normal cost contribution rates for 1991 and 1992 were 5.52% and 5.51% and the rates to amortize the unfunded actuarial accrued liability for 1991 and 1992 were 2.06% and 2.00%. The City adopted changes in the plan since the previous actuarial valuation, which had the effect of increasing the City's contribution rate for 1992 by .51% of payroll. -49- i CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS- 16 September 30, 1992 10. EMPLOYEE RETIREMENT SYSTEM(continued) _ 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(GASBS No. 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. The pension benefit obligation shown below is similar in nature to the standardized disclosure measure required by GASBS No. 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, 1991. 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 114.1% of book value as of December 31, 1991. Pension Benefit Obligation Annuitants currently receiving benefits $ 633,204 Terminated employees 815,494 Current employees Accumulated employee contributions including allocated invested earnings 1,263,102 Employer-financed vested 1,419,814 Employer-financed nonvested 506,471 Total 4,638,085 Net Assets Available for Benefits, at Book Value 3,683,710 Unfunded Pension Benefit Obligation $ 954,375 -50- CITY OF PEARLAND, TEXAS NOTES TO FINANCIAL STATEMENTS - 17 September 30, 1992 10. EMPLOYEE RETIREMENT SYSTEM (continued) Pension Benefit Obligation 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 changes in actuarial assumptions since the previous actuarial valuation, which had the effect of increasing the pension benefit obligation by $165,402. Trend Information Trend information for the three years ended December 31, 1989, 1990 and 1991, respectively, is as follows: available assets were sufficient to fund 74.55%, 77.19 percent and 79.42%of the pension benefit obligation. The unfunded pension benefit obligation represented 30.54%, 29.38%and 20.58%of the annual payroll for employees covered by TMRS for 1989, 1990 and 1991, respectively. Presenting the unfunded pension benefit obligation as a percentage of annual covered payroll approximately adjust for the effects of inflation for analysis purposes. In addition, for the three years ended December 31, 1989, 1990 and 1991 the City's contributions to the system were 5.91%, 7.48% and 7.53%, respectively, of annual covered payroll. Nine year historical trend information is presented in the statistical section of this Comprehensive Annual Financial Report. 11. LITIGATION As of September 30, 1992, the City was either a defendant or co-defendant in several lawsuits. It is the opinion of City Management and legal counsel that any ultimate liability to the City from these lawsuits will not be material. 12. INTERGOVERNMENT TRANSFER - SANITATION DEPARTMENT On October 1, 1992, the City transferred from the Enterprise Fund assets totaling $1,415,413 to the General Fund and the General Fixed Asset Account Group which represents the Sanitation Department. The General Fund received assets and equity in the amount of $203,082 and the General Fixed Assets received assets including contributed capital, in the amount of $942,43I. -51- Arrrlvw1X C - SPECIMEN OF THE INSURER'S POLICY ' Financial Guaranty Insurance Company Norm 115 Broadway '. New York,NY 10006 (212)312-3000 (800)352-0001 A GE Capital Company EINENNIMOMmilmommi Municipal Bond New Issue Insurance Policy Bond, the stated date for payment of interest. "Nonpayment" in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice" means telephonic or telegraphic notice, subsequently confirmed i writing,or written notice by registered or certified mail, from a Bondholder or a paying agent for the > c s to Financial Guaranty. "Business Day" means any day other than a Saturday, Sunday or a da • �y h the Fiscal Agent is authorized by law to remain dosed. } In Witness Whereof, Financial Guaranty has caused this Policy to be affixed •• its corp to se. .ik, be signed by its duly authorized officers in facsimile to become effective and b )on Irma eta! aran • jby virtue of the countersignature of its duly authorized represent J lot President i I : Authorized Representative Gitib. k, N.A••'""\\ ., ac' c ges that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer ■ FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company.FGIC Corporation. Page 2 of 2 Form 9000 (8/92) Financial Guaranty Insurance Company 115 Broadway FGIC f New York.NY 10006 212 :312-:3000 800,:352-0001 A GE Capital Company Municipal Bond New Issue Insurance Policy VIM Issuer: City of Pearland, Texas Policy Number: 93010264 Control Number: 0 010 001 Bonds: $6 ,510 ,000 in Premium: principal $30 , 625 . 82 amount of Refunding Bonds, Series 1993 Financial Guaranty Insurance Company ("Financial Guaranty"), a New York stock insurance company. in consideration of the payment of the premium and subject to the terms of this Policy, hereby unconditionally and irrevocably agrees to pay to Citibank. N.A., or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders. that portion of the principal and interest on the above-described debt obligations (the "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment. whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent. in form reasonably satisfactory to it.of it evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and ii i evidence. including any appropriate instruments of assignment, that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon such disbursement. Financial Guaranty shall become the owner of the Bond. appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully subrogated to all of the Bondholder's tights thereunder, including the Bondholder's right to payment thereof. This Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason. including the'payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein. the term "Bondholder" means, as to a particular Bond. the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for rPayment" means, when referring to the principal of a Bond. the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking rfund redemption), acceleration or other advancement of maturity and means, when referring to interest on a FCIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company.FGIC Corporation. Form 9000 (8/92) Page 1 of 2 r Umm7wii6.- Financial Guarani- Iniuraluct 11111911 Company FGIC. 115 Broadway New York,NY 10006 (212) 312-3000 T (800) 352-0001 A GE Capital Company Joan E.Kimmelman Managing Counsel May 11, 1993 City of Pearland, Texas Masterson Moreland Sauer Whisman, Inc. , as Representative of the Underwriters Houston, Texas Gentlemen: I am Vice President and Managing Counsel of Financial Guaranty Insurance Company ("Financial Guaranty") , and have been requested to render an opinion in connection with the issuance by Financial Guaranty of its Municipal Bond New Issue -• Insurance Policy (the "Policy") delivered to Ameritrust Texas, National Association, Houston, Texas, as paying agent for $6, 510, 000 in principal amount of City of Pearland, Texas Refunding Bonds, Series 1993 (the "Bonds") . I have examined such documents and records as I have deemed relevant for purposes of this opinion, including (i) the Certificate of Incorporation of Financial Guaranty, including all amendments thereto, (ii) the amended By-laws of Financial Guaranty as in effect on the date hereof, (iii) the certificate of authority issued to Financial Guaranty by the Superintendent of Insurance of the State of New York, (iv) the certificate of authority issued to Financial Guaranty by the Commissioner of Insurance of the State of Texas, (v) the executed Policy and (vi) the statements in the Official Statement dated April 8, 1993 relating to the Bonds (the "Official Statement" ) under the caption "MUNICIPAL BOND INSURANCE" . a' On the basis of the foregoing, it is my opinion that: (1) Financial Guaranty is a stock insurance corporation validly existing and in good standing under the laws of the State of New York and qualified to do business therein and is licensed and authorized to issue its financial guaranty insurance policies under the laws of the State of Texas . lrommoilk Financial Guaranty Insurance am Company City of Pearland May 11, 1993 Masterson Moreland Sauer Whisman, Inc. , as Page Two Representative of the Underwriters (2) The Policy is valid and binding upon Financial Guaranty and enforceable in accordance with its terms, subject to applicable laws affecting creditors ' rights generally. (3) Financial Guaranty, as an insurance company, is not eligible for relief under the Federal Bankruptcy Laws . Any proceedings for the liquidation, conservation or rehabilitation of Financial Guaranty would be governed by the provisions of the Insurance Law of the State of New York. (4) The statements described above in the Official Statement relating to Financial Guaranty and the Policy accurately and fairly present the summary information set forth therein and do not omit any material fact with respect to the description of Financial Guaranty relative to the material terms of the Policy or the ability of Financial Guaranty to meet its obligations under the Policy. Very truly yours, Joan E. Kimmelman JEK:nc a a Standard & Poor's Corporation Bond Insurance Administration 25 Broadway New York, New York 10004-1064 Telephone 212/208.1740 FAX 212/208-8262 May 10, 1993 Ms. Marilyn T. MulIaney Assistant Vice President Financial Guaranty Insurance Company 115 Broadway New York, New York 10006 Re: $6,510,000 City of Pearland, Texas, Refunding Bonds, Sines 1993, dated: May 1, 1993, due: September 1, 1993 - March 1, 1993 (POLICY #93010264) Dear Ms. Mullaney: Pursuant to your request for a Standard & Poor's rating on the subject obligations, we have reviewed the information submitted and have assigned a rating of `AAA'. This reflects our assessment of the likelihood of repayment of principal and interest based on the bond insurance policy your company is providing. Rating adjustments may result from changes in the financial position of your company or from alterations in documents governing the issue. With respect to the latter, please notify us of any changes or amendments over the term of the issue. When using this Standard & Poor's rating, include S&P's 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 recommendation to buy, hold or sell the obligations. Please remember that complete documentation•ralating to this issue must be submitted no later than 90 days after the date of this letter. If you have any questions, please contact us. Very t rt y yours, /cf •RaTanoas Aug =0 3oadaa= uT swam 04uetA@d ;o A34tTg0xga 20 oanaau 3dmaxa-xva ate 20 '.2oassAu sotnoTliad o ao= LaT1naas Aug jo AaTtTgt;aTn9 atm 'aoTad aoxst m so ,Ynbepp eta uo 2ueamtoo aou op ebuTasg •caTsnoas Aua plot( so ties 'dnq oa uoTat3puammuooei g aou 22o obuTZVE .uo-ilmmio;uT tans =o Aomanoom so uatuz Ott3 A;T20A zo zTpna aou saw waaTg -3i5A Ra on o3 pspTaosd uo;;vmio;uT uo psalm sag •ouI 'vaTnzeg 910 9enu2 1(0aT j Aq pat hTssa sbuT3vi 1,49400Ae T0OTt°AO 20 4usM400n11 '6uT4x2A,20pun es2enpg Aq pe400;;s eq 03 AtoXttuR 02g ;MO otgwat aromas Lzen as ITe 020 Aa PTabTt pug 'uo agaTtgaTdvo 't2buizzo 2sioug vougtvq tI4zaAo 'A4T T�aT3O23 'LI ya Ttod sT uo gown* J�vd oa A q' a,=osnsuT uQ uo aoeasT esanwpe tvTzoatlrs Aum ensu a,ou ptnot;s ozo4os= xsT2 oTmou000 pug egeuTenq atOaasazo,, °6uT4es 459t;bT4 ON4 TZTA s9TuPdM00 eouvsnsul 10J buoaas £temosaxo oT smTato Cgd oa A;Tt;qv etj :ss pautaep sT buT3v2 A3TtTge uTd0d-vmT0T0 ,wY, of , •BuTpTAosd aT (Died) Rugdaioo aouvanoui Aaugsgno to ouguTS avg4 q tad o0uezneuT puo et4 uo poonq aoasaauT puv tvdTouTzd ;o aue Avdaa 3o poogTtaxvi sqa jo auamossscs zno oaoet;a= oTtts 'opuog psousia=ai eAoge etj oa ,YYYi jo btrwaoi g pau8T9sg saq •ou= 'aoTAAeg ',soave/xi uoaTi (f9tOt0E6) E66t saTieg 'opuog buTpunjaV Jo aunomt: tvdT0uT2d uT 000'OT5'9$ sway ')uset :au :.Caulttnll 'nm 2110C 9000t AM 'X=OK wait soots gag 'AvAPao=e stt dugdmo3 eougs1=2 ICaus2vnp twT ouvuu AeuPTtnN uATTzQx 'OW E66't 'L COI( 00;0106 (Z►Z) P0o01 AN VOA M3N new/stun ams Duo ,3u) a3puas sgzsawui u3'd rico 07Mf17/v fl The claims-paying rating assigned to FGIC may be changed, withdrawn, suspended Or placed on FitchAlert as a result of changes in the financial condition of FGIC. The assignment, publication or dissemination of a rating by Fitch shall not constitute a consent by Pitch to the use of its name as an expert in connection with any registration P statement filed under the Federal securities laws. sincerely, Claire O. Co en Executive Vice President Governmental Finance - Moody Investors Service 99 Church Start New lbrk,NY 10007 • Kay 6, 1993 Financial Guaranty Insurance Company 115 Broadway New York, New York 10006 Dear FGZC: Moody's Investors Service has assigned the rating of Ali (FDIC Insured - Policy No. 93010264) to the 86,510, 000 City of Pearland, Texas, Refunding Bonds, Series 1993, dated May 1, 1993, which sold through negotiation on April 6, 1993 . The rating is based upon an insurance policy provided by Financial Guaranty Insurance Company. Should you have any questions regarding the above, please If do not hesitate to contact the assigned analyst, Margaret Kessler at (212) 553-7884. 11 Sincerely yours, efrag IfDaniel N. Heimowiti Executive vice President Director I/ Public Finance Department IDH:ks I p r ir Financial Guaranty Insurance Company FGIC' 115 Broadway New York.NY 1000b 212::312-:3000 800):352-00(11 A GE Capital Company Municipal Bond rNew Issue Insurance Policy Issuer: City of Pearland, Texas Policy Number: 93010264 Control Number: 0010001 Bonds: $6,510 , 000 in principal Premium: $30 ,625. 82 amount of Refunding Bonds, Series 1993 Financial Guaranty Insurance Company ("Financial Guaranty"). a New York stock insurance company. in consideration of the payment of the premium and subject to the terms of this Policy. hereby unconditionally and irrevocably agrees to pay to Citibank. N.A., or its successor, as its agent (the "Fiscal Agent"), for the benefit of Bondholders, that portion of the principal and interest on the above-described debt obligations (the T "Bonds") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. Financial Guaranty will make such payments to the Fiscal Agent on the date such principal or interest 1 becomes Due for Payment or on the Business Day next following the day on which Financial Guaranty shall have received Notice of Nonpayment. whichever is later. The Fiscal Agent will disburse to the Bondholder the face amount of principal and interest which is then Due for Payment but is unpaid by reason of Nonpayment by the Issuer but only upon receipt by the Fiscal Agent. in form reasonably satisfactory to it.of i) evidence of the Bondholder's right to receive payment of the principal or interest Due for Payment and ii i evidence. including any appropriate instruments of assignment. that all of the Bondholder's rights to payment of such principal or interest Due for Payment shall thereupon vest in Financial Guaranty. Upon rsuch disbursement. Financial Guaranty shall become the owner of the Bond. appurtenant coupon or right to payment of principal or interest on such Bond and shall be fully submgated to all of the Bondholder's rights thereunder, including the Bondholder's right to payment thereof. This Policy is non-cancellable for any reason. The premium on this Policy is not refundable for any reason. including the'payment of the Bonds prior to their maturity. This Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bond. As used herein, the term "Bondholder" means, as to a particular Bond. the person other than the Issuer who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof. "Due for Payment" means, when referring to the principal of a Bond, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to } any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking 1! fund redemption), acceleration or other advancement of maturity and means, when referring to interest on a FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company.FGIC Corporation. Form 9000 (8/92) Page 1 of 2 Financial Guaranty Insurance NNW Company FGIC 115 Broadway • New pork.NY 10006 212 312-3000 800,352-0001 A GE Capital Company Municipal Bond jNew Issue Insurance Policy Bond. the stated date for payment of interest. "Nonpayment- in respect of a Bond means the failure of the Issuer to have provided sufficient funds to the paying agent for payment in full of all principal and interest Due for Payment on such Bond. "Notice- means telephonic or telegraphic notice. subsequently confirmed in writing,or written notice by registered or certified mail. from a Bondholder or a paving agent for the Bonds to Financial Guaranty. "Business Day- means any day other than a Saturday. Sunday or a day on which rthe Fiscal Agent is authorized by law to remain closed. / In Witness Whereof. Financial Guaranty has caused this Policy to be affixed with its corporate seal and to be signed by its duly authorized officers in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. tPresident Effective Date: May 1 1 , 1 9 9 3 ut torized Representative I Citibank. N..t.. acknowledoes that it has agreed to perform the duties of Fiscal Agent under this Policy. Authorized Officer I FGIC a registered service mark used by Financial Guaranty Insurance Company under license from its parent company.FGIC Corporation. Form 9000 (8/92) Page 2 of 2 Financial Guaranty Insurance Company r 115 Broadway FGIC• New York.NY 10006 2122' :312-3000 800 :332-0001 A GE Capital Company Endorsement rTo Financial Guaranty Insurance Company Insurance Policy Y Policy Number: 930102 6 4 Control Number: 0010001 r tIt is further understood that the term -Nonpayment.' in respect of a Bond includes any payment of principal or interest made to a Bondholder by or on behalf of the issuer of such Bond which has been recovered from such Bondholder pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final. nonappealable order of a court having competent jurisdiction. In Witness Whereof. Financial Guaranty has caused this Endorsement to he affixed with its corporate seal and to be signed by its duly authorized officers in facsimile to become effective and binding upon Financial Guaranty by virtue of the countersignature of its duly authorized representative. President l Effective Date: May 11 , 1993 Authorized Representative so Acknowledged as of the Effective Date written above: Authorized Officer Citibank, N.A.,as Fiscal Agent FGIC is a registered service mark used by Financial Guaranty Insurance Company under license from its parent company,FGIC Corporation. f Form E-0002 (8/92) Page 1 of 1