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Ord. 0726 05-13-96CITY OF PEARLAND ORDINANCE NO. 726 AN ORDINANCE AUTHORIZING ISSUANCE OF CITY OF PEARLAND, TEXAS, WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 1996B; PRESCRIBING THE TERMS AND CONDITIONS THEREOF; PROVIDING FOR THE PAYMENT THEREOF; MAKING OTHER PROVISIONS REGARDING SUCH BONDS AND MATTERS INCIDENT THERETO; AWARDING THE SALE OF THE BONDS; AUTHORIZING BOND INSURANCE; AUTHORIZING EXECUTION AND DELIVERY OF A PAYING AGENT/REGISTRAR AGREEMENT; AND DECLARING AN EMERGENCY, AS THE TIMELY ISSUANCE OF WATER AND SEWER SYSTEM REVENUE BONDS BEARS DIRECTLY UPON THE HEALTH, SAFETY, AND WELFARE OF THE CMZENRY. BE 1T ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: that: ARTICLE I FINDINGS AND DETERMINATIONS Section 1.1. Findings and Determinations. It is hereby officially found and determined (a) The City is authorized by Articles 1111-1118, Vemon's Texas Civil Statutes, as amended, to issue revenue bonds payable from the revenues of its water and sewer system for the purpose of constructing repairs, improvements, additions and extensions to the City's waterworks and sanitary sewer system. (b) The City Council now deems it to be in the best interest of the City to issue, sell and deliver the Series 1996B Bonds as hereinafter authorized. ARTICLE II DEFINITIONS AND INTERPRETATIONS Section 2.1. Definitions. In this Ordinance, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Additional Bonds " shall mean the additional revenue bonds permitted to be issued by the City pursuant to Section 6.1 hereof. "Average Annual Principal and Interest Requirements" shall mean the average annual principal and interest requirements for all Bonds. Upon the issuance of the Series 1996B Bonds and the Series 1996A Bonds, the Average Annual Principal and Interest Requirements are hereby determined to be $779,673.25 and shall be recomputed upon the issuance of each series of Additional Bonds and set forth in each ordinance authorizing the issuance of Additional Bonds. For purposes of calculating the Average Annual Principal and Interest Requirements with respect to any variable rate Additional Bonds, interest on such bonds shall be calculated in accordance with Section 6.1 of this Ordinance. "Bond Insurance Policy" shall mean the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees the scheduled payment of principal of and interest on the Series 1996B Bonds when due. "Bond Insurer" shall mean Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof. "Bonds" shall mean any or all of the Series 1996B Bonds, the Series 1996A Bonds and any Additional Bonds from time to time hereafter issued, but only to the extent such Bonds remain Outstanding within the meaning of this Ordinance. "City" shall mean the City of Pearland, Texas, and, where appropriate, the City Council thereof and any successor to the City as owner of the System. "Fiscal Year" shall mean the City's fiscal year, which currently runs from October 1 to September 30, but which may be changed from time to time by the City. "Gross Revenues" shall mean all revenues, income and receipts of every nature derived or received by the City from the operation and ownership of the System; the interest income from the investment or deposit of money in the Revenue Fund, the Reserve Fund and the Renewal and Replacement Fund; and any other revenues hereafter pledged to the payment of all Bonds. Gross Revenues shall not include any of (i) grants from, or payments by, any federal, state or local governmental agency or authority or any other entity or person, the use of which is restricted by law or by the terms of the grant or payment to capital expenditures of the System, (ii) capital assets, debt service funds or debt service reserve funds of water districts or other public or private sewer systems annexed, acquired or otherwise assumed by the City or (iii) any interest earned on items (i) or (ii) above. "Interest Payment Date" shall mean March 1 or September 1 of each year as applicable. "Issuance Date" shall mean, with respect to the Series 1996B Bonds initially delivered to the TWDB, the date on which each such Series 1996B Bond is authenticated 2 by the Paying Agent/Registrar and delivered to and paid for by the TWDB. Series 1996B Bonds delivered on transfer of or exchange for other Series 1996B Bonds shall bear the same Issuance Date as the Series 1996B Bond or Bonds in lieu of or in exchange for which the new Series 1996B Bond is delivered. "Maintenance and Operation Expenses" shall mean the reasonable and necessary expenses of operation and maintenance of the System, including all salaries, labor, materials, repairs and extensions necessary to render efficient service (but only such repairs and extensions as, in the judgment of the governing body of the City, are necessary to keep the System in operation and render adequate service to the City and the inhabitants thereof, or such as might be necessary to meet some physical accident or conditions which would otherwise impair the Bonds, and all payments (including payments of amounts equal to all or a part of the debt service on bonds issued by other political subdivisions and authorities of the State of Texas) under contracts which are now or hereafter defined as operating expenses by the Legislature of Texas. Depreciation shall never be considered as a Maintenance and Operation Expense. Maintenance and Operation Expenses shall include, without limitation, all payments under contracts for the impoundment, conveyance or treatment of water or otherwise which are now or hereafter defined as operating expenses by the Legislature of Texas and the treatment of such payments as Maintenance and Operation Expenses shall not be affected in any way if, subsequent to the entering into such contracts, the City acquires as a part of the System title to any properties or facilities used to impound, convey or treat water under such contracts, or if the City contracts to acquire tide to such properties or facilities as a part of the System upon the final payment of debt service on the bonds issued to finance such properties or facilities. "Net Revenues" shall mean all Gross Revenues remaining after deducting the Maintenance and Operation Expenses. "Ordinance" shall mean this Bond Ordinance and all amendments hereof and supplements hereto. "Outstanding," when used with reference to the Bonds shall mean, as of a particular date, all such bonds theretofore delivered except: (a) any such bond canceled by or on behalf of the City at or before said date; (b) any such bond defeased pursuant to the defeasance provisions of the ordinance authorizing its issuance, or otherwise defeased as permitted by applicable law; and (c) any such bond in lieu of or in substitution for which another bond shall have been delivered pursuant to the ordinance authorizing the issuance of such bond. "Owner" or Registered Owner," when used with respect to any Bond, shall mean the person or entity in whose name such Bond is registered in the Register. Any reference to a particular percentage or proportion of the Owners of the Bonds of a particular class or series of Bonds shall mean the Owners at a particular time of the 3 specified percentage or proportion in aggregate principal amount of all Bonds or the Bonds of such class or series then Outstanding. "Paying Agent/Registrar" shall mean Texas Commerce Bank National Association, and its successors in that capacity. "Register" shall mean the books of registration kept by the Paying Agent/Registrar in which are maintained the names and addresses of and the principal amounts registered to each Owner of Series 1996B Bonds. "Series 1996A Bonds" shall mean the City of Pearland, Texas, Water and Sewer System Revenue Refunding Bonds, Series 1996A, being issued pursuant to an ordinance to be approved by City Council on the date of approval by City Council of this Ordinance. "Series 1996B Bonds" shall mean the City of Pearland, Texas Water and Sewer System Revenue Bonds, Series 1996B, being sold to the TWDB pursuant to this Ordinance. "Special Project" shall mean, to the extent permitted by law, any water or sewer system property, improvement or facility declared by the City not to be part of the System, for which the costs of acquisition, construction, and installation are paid from proceeds of a financing transaction other than the issuance of bonds payable from ad valorem taxes or revenues of the System and for which all maintenance and operation expenses are payable from sources other than ad valorem taxes or revenues of the System, but only to the extent that and for so long as all or any part of the revenues or proceeds of which are or will be pledged to secure the payment or repayment of such costs of acquisition, construction, and installation under such financing transaction. "Subordinate Lien Obligations" shall mean the obligations permitted to be issued by the City pursuant to Section 6.2 hereof. "System" shall mean all properties, facilities, improvements, equipment, interests, rights and powers constituting the water and sewer system of the City, and all future extensions, replacements, betterments, additions, improvements, enlargements, acquisitions, purchases and repairs to the System, including without limitation, all those heretofore or hereafter acquired as a result of the annexation and dissolution of water districts or the acquisition of the properties or assets of any other public, private or non- profit entities. The System shall not include any Special Project. "TWDB" shall mean the Texas Water Development Board. Section 2.2. Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles 4 and headings of the articles and sections of this Ordinance and the Table of Contents of this Ordinance have been inserted for convenience of reference only and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof. This Ordinance and all the terms and provisions hereof shall be liberally construed to effectuate the purposes set forth herein and to sustain the validity of the Bonds and the validity of the lien on and pledge of the Net Revenues to secure the payment of the Bonds. ARTICLE III TERMS OF THE SERIES 1996B BONDS Section 3 1. Name. Amount. Purpose. Authorization. The Series 1996B Bonds, to be known and designated as the "CITY OF PEARLAND, TEXAS, WATER AND SEWER SYSTEM REVENUE BONDS, SERIES 1996B," in the original aggregate principal amount of $8,870,000 shall be issued in fully registered form, without coupons. The Series 1996B Bonds are being issued for the purpose of constructing certain repairs, improvements, additions and extensions to the System, including particularly the construction of a new wastewater treatment plant, and to pay expenses in connection with the issuance of the Series 1996B Bonds, all under and pursuant to the authority of Articles 1111-1118, Vernon's Texas Civil Statutes, as amended, and all other applicable law. Section 3.2. Numbers. Date. and Denomination The Series 1996B Bonds shall be numbered separately from R-1 upward, shall be dated as of June 1, 1996, and shall be in the denomination of $5,000 principal amount or any integral multiple thereof. Section 3.3. Interest Payment Dates. Interest Rates. and Maturities. The Series 1996B Bonds shall bear interest from the later of the Issuance Date, or the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate or rates per annum set forth below, calculated on the basis of a 360-day year composed of twelve 30-day months and payable semiannually on March 1 and September 1 of each year, commencing March 1, 1997, until maturity or prior redemption. The Series 1996B Bonds shall mature and become payable on the dates and in the respective principal amounts set forth below, subject to prior redemption as set forth in the FORM OF SERIES 1996B BONDS in Article IV hereof: 5 Maturity Date Principal Interest (September 1) Amount Rate 1997 $ 85,000.00 2.90% 1998 165,000.00 3.20 1999 170,000.00 3.40 2000 175,000.00 3.55 2001 185,000.00 3.70 2002 210,000.00 3.80 2003 420,000.00 3.90 2004 440,000.00 4.00 2005 455,000.00 4.10 2006 475,000.00 4.20 2007 495,000.00 4.30 2008 515,000.00 4.40 2009 540,000.00 4.50 2010 560,000.00 4.60 2011 590,000.00 4.70 2012 615,000.00 4.75 2013 645,000.00 4.80 2014 675,000.00 4.80 2015 710,000.00 4.85 2016 745,000.00 4.85 Section 3.4. Redemption Prior to Maturity. The Series 1996B Bonds are subject to redemption in the manner provided in the FORM OF SERIES 1996B BONDS set forth in Article IV of this Ordinance. Section 3.5. Manner of Payment. Characteristics. Execution. and Authentication. The Paying Agent/Registrar shall be the paying agent for the Series 1996B Bonds. The Series 1996B Bonds shall be payable, shall have the characteristics, shall be signed and executed, shall be sealed, and shall be authenticated, all as provided and in the manner indicated in the FORM OF SERIES 1996B BONDS set forth in Article IV of this Ordinance. The Series 1996B Bonds initially delivered shall also have attached or affixed to each such Series 1996B Bond the registration certificate of the Comptroller of Public Accounts of the State of Texas. If any officer of the City whose manual or facsimile signature shall appear on the Series 1996B Bonds, as provided in the FORM OF SERIES 1996B BONDS, shall cease to be such officer before the authentication of the Series 1996B Bonds or before the delivery of the Series 1996B Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. Any portion of the text of any Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Bond. The definitive Bonds shall be printed, lithographed, engraved, or typewritten or produced by any combination of these methods, or 6 produced in any other manner, all as determined by the officers executing such Bonds as evidenced by their execution thereof, but the initial Bonds submitted to the Attorney General of Texas may be typewritten, photocopied, or otherwise reproduced. The approving legal opinion of Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, Bond Counsel, may be printed on the back of the Series 1996B Bonds over the certification of the City Secretary of the City which may be executed in facsimile. CUSIP numbers and a statement of insurance, if any, also may be printed on applicable Series 1996B Bonds, but errors or omissions in the printing of the opinion, the numbers, or the statement of insurance shall have no effect on the validity of the Series 1996B Bonds. Section 3.6. Ownership. The City, the Paying Agent/Registrar and any other person may treat the person in whose name any Series 1996B Bond is registered as the absolute owner of such Series 1996B Bond for the purpose of mailing payment of the principal and premium, if any, thereof, and for the further purpose of making payment of interest thereon, for the purpose of giving notice to the Owners of the Series 1996B Bonds, and for all other purposes, whether or not such Series 1996B Bond is overdue, and neither the City nor the Paying Agent/Registrar shall be bound by any notice or knowledge to the contrary. All payments made to the person deemed to be the Owner of any Series 1996B Bond in accordance with this section shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Series 1996B Bond to the extent of the sums paid. Section 3.7. Registration. Transfer. and Exchange. So long as any Series 1996B Bonds remain Outstanding, the Paying Agent/Registrar shall keep the Register at its principal corporate trust office and a copy thereof at an office in the State of Texas, in which, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of the Series 1996B Bonds in accordance with the terms of this Ordinance. Each Series 1996B Bond shall be transferable only upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar, duly endorsed for transfer, or accompanied by an assignment duly executed by the Registered Owner or his authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Series 1996B Bond for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within 72 hours after such presentation, a new Series 1996B Bond or Series 1996B Bonds, registered in the name of the transferee or transferees, in authorized denominations and of the same maturity and aggregate principal amount or maturity amount, as the case may be, and bearing or accruing interest at the same rate as the Series 1996B Bond or Series 1996B Bonds so presented. Each Series 1996B Bond shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Series 1996B Bond or Series 1996B Bonds of the same maturity and bearing or accruing interest at the same rate and in any authorized denomination, in an aggregate principal amount or maturity amount, as the case may be, equal to the unpaid principal amount or maturity amount, as the case may be, of the Series 1996B Bond or Series 1996B Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Series 1996B Bonds in accordance with the provisions of this Section. Each exchanged or replaced Series 1996B Bond delivered by the Paying Agent/Registrar in accordance with this Section shall be entitled to the benefits and security of this Ordinance to the same extent as the Series 1996B Bond or Series 1996B Bonds in lieu of which such Series 1996B Bond is delivered. The City or the Paying Agent/Registrar may require the Owner of any Series 1996B 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 Series 1996B Bond. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. Section 3.8. Cancellation. All Series 1996B Bonds paid or redeemed in accordance with this Ordinance, and all Series 1996B Bonds in lieu of which exchanged Series 1996B Bonds or replacement Series 1996B Bonds are authenticated and delivered in accordance herewith, shall be canceled and destroyed upon the making of proper records regarding such payment or redemption. The Paying Agent/Registrar shall periodically furnish the City with certificates of destruction of such Series 1996E Bonds. Section 3.9. Replacement Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of a damaged or mutilated Series 1996B Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Series 1996B Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Series 1996B Bond to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses connected therewith, including the fees and expenses of the Paying Agent/Registrar. If any Series 1996B Bond is destroyed, lost or stolen, the City, pursuant to the applicable laws of the State of Texas and in the absence of notice or knowledge that such Series 1996B Bond has been acquired by a bona fide purchaser, shall execute and the Paying Agent/Registrar shall authenticate and deliver a replacement Series 1996B Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding, provided that the Owner thereof shall have: (a) Furnished to the City and the Paying Agent/Registrar satisfactory evidence of the ownership of and the circumstances of the loss, destruction or theft of such Series 1996B Bond; (b) Furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save them harmless; 8 (c) Paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar and any tax or other governmental charge that may be imposed; and (d) Met any other reasonable requirements of the City and the Paying Agent/Registrar. If, after the delivery of such replacement Series 1996B Bond, a bona fide purchaser of the original Series 1996B Bond in lieu of which such replacement Series 1996B Bond was issued presents for payment such original Series 1996B Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Series 1996B 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 Paying Agent/Registrar in connection therewith. If any such damaged, mutilated, destroyed, lost, or stolen Series 1996B Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Series 1996B Bond, authorize the Paying Agent/Registrar to pay such Series 1996B Bond. Each replacement Series 1996E Bond delivered in accordance with this section shall be entitled to the benefits and security of this Ordinance to the same extent as the Series 1996B Bond or Series 1996B Bonds in lieu of which such replacement Series 1996B Bond is delivered. ARTICLE IV FORM OF SERIES 1996B BONDS The Series 1996B Bonds shall be in substantially the following form, with such omissions, insertions and variations as may be permitted or required pursuant to the terms of this Ordinance: 9 [FORM OF SERIES 1996B BOND] UNITED STATES OF AMERICA STATE OF TEXAS CITY OF PEARLAND, TEXAS, WATER AND SEWER SYSTEM REVENUE BOND, SERIES 1996B NUMBER R- REGISTERED INTEREST RATE: Registered Owner: Principal Amount: DENOMINATION REGISTERED ISSUANCE DATE: MATURITY DATE: CUSIP NO.: June 19, 1996 September 1, _ DOLLARS The CITY OF PEARLAND, TEXAS, a municipal corporation duly incorporated under the laws of the State of Texas (herein the "City"), for value received, hereby promises to pay, to the Registered Owner identified above or registered assigns, solely from certain pledged revenues and funds as hereinafter specified and from no other source, on the Maturity Date specified above, upon presentation and surrender of this bond at the principal corporate trust office of the "Paying Agent/Registrar," initially Texas Commerce Bank National Association, Houston, Texas, in any coin or currency of the United States of America which on the date of payment of such principal is legal tender for the payment of debts due the United States of America, the Principal Amount identified above (or so much as shall not have been paid upon prior redemption), and to pay, solely from such pledged revenues and funds, interest thereon at the Interest Rate shown above, calculated on the basis of a 360-day year composed of twelve 30- day months, from the later of the Issuance Date identified above or the most recent interest payment date to which interest has been paid or duly provided for. The date of this bond is June 1, 1996, but interest shall accrue on the principal amount hereof from the Issuance Date. Interest on this bond is payable on each March 1 and September 1, beginning March 1, 1997, until the maturity or redemption date of this bond or until the City's obligation with respect to this bond has been satisfied. Interest on this bond shall be payable by check mailed by the Paying Agent/Registrar to the Registered Owner of record as of the 15th day of the month next preceding the interest payment date as shown on the books of registration kept by the Paying Agent/Registrar. So long as the Texas Water Development Board (herein the "TWDB") is the holder of this bond, payment of the principal and interest on this bond shall be made to the TWDB by wire transfer at no cost to the TWDB. 10 THIS BOND IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (herein the "Series 1996B Bonds") in the aggregate principal amount of $8,870,000 issued pursuant to an ordinance adopted by the City Council of the City (herein the "Ordinance") for the purpose of constructing certain repairs, improvements, additions and extensions to the City's waterworks and sanitary sewer system, including particularly the construction of a new wastewater treatment plant, under and pursuant to the authority of Articles 1111-1118, Vernon's Texas Civil Statutes, as amended, and all other applicable law. THIS BOND AND ALL OF THE SERIES 1996B BONDS are special obligations of the City that are equally and ratably payable from and secured by a first lien on the "Net Revenues" collected and received by the City from the operation and ownership of the City's water and sewer system as defined and provided in the Ordinance, which Net Revenues are required to be set aside for and pledged to the payment of the Series 1996B Bonds and all additional bonds issued on a parity therewith, in the interest and sinking fund and the reserve fund required to be maintained for the payment of all such bonds, all as more fully described and provided for in the Ordinance. This bond and the series of which it is a part, together with the interest thereon, are payable solely from such Net Revenues and do not constitute an indebtedness or general obligation of the City. THE CITY SHALL HAVE THE OPTION OF CALLING THE SERIES 1996B BONDS MATURING ON AND AP I'ER September 1, 2006 FOR REDEMPTION PRIOR TO MATURITY on September 1, 2005, or any date thereafter, in whole or in part and if in part, in inverse order of maturity (but if less than all the Series 1996B Bonds of a single maturity are called for redemption, those bonds called shall be selected by lot or other customary random method by the Paying Agent/Registrar), at par plus accrued interest to the date fixed for redemption. SERIES 1996B BONDS MAY BE REDEEMED IN PART only in integral multiples of $5,000 of principal amount or maturity amount, as applicable. If a Series 1996B Bond subject to redemption is in a denomination larger than $5,000, a portion of such Series 1996B Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Series 1996B Bonds for redemption, the Paying Agent/Registrar shall treat each Series 1996B Bond as representing that number of Series 1996B Bonds of $5,000 denomination which is obtained by dividing the principal amount (or maturity amount) of such Series 1996B Bond by $5,000. Upon surrender of any Series 1996B Bond for redemption in part, the Paying Agent/Registrar, in accordance with the provisions of the Ordinance, shall authenticate and deliver in exchange therefore a Series 1996B Bond or Series 199613 Bonds of like maturity and interest rate in an aggregate principal amount (or maturity amount) equal to the unredeemed portion of the Series 1996B Bond so surrendered. NOTICE OF ANY SUCH OPTIONAL REDEMPTION identifying the Series 1996B Bonds to be redeemed shall be sent by first-class mail, postage prepaid, to the Registered Owners thereof at their addresses as shown on the books of registration kept by the Paying Agent/Registrar not less than thirty (30) days before the date fixed for such redemption. Notice 11 of redemption shall also be sent by certified mail, return receipt requested, to at least two national information services, and any securities depository institution registered under the Securities Exchange Act of 1934, as amended, acting as securities depository under the Ordinance. Each redemption notice shall contain the complete official name of the Series 1996B Bonds, CUSIP numbers, certificate numbers, the redemption date, the redemption price, the redemption agent's name and address with a contact person's name and telephone number, the date of issuance, the maturity date, and any other information appropriate to identify sufficiently the Series 1996B Bonds being redeemed. By the date fixed for redemption, due provision shall be made with the Paying Agent/Registrar for the payment of the redemption price of the Series 1996B Bonds called for redemption. If such notice of redemption is given, and if due provision for such payment is made, all as provided above, the Series 1996B Bonds which are to be so redeemed thereby automatically shall be redeemed prior to their scheduled maturities, they shall not bear interest after the date fixed for redemption, and they shall not be regarded as being outstanding except for the purpose of being paid by the Paying Agent/Registrar with the funds so provided for such payment. THE CITY HAS RESERVED THE RIGHT TO ISSUE ADDITIONAL WATER AND SEWER SYSTEM REVENUE BONDS, subject to the restrictions contained in the Ordinance, which bonds may be secured by a lien on a parity with, or subordinate and inferior to, the lien on the Net Revenues securing this bond and the series of which it is a part. THE PAYING AGENT/REGISTRAR IS NOT REQUIRED TO ACCEPT for transfer or exchange any Series 1996B Bond called for redemption during the fifteen (15) days prior to mailing of any notice of redemption; provided, however, that such limitation shall not apply to the transfer or exchange by the registered owner of a Series 1996B Bond called for redemption in part. THE REGISTERED OWNER HEREOF shall never have the right to demand payment out of any funds raised or to be raised by taxation. REFERENCE IS HEREBY MADE TO THE ORDINANCE, a copy of which is on file in the office of the Paying Agent/Registrar, and to all of the provisions of which the Registered Owner of this bond by the acceptance hereof hereby assents, for definitions of terms; the description of and the nature and extent of the security for the Series 1996B Bonds; the priority for the application and use of the income and revenues of the System; the Net Revenues pledged to the payment of the principal of and interest on the Series 1996B Bonds; the nature and extent and manner of enforcement of the lien and pledge securing the payment of the Series 1996B Bonds; the terms and conditions for the issuance of additional revenue obligations, including Additional Bonds; the terms and conditions for amending the Ordinance; the terms and conditions relating to the transfer or exchange of this bond; the rights, duties, and obligations of the City and the Paying Agent/Registrar; the terms and provisions upon which the liens, pledges, charges and covenants made therein may be discharged at or prior to the maturity of this bond, and deemed to be no longer Outstanding thereunder; and for the other terms and 12 provisions thereof. Capitalized terms used herein, unless otherwise defined, have the same meanings assigned in the Ordinance. IT IS HEREBY DECLARED AND REPRESENTED that this bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, exist, and be done precedent to or in the issuance and delivery of this bond have been performed, existed, and been done in accordance with law; that the Series 1996B Bonds do not exceed any statutory limitation; and that provision has been made for the payment of the principal of and interest on this bond and all of the Series 1996B Bonds by the aforesaid first lien on and pledge of the Net Revenues. THIS BOND shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this bond either (i) is registered by the Comptroller of Public Accounts of the State of Texas or (ii) is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate manually endorsed hereon. Such duly executed certificate of authentication shall be conclusive evidence that this bond was delivered by the Paying Agent/Registrar under the provisions of the Ordinance. IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and has in the Ordinance directed this bond to be signed by the Mayor and countersigned by the City Secretary by their printed facsimile signatures. (SEAL) Mayor City Secretary 13 JFORM OF COMPTROLLER'S REGISTRATION CERTIFICATE] The following form of Comptroller's Registration Certificate shall be attached or affixed to each of the Series 1996B Bonds initially delivered. THE STATE OF TEXAS OFFICE OF THE COMPTROLLER OF PUBLIC ACCOUNTS REGISTER NO. I hereby certify that there is on file and of record in my office a certificate of the Attorney General of the State of Texas to the effect that this bond and the proceedings for the issuance hereof have been examined by him as required by law, that he finds that it has been issued in conformity with the Constitution and laws of the State of Texas and that it is a valid and binding special obligation of the City of Pearland, Texas, payable from the revenues and other funds pledged to its payment by and in the proceedings authorizing the same, and I do further certify that this bond has this day been registered by me. WITNESS MY SIGNATURE AND SEAL OF OFFICE this Comptroller of Public Accounts [SEAL] of the State of Texas 14 Bonds. {FORM OF AUTHENTICATION CERTIFICATEI The following form of Authentication Certificate shall appear on each of the Series 1996B AUTHENTICATION CERTIFICATE Registration Date: This bond is one of the Bonds described in and delivered pursuant to the within - mentioned Ordinance; and, except for the Bonds initially delivered, this bond has been issued in conversion of and exchange for or replacement of a bond, bonds or a portion of a bond or bonds of an issue which originally was approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas. TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: Authorized Signature 15 'FORM OF ASSIGNMF,N11 The following form of assignment shall appear on each of the Series 1996B Bonds. ASSIGNMENT For value received, the undersigned hereby sells, assigns, and transfers unto (SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER) (Print or type name, address, and zip code of transferee) the within bond 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: The signature must be guaranteed by a commercial bank or a member firm of a national securities exchange. Notarized or witnessed signatures are not acceptable. 16 Registered Owner NOTICE: The signature on this assignment must correspond with the name of the Registered Owner as it appears on the face of the within bond in every particular, without alteration or enlargement or any change whatever. 'FORM OF STATEMENT OF INSURANCE' The following form of statement of insurance shall appear on each of the Series 1996B Bonds. Financial Security Assurance Inc. ("Financial Security"), New York, New York, has delivered its municipal bond insurance policy with respect to the scheduled payments due of principal of and interest on this Bond to Texas Commerce Bank National Association, or its successor, as paying agent for the Bonds (the "Paying Agent"). Said policy is on file and available for inspection at the principal office of the Paying Agent and a copy thereof may be obtained from Financial Security or the Paying Agent. 17 ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR THE BONDS Section 5.1. Pledge and Source of Payment. The City hereby covenants and agrees that Gross Revenues of the System shall, as collected and received by the City, be deposited and paid into the special funds hereinafter established, and shall be applied in the manner hereinafter set forth, in order to provide for the payment of all Maintenance and Operation Expenses and to provide for the payment of principal of, interest on and any redemption premiums on the Bonds and all expenses of paying same; and to provide for the disposition of the remaining Net Revenues. The Bonds shall constitute special obligations of the City that shall be payable solely from and shall be equally and ratably secured by a first lien on the Net Revenues as collected and received by the City from the operation and ownership of the System, which Net Revenues shall, in the manner herein provided, be set aside for and pledged to the payment of the Bonds in the Interest and Sinking Fund and the Reserve Fund as hereinafter provided, and the Bonds shall be, in all respects, on a parity with and of equal dignity with one another. The Owners of the Bonds shall never have the right to demand payment of either the principal of, interest on or any redemption premium on the Bonds out of any funds raised or to be raised by taxation. Section 5.2. Rates and Charger. So long as any Bonds remain Outstanding, the City shall fix, charge and collect rates and charges for the use and services of the System which are calculated to be fully sufficient to produce Net Revenues in each Fiscal Year at least equal to 115 % of the principal and interest requirements scheduled to occur in such Fiscal Year on all Bonds then Outstanding plus an amount equal to the sum of all deposits required to be made to the Reserve Fund in such Fiscal Year; but in no event shall Net Revenues ever be less than the amount required to establish and maintain the Interest and Sinking Fund and the Reserve Fund as hereinafter provided, and, to the extent that funds for such purpose are not otherwise available, to pay all other outstanding obligations payable from the Net Revenues of the System. The City will not grant or permit any free service from the System, except for public buildings and institutions operated by the City. In addition, the City will not grant or permit any free service from the System permitted by the previous sentence if to do so would violate any condition or covenant to which the City is bound in connection with any federal grant agreement or otherwise. Section 5.3. Special Funds. The following special Funds shall be established, maintained and accounted for as hereinafter provided so long as any of the Bonds remain Outstanding: (a) Revenue Fund; (b) Interest and Sinking Fund; and 18 (c) Reserve Fund. All of such Funds shall be maintained as separate accounts on the books of the City. The Interest and Sinking Fund and the Reserve Fund shall constitute trust funds which shall be held in trust for the Owners of the Bonds and the proceeds of which shall be pledged to the payment of the Bonds. All of the Funds named above shall be used solely as herein provided so long as any Bonds remain Outstanding. Section 5.4. Flow of Fundg. Gross Revenues of the System shall be deposited as collected into the Revenue Fund. Moneys from time to time on deposit to the credit of the Revenue Fund shall be applied in the following manner and in the following order of priority: (a) First, to pay Maintenance and Operation Expenses and to provide by encumbrance for the payment of all obligations incurred by the City for Maintenance and Operation Expenses and to establish and maintain an operating reserve equal to one month's estimated Maintenance and Operation Expenses; (b) Second, to make all deposits into the Interest and Sinking Fund required by any ordinance authorizing the issuance of Bonds; (c) Third, to make all deposits into the Reserve Fund required by any ordinance authorizing the issuance of Bonds; (d) Fourth, to repay any amounts owing to the Bond Insurer pursuant to the Bond Insurance Policy. (e) Fifth, to make all deposits, as may be required by any ordinance of the City authorizing the issuance of certain Subordinate Lien Obligations described in Section 6.2 hereof, in order to provide for the payment of and security for such Subordinate Lien Obligations; and (f) Sixth, for any lawful purpose. Section 5.5. Interest and Sinking Fund. On or before the last business day of each month so long as any Bonds remain Outstanding, alter making all required payments and provision for payment of Maintenance and Operation Expenses, there shall be transferred into the Interest and Sinking Fund from the Revenue Fund the following amounts: (a) Such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the interest scheduled to become due on the Bonds on the next Interest Payment Date; and 19 (b) Such amounts, in approximately equal monthly installments, as will be sufficient to accumulate the amount required to pay the next maturing principal of the Bonds (i.e., the principal amount payable on the next September 1), including the principal amounts of, and any redemption premiums on, any Bonds payable as a result of the operation or exercise of any mandatory or optional redemption provision contained in any ordinance authorizing the issuance of Bonds. Whenever the total amounts on deposit to the credit of the Interest and Sinking Fund and the Reserve Fund shall be equivalent to the sum of the aggregate principal amount of all Outstanding Bonds plus the aggregate amount of all interest accrued and to accrue thereon, no further payments need be made into the Interest and Sinldng Fund or the Reserve Fund, and such Bonds shall not be regarded as being Outstanding except for the purpose of being paid with the moneys on deposit in such Funds. Moneys deposited to the credit of the Interest and Sinking Fund shall be used solely for the purpose of paying principal (at maturity or prior redemption or to purchase Bonds in the open market to be credited against mandatory redemption requirements), interest and redemption premiums on the Bonds, plus all bank charges and other costs and expenses relating to such payment. On or before each date principal becomes due and/or Interest Payment Date on the Bonds, the City shall transfer from the Interest and Sinking Fund to the paying agent for the Bonds an amount equal to the principal of, interest on and any redemption premiums payable on the Bonds on such date, together with an amount equal to all bank charges and other costs and expenses relating to such payment. The paying agent shall totally destroy all paid Bonds and shall provide the City with an appropriate certificate of destruction. Section 5.6. Reserve Fund. On or before the last business day of each month so long as any Bonds remain Outstanding, after making all required payments and provision for payment of Maintenance and Operation Expenses and after making all required transfers into the Interest and Sinking Fund, there shall be transferred into the Reserve Fund from the Revenue Fund amounts equal to at least one -sixtieth (1/60th) of the Average Annual Principal and Interest Requirements on the Bonds unless or until there has been accumulated in the Reserve Fund money and investments in an aggregate amount at least equal to the Average Annual Principal and Interest Requirements on the Bonds; provided that additional deposits into the Reserve Fund sufficient to provide for the increased reserve requirements resulting from the issuance of any Additional Bonds shall be made by not later than 60 months from the date of issuance of such Additional Bonds as required by Section 6.1(d) hereof. Such additional deposits into the Reserve Fund in connection with the issuance of any Additional Bonds shall be made each month in amounts equal to one -sixtieth (1/60th) of the Average Annual Principal and Interest Requirements on the Bonds and such Additional Bonds. After such amount has accumulated in the Reserve Fund and so long thereafter as such fund contains such amount, no further deposits shall be required to be made into the Reserve Fund, and any excess amounts in the Reserve Fund may be transferred to the Revenue Fund. But if and whenever the balance in the Reserve 20 Fund is reduced below such amount, an amount equal to such deficiency shall be deposited into the Reserve Fund on or before the last business day of the next month, unless otherwise agreed by the TWDB. The Reserve Fund shall be used to pay the principal of and interest on the Bonds at any time when there is not sufficient money available in the Interest and Sinking Fund for such purpose and it may be used finally to pay and retire the last Bonds to mature or be redeemed. Section 5.7. Deficiencies in Funds. If in any month there shall not be deposited into any fund maintained pursuant to this Article the full amounts required hereinabove, amounts equivalent to such deficiency shall be set apart and paid into such Fund or Funds from the first available and unallocated moneys in the Revenue Fund, and such payment shall be in addition to the amounts otherwise required to be paid into such Funds during any succeeding month or months. To the extent necessary, the rates and charges for the System shall be increased to make up for any such deficiencies. Section 5.8. Investment of Funds: Transfer of Investment Income. (a) Money in the Revenue Fund, the Interest and Sinking Fund and the Reserve Fund may, at the option of the City, be invested in, time deposits or certificates of deposit secured in the manner required by law for public funds, or be invested in direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, in obligations of any agencies or instrumentalities of the United States of America or as otherwise permitted by state law; provided that all such deposits and investments shall be made in such manner (which may include repurchase agreements for such investments with any national bank for a period of 270 clays or less with 103% over-collateralization) that the money required to be expended from any Fund will be available at the proper time or times, and provided further that in no event shall such deposits or investments of moneys in the Reserve Fund mature later than the final maturity date of the Bonds. All such investments shall be valued in terms of current market value no less frequently than the last business day of the City's Fiscal Year, except that any direct obligations of the United States of America - State and Local Government Series shall be continuously valued at their par value or principal face amount. Any obligation in which money is so invested shall be kept and held in an official depository of the City, except as hereinafter provided. For purposes of maximizing investment returns, money in such funds may be invested, together with money in other funds or with other money of the City, in common investments of the kind described above, or in a common pool of such investments which shall be kept and held at an official depository of the City, which shall not be deemed to be or constitute a commingling of such money or funds provided that safekeeping receipts or certificates of participation clearly evidencing the investment or investment pool in which such money is invested and the share thereof purchased with such money or owned by such fund are held by or on behalf of each such fund. If necessary, such investments shall be promptly sold to prevent any default. (b) All interest and income derived from such deposits and investments shall be credited monthly to the fund from which such investment was made. 21 Section 5.9. Security for Uninvested Funds. So long as any Bonds remain Outstanding, all uninvested moneys on deposit in, or credited to, the Revenue Fund, the Interest and Sinking Fund and the Reserve Fund shall be secured by the pledge of security as provided by law for cities in the State of Texas. ARTICLE VI ADDITIONAL BONDS Section 6.1 Additional Bonds. The City reserves the right to issue, for any lawful purpose, including the refunding of any previously issued Bonds or any other bonds or obligations of the City issued in connection with the System or payable from Net Revenues, one or more series of Additional Bonds on a parity with the Outstanding Bonds and any Additional Bonds then Outstanding, payable from, and secured by a first lien on, the Net Revenues of the System; provided, however, that no Additional Bonds may be issued unless: (a) All Additional Bonds shall mature only on September 1 and interest thereon shall be payable only on March 1 and September 1; (b) The Interest and Sinking Fund and the Reserve Fund each contains the amount of money then required to be on deposit therein; (c) For either the preceding Fiscal Year or any consecutive 12-month period out of the 15-month period immediately preceding the month in which the bond ordinance authorizing such Additional Bonds is adopted (the "Base Period") either: (1) Net Revenues are certified by the Director of Finance of the City to have been equal to at least (A) one hundred and forty percent (140%) of the Average Annual Principal and Interest Requirements on all Bonds, after giving effect to the issuance of the Additional Bonds to be issued; or (2) Net Revenues, adjusted to give effect to any rate increase or annexation of territory placed into effect or consummated prior to the adoption of the ordinance authorizing the Additional Bonds to the same extent as if such rate increase or annexation had been placed into effect or consummated prior to the commencement of the Base Period, would have been equal to at least the amount required in paragraph (1) above, as certified by an independent consulting engineer or independent firm of consulting engineers; provided, however, that this requirement shall not apply to the issuance of any series of Additional Bonds for refunding purposes that will not have the result of increasing the average annual principal and interest requirements on the Bonds; and 22 (d) Provision is made in the bond ordinance authorizing the Additional Bonds then proposed to be issued for (1) additional payments into the Interest and Sinking Fund sufficient to provide for the payment of the increased principal of and interest on the Bonds resulting from the issuance of such Additional Bonds, and (2) additional payments into the Reserve Fund sufficient to provide for the accumulation therein of the increased reserve requirement resulting from the issuance of such Additional Bonds, by not later than 60 months from the date of issuance of such Additional Bonds. The provisions of this Section 6.1(a) notwithstanding, the City may issue Additional Bonds that bear interest at a variable rate. Such variable rate bonds may mature on dates other than September 1 and interest thereon may be payable on dates other than March 1 or September 1; provided that the issuance of Additional Bonds as variable rate bonds may not cause the total amount of Outstanding Bonds that are variable rate bonds to exceed 20% of the aggregate principal amount of all Outstanding Bonds and Subordinate Lien Obligations at the time of such issuance. For purposes of calculating the funding requirements for the Reserve Fund and for the purposes of calculating compliance with the conditions precedent to the issuance of Additional Bonds pursuant to Section 6.1(c) and the rate covenant set forth in Section 5.2, any Bonds that are variable rate bonds shall be assumed to bear interest at a rate which shall be estimated and certified by the financial advisor to the City as the rate that would be borne by such variable rate bonds if they were at the date of such certification issued as Bonds bearing a fixed rate of interest to their scheduled maturity or maturities. Section 6.2. Subordinate Lien Obligations. The City reserves the right to issue, for any lawful purpose, bonds, notes or other obligations secured in whole or in part by liens on the Net Revenues that are junior and subordinate to the lien on Net Revenues securing payment of the Bonds. Such Subordinate Lien Obligations may be further secured by any other source of payment lawfully available for such purposes. In the event that the City should decide to issue such Subordinate Lien Obligations as variable rate bonds, for purposes of calculating the funding requirements for the reserve fund for such Subordinate Lien Obligations, the variable rate bonds shall be assumed to bear interest at the rate of 10% per annum, and for purposes of calculating compliance with any conditions precedent to the issuance of additional Subordinate Lien Obligations and any rate covenants relating to such Subordinate Lien Obligations, the variable rate bonds shall be assumed to bear interest at the higher of 9% per annum or the highest variable rate over the preceding twenty-four (24) months. Deposits may be made pursuant to Section 5.4(d) of this Ordinance into such funds as may be created and maintained for the payment of and security for Subordinate Lien Obligations described in this Section (including a reserve fund not to exceed the Average Annual Principal and Interest Requirements on such Subordinate Lien Obligations and any provisions for curing deficiencies in such funds), but only to the extent that the aggregate Outstanding principal amount of such Subordinate Lien Obligations does not exceed 50% of the aggregate principal amount of Bonds and Subordinate Lien Obligations Outstanding on the date of such calculation. 23 Section 6.3. $pecial Project Bonds. The City reserves the right to issue revenue bonds secured by liens on and pledges of revenues and proceeds derived from Special Projects. ARTICLE VII COVENANTS AND PROVISIONS RELATING TO BONDS Section 7.1. Punctual Payment of Bonds. The City covenants that it will punctually pay or cause to be paid the interest on and principal of all Bonds according to the terms thereof and will faithfully do and perform, and at all times fully observe, any and all covenants, undertakings, stipulations and provisions contained in this Ordinance and in any other ordinance authorizing the issuance of such Bonds. Section 7.2. power to Own and Operate System: Ratemaldng Power. The City covenants that it has all necessary power and authority to own and operate the System as herein described and provided and that it possesses, and shall exercise, all neensary power and authority to establish, fix, increase, impose and collect rates and charges for the use and services of the System in the amounts required to comply with the covenants and provisions contained herein. Section 7.3. Maintenance of System. So long as any Bonds remain Outstanding, the City covenants that it will at all times maintain the System, or within the limits of its authority cause the same to be maintained, in good condition and working order and will operate the same, or cause the same to be operated, in an efficient and economical manner at a reasonable cost and in accordance with sound business principles. In operating and maintaining the System, the City will comply with all contractual provisions and agreements entered into by it and with all valid rules, regulations, directions or orders of any governmental, administrative or judicial body promulgating same, noncompliance with which would materially and adversely affect the operation of the System. Section 7.4. Sale or Encumbrance of System. So long as any Bonds remain Outstanding, the City covenants that it will not sell, dispose of or, except as permitted in Article VI, further encumber the System; provided, however, that this provision shall not prevent the City from disposing of any portion of the System which is being replaced or is deemed by the City to be obsolete, worn out, surplus or no longer needed for the proper operation of the System. Net proceeds from any such disposition may be deposited in the Revenue Fund and, notwithstanding any other provision contained herein, shall be used only for System purposes. Any agreement pursuant to which the City contracts with a person, corporation, municipal corporation or political subdivision to operate the System or to lease and/or operate all or part of the System shall not be considered as an encumbrance of the System. 24 Section 7.5. Insurance. The City covenants that it will keep the System insured with insurers of good standing against risks, accidents or casualties against which and to the extent customarily insured against by political subdivisions of the State of Texas operating similar properties, to the extent that such insurance is available. All net proceeds of such insurance shall be applied to repair or replace the insured property that is damaged or destroyed, or shall be deposited in the Revenue Fund, or shall be used to redeem Outstanding Bonds. The cost of all such insurance, together with any additional insurance, shall be a part of the Maintenance and Operation Expenses. Section 7.6. Accounts. Records and Audits. So long as any Bonds remain Outstanding, the City covenants that it will maintain a proper and complete system of records and accounts pertaining to the operation of the System in which full, true and proper entries will be made of all dealings, transactions, business and affairs which in any way affect or pertain to the System or the Gross Revenues or the Net Revenues thereof. The City shall after the close of each Fiscal Year prepare financial statements of the System, and have those financial statements audited by an independent certified public accountant or independent firm of certified public accountants. After the audit, the City shall furnish a copy of these audited financial statements, together with the independent certified public accountant's report thereon, without cost, to the Municipal Advisory Council of Texas, the major municipal rating agencies and any Owners of Bonds who shall request the same. All expenses incurred in preparing such audits shall be Maintenance and Operation Expenses. So long as any Series 1996B Bonds are held by the TWDB, the City shall also provide a copy of each of its audited financial statements to the TWDB's Development Fund Manager. Section 7.7. Competition. To the extent it legally may, the City covenants that it will not grant any franchise or permit for the acquisition, construction or operation of any competing facilities which might be used as a substitute for the System and will prohibit the operation of any such competing facilities to the extent that such competing facilities would impair the City's ability to pay principal of or interest on the Bonds. Section 7.8. Pledge and Encumbrance of Net Revenues. The City covenants that it has the lawful power to create a lien on and to pledge the Net Revenues to secure the payment of the Bonds, and has lawfully exercised such power under the Constitution and laws of the State of Texas. The City further covenants that, other than to the payment of the Bonds, the Net Revenues are not and will not be made subject to any other lien, pledge or encumbrance to secure the payment of any debt or obligation of the City, unless such lien, pledge or encumbrance is junior and subordinate to the lien and pledge securing payment of the Bonds. Section 7.9. Covenants with Respect to Certain Assumed Water District Bonds. So long as any Bonds remain Outstanding, the City covenants as follows: (a) To the extent it legally may, the City will impose, and strictly enforce, the requirement upon all water districts located within the City's extraterritorial jurisdiction 25 that any bonds issued by such water districts which are secured in whole or in part by pledges of or liens on water or sewer revenues shall provide that all such pledges of and liens on water or sewer revenues shall automatically terminate upon the annexation and dissolution of the district by the City; (b) The City shall use its best efforts to redeem, refund or defease all annexed water district bonds assumed by the City which by their own terms are secured in whole or in part by pledges of or liens on water or sewer revenues which do not terminate upon annexation and dissolution by the City of such water district, or otherwise to provide for the discharge of such pledges or liens on water or sewer revenues; and (c) Pursuant to Section 43.075, Texas Local Government Code (successor to Article 1182c-1, Vernon's Texas Civil Statutes, as amended), the City shall, unless it has theretofore made adequate provision for the payment thereof, annually levy and cause to be collected taxes upon all taxable property of the City sufficient to pay principal of and interest, as they respectively become due and payable, on all assumed bonds, warrants and other obligations that were issued by water districts that have been annexed to, and dissolved by, the City, and which are by their own terms secured in whole or in part by a lien on or pledge of water or sewer revenues which did not terminate upon the annexation and dissolution by the City of such water district. Section 7.10. Bondholders Rights and Remedies. This Ordinance shall constitute a contract between the City and the Owners of the Series 1996B Bonds from time to time Outstanding and this Ordinance shall be and remain irrepealable until the Series 199613 Bonds and the interest thereon shall be fully paid or discharged or provision therefor shall have been made as provided herein. In the event of a default in the payment of the principal of or interest on any of the Series 1996B Bonds or a default in the performance of any duty or covenant provided by law or in this Ordinance, the Owner or Owners of any of the Series 1996B Bonds may pursue all legal remedies afforded by the Constitution and laws of the State of Texas to compel the City to remedy such default and to prevent further default or defaults. Without in any way limiting the generality of the foregoing, it is expressly provided that any Owner of any of the Series 1996B Bonds may at law or in equity, by suit, action, mandamus, or other proceedings, enforce and compel performance of all duties required to be performed by the City under this Ordinance, including the making and collection of reasonable and sufficient rates and charges for the use and services of the System, the deposit of the revenues thereof into the special funds herein provided, and the application of such revenues in the manner required in this Ordinance. So long as a Bond Insurer shall not be in default in its payment obligations under its Bond Insurance Policy, it shall exclusively have all the rights granted to the Owners of such Series 1996E Bonds in this Ordinance. Section 7.11. Defeasance. The City may defease the provisions of this Ordinance and discharge its obligation to the Owners of any or all of the Series 1996B Bonds to pay principal, interest and redemption premium, if any, thereon in any manner permitted by law, including by depositing with the Paying Agent/Registrar, or if authorized by Texas law with any national or 26 state bank having trust powers and having combined capital and surplus of at least $50 million or with the State Treasurer of the State of Texas either: (i) cash in an amount equal to the principal amount and redemption premium, if any, of such Series 1996B Bonds plus interest thereon to the date of maturity or redemption, or (ii) pursuant to an escrow or trust agreement, cash and/or direct obligations of the United States of America, in principal amounts and maturities and bearing interest at rates sufficient to provide for the timely payment of the principal amount and redemption premium, if any, of such Series 1996B Bonds plus interest thereon to the date of maturity or redemption; provided, however, that if any of such Series 1996B Bonds are to be redeemed prior to their respective dates of maturity, provision shall have been made for giving notice of redemption as provided in this Ordinance. Upon such deposit, such Series 1996B Bonds shall no longer be regarded to be Outstanding or unpaid. Any surplus amounts not required to accomplish such defeasance shall be returned to the City. Payments of principal of and interest on any Series 1996B Bonds made by a Bond Insurer under its Bond Insurance Policy with the City shall not be deemed to have been paid hereunder and such Series 1996B Bonds shall continue to be Outstanding until paid by the City. Section 7.12. Legal Holidays. In any case where the date of maturity of interest on or principal of the Series 1996B Bonds or the date fixed for redemption of any Series 1996B Bonds shall be in the City a legal holiday or a day on which the Paying Agent/Registrar for the Series 1996B Bonds is authorized by law to close, then payment of interest or principal need not be made on such date but may be made on the next succeeding day not in the City a legal holiday or a day on which such Paying Agent Registrar is authorized by law to close with the same force and effect as if made on the date of maturity or the date fixed for redemption and no interest shall accrue for the period from the date of maturity or redemption to the date of actual payment. Section 7.13. Unavailability of Authorized Publication. If, because of the temporary or permanent suspension of any newspaper, journal or other publication, or, for any reason, publication of notice cannot be made meeting any requirements herein established, any notice required to be published by the provisions of this Ordinance shall be given in such other manner and at such time or times as in the judgment of the City or of the Paying Agent/Registrar (or paying agent) for the Series 1996B Bonds shall most effectively approximate such required publication and the giving of such notice in such manner shall for all purposes of this Ordinance be deemed to be in compliance with the requirements for publication thereof. Section 7.14. No Recourse Against City Officials. No recourse shall be had for the payment of principal of or interest on any Series 1996B Bonds or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Series 1996B Bonds. Section 7.15. Amendment to Ordinance. The City may, with the consent of Owners holding a majority in aggregate principal amount of the Bonds then Outstanding affected thereby, amend, add to, or rescind any of the provisions of this Ordinance; provided that, without the consent of all Owners of Outstanding Bonds, no such amendment, addition, or rescission shall 27 (1) extend the time or times of payment of the principal of, premium, if any, and interest on the Bonds, reduce the principal amount thereof, the redemption price therefor, or the rate of interest thereon, or in any other way modify the terms of payment of the principal of, premium, if any, or interest on the Bonds, (2) give any preference to any Bond over any other Bond, or (3) reduce the aggregate principal amount of Bonds required to be held by Owners for consent to any such amendment, addition, or rescission. ARTICLE VIII CONCERNING THE PAYING AGENT/REGISTRAR Section 8. L. Acceptance. Texas Commerce Bank National Association is hereby appointed as the initial Paying Agent/Registrar for the Series 1996B Bonds. Such initial Paying Agent/Registrar and any successor Paying Agent/Registrar, by undertaking the performance of the duties of the Paying Agent/Registrar hereunder, and in consideration of the payment of fees and/or deposits of money pursuant to this Ordinance, shall be deemed to accept and agree to abide by the terms of this Ordinance. Section 8.2. Fiduciary Account. All money transferred to the Paying Agent/Registrar under this Ordinance (except sums representing Paying Agent/Registrar's fees) shall be held in a fiduciary account for the benefit of the City, shall be the property of the City, and shall be disbursed in accordance with this Ordinance. Section 8.3. Bonds Presented. Subject to the provisions of Section 8.4, all matured Series 1996B Bonds presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Series 1996B Bonds shall be canceled as provided herein. Section 8.4. Series 1996B Bonds Not Timely Presented. The Paying Agent/Registrar shall remit to the City, upon receipt of the certificate provided for herein, a sum equal to the aggregate face amount of all Series 1996B Bonds which have not been presented for payment prior to the date specified in such certificate. Such certificate shall: (a) Specify the Series 1996B Bonds or portions thereof to which it applies and the amount of each; (b) Specify the date on which the City believes itself to be no longer obligated to pay such Series 1996B Bonds or portions thereof by virtue of the expiration of the applicable statute of limitations under the laws of the State of Texas; and (c) Be signed by the Mayor and attested by the City Secretary. 28 Funds held by the Paying Agent/Registrar that represent principal of and interest on the Series 1996E Bonds remaining unclaimed by any Registered Owner after the expiration of three years from the date such funds have become due and payable (a) shall be reported and disposed of by the Paying Agent/Registrar in accordance with the provisions of Title 6 of the Texas Property Code, as amended, to the extent such provisions are applicable to such funds, or (b) to the extent such provisions do not apply to the funds, such funds shall be paid by the Paying Agent/Registrar to the City upon receipt by the Paying Agent/Registrar of a written request therefor from the City. The Paying Agent/Registrar shall have no liability to the Owners of the Series 1996B Bonds by virtue of actions taken in compliance with this Section. Section 8.5. Paying Agent/Registrar May Own Series 1996B Bonds. The Paying Agent/Registrar in its individual or any other capacity, may become the owner or pledgee of Series 1996B Bonds with the same rights it would have if it were not the Paying Agent/Registrar. Section 8.6. Successor Paying Agents/Re istrara. The City covenants that all times while any Series 1996B Bonds are Outstanding it will provide a legally qualified bank, trust company, financial institution, or other agency to act as Paying Agent/Registrar for the Series 1996B Bonds. If the Paying Agent/Registrar or its successor for any reason no longer acts as Paying Agent/Registrar hereunder, the City covenants that it will appoint a bank in the same city as the Paying Agent/Registrar initially appointed to perform the duties of Paying Agent/Registrar hereunder. Any successor Paying Agent/Registrar shall be either a national or state banking institution and a corporation organized and doing business under the laws of the United States of America or any state, which is authorized under such laws to exercise trust powers and is subject to supervision or examination by federal or state authority. The City reserves the right to change the Paying Agent/Registrar for the Series 1996B Bonds on not less than sixty (60) days written notice to the Paying Agent/Registrar, as long as any such notice is effective not less than sixty (60) days prior to the next succeeding principal or interest payment date on the Series 1996B Bonds. Promptly upon the appointment of any successor Paying Agent/Registrar, the previous Paying Agent/Registrar shall deliver the Register or a copy thereof to the new Paying Agent/Registrar and the new Paying Agent/Registrar shall notify each Registered Owner, by first-class mail, postage prepaid, of such change and of the address of the new Paying Agent/Registrar. Each Paying Agent/Registrar hereunder, by acting in that capacity, shall be deemed to have agreed to the provisions of this Ordinance. 29 ARTICLE IX PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF SERIES 1996B BONDS Section 9.1. Sale of Series 1996B Bonds. Sale of the Series 1996B Bonds is hereby awarded to the TWDB at a price of par. It is hereby found and declared that the above price and terms of sale of the Series 1996B Bonds are the most advantageous reasonably obtainable by the City. Section 9.2. Approval. Registration and Delivery. The Mayor and the City Secretary are hereby authorized to have control and custody of the Series 1996B Bonds and all necessary records and proceedings pertaining thereto pending their delivery, and the Mayor of the City, the City Secretary of the City, the City Manager of the City and other officers and employees of the City are hereby authorized, directed and instructed to make such certifications and to execute such instruments (including by printed facsimile signature, the Series 1996B Bonds) as may be necessary to accomplish the delivery of the Series 1996B Bonds and to assure the investigation, examination, and approval thereof by the Attorney General of Texas and the registration of the initial Series 1996B Bonds by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Series 1996B Bonds, the Comptroller of Public Accounts of the State of Texas (or a deputy designated in writing to act for him) shall be requested to sign manually the registration certificate prescribed herein to be attached or affixed to each Series 1996B Bond initially delivered and the seal of the Comptroller of Public Accounts of the State of Texas shall be impressed or printed or lithographed thereon. Delivery of the Series 1996B Bonds is subject to the unqualified approving opinion as to the legality of the Series 1996B Bonds of the Attorney General of Texas and of Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, Bond Counsel. Section 9.3. Application of Proceeds of Series 1996E Bonds. The proceeds from the sale of the Series 1996B Bonds shall be deposited to the Construction Fund established pursuant to Section 11.2(b) of this Ordinance and used only for the purposes set forth in Section 3.1 of this Ordinance and to pay all expenses arising in connection with the issuance of the Series 1996B Bonds. Any proceeds of the Series 1996B Bonds remaining after making all such deposits and payments shall be deposited into the Interest and Sinking Fund. Notwithstanding the above and foregoing, immediately following the delivery of the Series 1996B Bonds and prior to the deposit of the proceeds from the sale of such Series 1996B Bonds in the "Special City of Pearland Loan Construction Fund" established at an official depository of the City pursuant to Section 11.2 hereof, such proceeds shall be held in trust and in escrow pursuant to the written escrow agreement described below at an official depository of the City pending written authorization to release said proceeds. A "Special Escrow Deposit Agreement" by and between the City and the official depository, attached hereto as Exhibit D and incorporated herein by reference as a part of this Ordinance for all purposes, is hereby approved as to form and content, and the Mayor and the City Secretary of the City are hereby 30 authorized and directed to execute such Agreement in substantially the same form and content herein approved. Section 9.4. Tax Exemption. The City intends that the interest on the Series 1996B Bonds shall be excludable from gross income of the owners thereof for federal income tax purposes pursuant to Sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended, (the "Code") and all applicable temporary, proposed and final regulations (the "Regulations") and procedures promulgated thereunder and applicable to the Series 1996B Bonds. For this purpose, the City covenants that it will monitor and control the receipt, investment, expenditure and use of all gross proceeds of the Series 1996B Bonds (including all property the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the Series 1996B Bonds) and take or omit to take such other and further actions as may be required by Sections 103 and 141 through 150 of the Code and the Regulations to cause interest on the Series 1996B Bonds to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the Series 1996B Bonds for federal income tax purposes. Without limiting the generality of the foregoing, the City shall comply with each of the following covenants: (a) The City will not directly or indirectly take any action or omit to take any action, which action or omission would cause the Series 1996B Bonds to constitute "private activity bonds" within the meaning of Section 141(a) of the Code. (b) Principal of and interest on the Series 1996B Bonds will be paid solely from Net Revenues collected by the City, investment earnings on such collections, and as available, proceeds of the Series 1996B Bonds. (c) Based upon all facts and estimates now known or reasonably expected to be in existence on the date the Series 1996B Bonds are delivered, the City reasonably expects that the proceeds of the Series 1996B Bonds will not be used in a manner that would cause the Series 1996B Bonds or any portion thereof to be an "arbitrage bond" within the meaning of Section 148 of the Code. (d) At all times while the Series 1996B Bonds are outstanding, the City will identify and properly account for all amounts constituting gross proceeds of the Series 1996B Bonds in accordance with the Regulations. The City will monitor the yield on the investments of the proceeds of the Series 1996B Bonds and, to the extent required by the Code and the Regulations, will restrict the yield on such investments to a yield which is not materially higher than the yield on the Series 1996B Bonds. To the extent necessary to prevent the Series 1996B Bonds from constituting "arbitrage bonds," the City will make such payments as are necessary to cause the yield on all yield restricted nonpurpose investments allocable to the Series 1996B Bonds to be less than the yield that is materially higher than the yield on the Series 1996B Bonds. 31 (e) The City will not take any action or knowingly omit to take any action, if taken or omitted, would cause the Series 1996B Bonds to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code. (f) The City represents that not more than fifty percent (50%) of the proceeds of the Series 1996B Bonds will be invested in nonpurpose investments (as defined in Section 148(t)(b)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably expects that at least eighty-five percent (85 %) of the spendable proceeds of the Series 1996B Bonds will be used to carry out the governmental purpose of the Series 1996B Bonds within the three-year period beginning on the date of issue of the Series 1996B Bonds. (g) 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 Series 1996B Bonds, if any, be rebated to the federal government. Specifically, the City will (i) maintain records regarding the receipt, investment, and expenditure of the gross proceeds of the Series 1996B Bonds as may be required to calculate such excess arbitrage profits separately from records of amounts on deposit in the funds and accounts of the City allocable to other obligations of the City or moneys which do not represent gross proceeds of any obligations of the City and retain such records for at least six years after the day on which the last outstanding Series 1996B Bond is discharged, (ii) account for all gross proceeds under a reasonable, consistently applied method of accounting, not employed as an artifice or device to avoid in whole or in part, the requirements of Section 148 of the Code, including any specified method of accounting required by applicable Regulations to be used for all or a portion of any gross proceeds, (iii) calculate, at such times as are required by applicable Regulations, the amount of excess arbitrage profits, if any, earned from the investment of the gross proceeds of the Series 1996E Bonds and (iv) timely pay, as required by applicable Regulations, all amounts required to be rebated to the federal government. In addition, the City will exercise reasonable diligence to assure that no errors are made in the calculations required by the preceding sentence and, if such an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter, including payment to the federal government of any delinquent amounts owed to it, interest thereon and any penalty. (h) The City will not directly or indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Series 1996B Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in a smaller profit or a larger loss than would have resulted if such arrangement had been at arm's length and had the yield on the Series 1996B Bonds not been relevant to either partY. 32 (i) The City will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Series 1996B Bonds on such form and in such place as the Secretary may prescribe. (j) The City will not issue or use the Series 1996B Bonds as part of an "abusive arbitrage device" (as defined in Section 1.148-10(a) of the Regulations). Without limiting the foregoing, the Series 1996B Bonds are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148.of the Code and the Regulations, by (i) enabling the City to exploit the difference between tax-exempt and taxable interest rates to gain a material financial advantage, or (ii) increasing the burden on the market for tax-exempt obligations. (k) Proper officers of the City charged with the responsibility for issuing the Series 1996B Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Series 1996B Bonds and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the date of issuance of the Series 1996B Bonds, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (1) The covenants and representations made or required by this Section are for the benefit of the Series 1996B Bond holders and any subsequent Series 1996B Bond holder, and may be relied upon by the Series 1996B Bond holders and any subsequent Series 1996B Bond holder and bond counsel to the City. In complying with the foregoing covenants, the City may rely upon an unqualified opinion issued to the City by nationally recognized bond counsel that any action by the City or reliance upon any interpretation of the Code or Regulations contained in such opinion will not cause interest on the Series 1996B Bonds to be includable in gross income for federal income tax purposes under existing law. Notwithstanding any other provision of this Ordinance, the City's representations and obligations under the covenants and provisions of this Section 9.4 shall survive the defeasance and discharge of the Series 1996B Bonds for as long as such matters are relevant to the exclusion of interest on the Series 1996B Bonds from the gross income of the owners for federal income tax purposes. Section 9.5. Oualified Tax -Exempt Obligations. The City hereby designates the Series 1996B Bonds as "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code. With respect to such designation, the City represents the following: (a) that during the calendar year 1996, the City (including all entities which issue obligations on behalf of the City), has not designated nor will designate obligations, which when aggregated with the Series 1996B Bonds, will result in more than $10,000,000 of "qualified tax-exempt obligations" being issued and (b) 33 that the City has examined its financing needs for the calendar year 1996 and reasonably anticipates that the amount of bonds, leases, loans or other obligations, together with the Series 1996B Bonds and any other tax-exempt obligations heretofore issued by the City (plus those of all entities which issue obligations on behalf of the City) during the calendar year 1996, when the higher of the face amount or the issue price of each such tax-exempt obligation issued for the calendar year 1996 by the City is taken into account, will not exceed $10,000,000. Section 9.6. Bond Insurance. In order to obtain the lowest attainable interest rates on the Series 1996B Bonds, the City shall purchase a Bond Insurance Policy issued by the Bond Insurer for the Series 1996B Bonds. In consideration of the issuance of the Bond Insurance Policy, the agreements and covenants of the City in favor of the Bond Insurer substantially in the form set forth in Exhibit A are hereby approved subject to such insertions, additions, and modifications as shall be necessary to satisfy the conditions set forth in the Commitment of the Bond Insurer, dated May 8, 1996, to issue the Bond Insurance Policy. The Mayor is authorized to execute and the City Secretary is authorized to attest and affix the City's seal to any documents required in connection with the purchase of such policy. Section 9.7. Paying Agent/Registrar Agreement. The registration of and payment of the principal of, premium, if any, and interest on the Bonds when due shall be effectuated pursuant to the terms of a Paying Agent/Registrar Agreement to be entered into by and between the City and the Paying Agent/Registrar, which shall be substantially in the form attached hereto as Exhibit B, the terms and provisions of which are hereby approved, and the Mayor and/or the Mayor Pro Tem are hereby authorized to execute and deliver such Paying Agent/Registrar Agreement on behalf of the City in multiple counterparts and the City Secretary is hereby authorized to attest thereto and affix the City's seal. Section 9.R. Related Matters. In order that the City shall satisfy, in a timely manner all of its obligations under the Ordinance, the Mayor, the City Secretary and 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 issuance and delivery of the Series 1996E Bonds, including executing by manual or facsimile signature and delivering on behalf of the City all certificates, consents, receipts, requests, notices, investment agreements and other documents as may be reasonably necessary to satisfy the City's obligations under the Ordinance and to direct the transfer and application of funds of the City consistent with the provisions of such Ordinance. If requested by the Attorney General of Texas or his representatives, the Mayor may authorize such ministerial changes in the written text of this Ordinance as are necessary to obtain the Attorney General's approval and as he determines are consistent with the intent and purposes of this Ordinance, which determination shall be final. 34 ARTICLE X CONTINUING DISCLOSURE UNDERTAKING Section 10.1. Annual Reports. The City shall provide annually to each NRMSIR and any SID, within six months after the end of each fiscal year ending in or after 1996, financial information and operating data with respect to the City of the general type described in Exhibit C hereto. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit C hereto and (2) audited, if the City commissions an audit of such statements and the audit is completed within the period during which they must be provided. If audited financial statements are not so provided, then the City shall provide audited financial statements for the applicable fiscal year to each NRMSIR and any SID, when and if audited financial statements become available but if such audited financial statements are unavailable the City will provide such financial statements on an unaudited basis within the above -described six-month period. If the City changes its fiscal year, it will notify each NRMSIR and any SID of the change (and of the date of the new fiscal year end) prior to the next date by which the City otherwise would be required to provide financial information and operating data pursuant to this Section. The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by specific reference to any document (including an official statement or other offering document, if it is available from the MSRB) that theretofore has been provided to each NRMSIR and any SID or filed with the SEC, or may be provided in any other manner consistent with the Rule. Section 10.2. Material Event Notices. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Series 1996B Bonds, if such event is material within the meaning of the federal securities laws: A. Principal and interest payment delinquencies; B. Non-payment related defaults; C. Unscheduled draws on debt service reserves reflecting financial difficulties; D. Unscheduled draws on credit enhancements reflecting financial difficulties; E. Substitution of credit or liquidity providers, or their failure to perform; F. Adverse tax opinions or events affecting the tax-exempt status of the Series 1996B Bonds; 35 G. Modifications to rights of holders of the Series 1996B Bonds; H. Series 1996B Bond calls; I. Defeasances; J. Release, substitution, or sale of property securing repayment of the Series 1996B Bonds; and K. Rating changes. The City shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any failure by the City to provide financial information or operating data in accordance with Section 10.1 of this Ordinance by the time required by such Section. Section 10.3. Limitations. Disclaimers. and Amendments. The City shall be obligated to observe and perform the covenants specified in this Article for so long as, but only for so long as, the City remains an "obligated person" with respect to the Series 1996B Bonds within the meaning of the Rule, except that the City in any event will give the notice required by Section 10.2 of any Series 1996B Bond calls and defeasance that cause the City to be no longer such an "obligated person." The provisions of this Article are for the sole benefit of the Owners and beneficial owners of the Series 1996B Bonds, and the beneficial owners of the TWDB's bonds if the City is an obligated person with respect to the TWDB's bonds under the Rule, and nothing in this Article, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The City undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the City's financial results, condition, or prospects or hereby undertake to update any information provided in accordance with this Article or otherwise, except as expressly provided herein. The City does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Series 1996B Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY SERIES 1996B BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE CITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. 36 No default by the City in observing or performing its obligations under this Article shall constitute a breach of or default under this Ordinance for purposes of any other provision of this Ordinance. Nothing in this Article is intended or shall act to disclaim, waive or otherwise limit the duties of the City under federal and state securities laws. The provisions of this Article may be amended by the City from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status or type of operations of the City, but only if (1) the provisions of this Article, as so amended, would have permitted an underwriter to purchase or sell Series 1996B Bonds in the primary offering of the Series 1996B Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (2) either (a) the Owners of a majority in aggregate principal amount (or any greater amount required by any other provision of this Ordinance that authorizes such an amendment) of the Outstanding Series 1996B Bonds consent to such amendment or (b) a person or entity that is unaffiliated with the City (such as nationally recognized bond counsel) determines that such amendment will not materially impair the interests of the Owners and beneficial owners of the Series 1996B Bonds. If the City so amends the provisions of this Article, it shall include with any amended financial information or operating data next provided in accordance with Section 10.1 an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. The City may also amend or repeal the provisions of this Article if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, and the City also may amend the provisions of this Article in its discretion in any other manner or circumstance, but in either case only if and to the extent that the provisions of this sentence would not prevent an underwriter from lawfully purchasing or selling Series 1996B Bonds in the primary offering of the Series 1996E Bonds. Section 10.4. Definitions. As used in this Article, the following terms have the meanings ascribed to such terms below: "MSRB" means the Municipal Securities Rulemaking Board. 'NRMSIR" means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. 37 "SID" means any person designated by the State of Texas or an authorized department, officer, or agency thereof as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule from time to time. ARTICLE XI MISCELLANEOUS Section 11 1. Further Proceeding. The Mayor of the City, the City Secretary of the City and other appropriate officials of the City are hereby authorized and directed to do any and all things necessary and/or convenient to carry out the terms of this Ordinance. Section 11.2. Compliance with TWDB Rules and Regulations. In compliance with the rules and regulations of the TWDB, the City agrees and covenants: (a) to keep and maintain full and complete records and accounts pertaining to the construction of the project financed with the proceeds of sale of the Series 1996B Bonds, including the construction fund account created below, in accordance with the standards set forth by the Government Accounting Standard Board; (b) to create and establish at an official depository of the City a "Special City of Pearland Loan Construction Fund (the "Construction Fund") for the receipt and disbursement of the proceeds from the sale of the Series 1996B Bonds (less amounts to pay costs of issuance) and all other funds acquired by the City in connection with the planning and construction of the projects financed, in whole or in part, by the TWDB pursuant to a loan evidenced by the Series 1996B Bonds and all funds deposited to the credit of the Construction Fund shall be disbursed only for the payment of costs and expenses incurred in connection with the planning and building of such projects as approved by the TWDB and as otherwise allowed by the rules; (c) upon completion of the construction of the projects financed, in whole or in part, by the loan evidenced by the Series 1996B Bonds, to provide (i) to the Development Fund Manager of the TWDB a complete set of as -built drawings and (ii) to the TWDB a final accounting of the total costs of the projects. If the projects as finally completed were built at a total cost less than the amount of available funds for building the projects, or if the Development Fund Manager of the TWDB disapproves construction of any portion of such projects as not being in accordance with the plans and specifications, the City agrees to immediately, with filing of the final accounting, return to the TWDB the amount of any such excess and/or the cost determined by the Development Fund Manager of the TWDB relating to the parts of such projects not built in accordance with the plans and specifications, to the nearest multiple of the authorized denominations for the Series 1996B Bonds, upon the surrender and cancellation of a like amount of such Series 1996B Bonds held by the TWDB in inverse order of their Stated 38 Maturities. In determining the amount of available funds for building the project, the City agrees to account for all amounts deposited to the credit of the Construction Fund, including all loan funds extended by the TWDB, all other funds available from the projects as described in the project engineer's or fiscal representative's sufficiency of funds statement and all interest earned by the City on money in the Construction Fund; (d) in addition to the provisions of Section 7.5 hereof, to maintain adequate insurance coverage on the projects financed with the proceeds of the Series 1996B Bonds in amounts adequate to protect the TWDB's interest; (e) maintain current, accurate and complete records and accounts necessary to demonstrate compliance with financial assistance related legal and contractual provisions; (t) to implement any water conservation program required by the TWDB until all financial obligations to the State of Texas have been discharged; (g) to comply with any special conditions specified by the TWDB's environmental determination until all financial obligations to the State of Texas have been discharged; and (h) to abide by the TWDB's rules and relevant state statutes, including the Texas Water Code, Chapters 15, 16 and 17. Section 11.3. Severability. If any Section, paragraph, clause or provision of this Ordinance shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such Section, paragraph, clause or provision shall not affect any of the remaining provisions of this Ordinance. Section 11.4. Open Meeting. It is hereby found, determined and declared that a sufficient written notice of the date, hour, place and subject of the meeting of the City Council at which this Ordinance was adopted was posted at a place convenient and readily accessible at all times to the general public at the City Hall of the City for the time required by law preceding this meeting, as required by the Open Meetings Act, Chapter 551, Texas Government Code, as amended, and that this meeting has been open to the public as required by law at all times during which this Ordinance and the subject matter thereof has been discussed, considered and formally acted upon. The City Council further ratifies, approves and confirms such written notice and the contents and posting thereof. Section 11.5. Declaration of Emergency. It is hereby officially found and determined that a case of emergency affecting life, health, property and the public pear.e exists which requires the holding of the meeting at which this Ordinance is passed and further requires that this Ordinance be passed finally and take effect immediately on the date of its introduction, such 39 emergency and urgent public necessity being that the proceeds from the sale of the Series 1996B Bonds are required as soon as possible and without delay for the purposes set forth herein. Section 11.6. Repealer. All ordinances, or parts thereof inconsistent herewith, are hereby repealed to the extent of such inconsistency. PASSED AND APPROVED THIS Ott day of _� , 1996. ATTEST: City S'ecketary, City of Pearland, Texas (SEAL) Exhibit A Exhibit B Exhibit C Exhibit D 0300881.05 059613/15262 ci„ Mayor, City of Pearland, Texas Covenants and Agreements with Bond Insurer Paying Agent/Registrar Agreement Description of Annual Financial Information Special Escrow Deposit Agreement 40 EXHIBIT A COVENANTS AND AGREEMENTS WITH BOND INSURER The City covenants and agrees with the Bond Insurer as follows: A. The Bond Insurer is a third party beneficiary to this Ordinance. B. No amendment or supplement to this Ordinance may become effective except upon obtaining the prior written consent of the Bond Insurer. C. Copies of any modification or amendment to this Ordinance shall be sent to Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. and Moody's Investors Service, Inc. at least 10 days prior to the effective date thereof. The rights granted to the Bond Insurer under this Ordinance to request, consent to or direct any action are rights granted to the Bond Insurer in consideration of its issuance of the Bond Insurance Policy. Any exercise by the Bond Insurer of such rights is merely an exercise of the Bond Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit or on behalf of the Bondholders nor does such action evidence any position of the Bond Insurer, positive or negative, as to whether Bondholder consent is required in addition to consent of the Bond Insurer. E. Only (1) cash, (2) non -callable direct obligations of the United States of America ("Treasuries") or (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated shall be authorized to be used to affect defeasance of the Bonds unless the Bond Insurer otherwise approves. To accomplish defeasance the City shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Bond Insurer ("Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ("Verification"), (ii) an Escrow Deposit Agreement (which shall be acceptable in form and substance to the Bond Insurer), and (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding" under this Ordinance; each Verification and Defeasance opinion shall be acceptable in form and substance, and addressed, to the City, the Paying Agent and the Bond Insurer. In the event a forward purchase agreement will be employed in the refunding, such agreement shall be subject to the approval of the Bond Insurer and shall be accompanied by such opinions of counsel as may be required by the Bond Insurer. The Bond Insurer shall be provided with final drafts of the above -referenced documentation not less than five business days prior to the funding of the escrow A-1 F. If, on the business day prior to the related scheduled interest payment date or principal payment date or the date to which Bond maturity has been accelerated ("Payment Date") there is not on deposit with the Paying Agent, after making all transfers and deposits required under this Ordinance, moneys sufficient to pay the principal and interest on the Bonds due on such Payment Date, the Paying Agent shall make a claim under the Bond Insurance Policy and shall give notice to the Bond Insurer and to its designated agent (if any) (the "Insurer's Fiscal Agent") by telephone or telecopy of the amount of such deficiency and the allocation of such deficiency between the amount required to pay interest on the Bonds and the amount required to pay principal of the Bonds, confirmed in writing to the Bond Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time, on such Business Day by filling in the form of Notice of Claim and Certificate delivered with the Bond Insurance Policy. In the event the claim to be made is for a mandatory sinking fund redemption installment, upon receipt of the moneys due, the Paying Agent shall authenticate and deliver to affected Bondholders who surrender their Bonds a new Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered. The Paying Agent shall designate any portion of payment of principal on Bonds paid by the Bond Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Bonds registered to the then current Bondholder, whether DTC or its nominee or otherwise, and shall issue a replacement Bond to the Bond Insurer, registered in the name of Financial Security Assurance Inc., in a principal amount equal to the amount of principal paid (without regard to authorized denomination); provided that the Paying Agent's failure to so designate any payment or issue any replacement Bond shall have no effect on the amount of principal or interest payable by the City on any Bond or the subrogation rights of the Bond Insurer. The Paying Agent shall keep a complete and accurate record of all funds deposited by the Bond Insurer into the Policy Payments Account and the allocation of such funds to payment of interest on and principal paid in respect of any Bond. The Bond Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Paying Agent. Upon payment of a claim under the Bond Insurance Policy the Paying Agent shall establish a separate special purpose trust account for the benefit of Bondholders referred to herein as the "Policy Payments Account" and over which the Paying Agent shall have exclusive control and sole right of withdrawal. The Paying Agent shall receive any amount paid under the Bond Insurance Policy in trust on behalf of Bondholders and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Paying Agent to Bondholders in the same manner as principal and interest payments are to be made with respect to the Bonds under the sections hereof regarding payment of Bonds. It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. A-2 Funds held in the Policy Payments Account shall not be invested by the Paying Agent and may not be applied to satisfy any costs, expenses or liabilities of the Paying Agent. Any funds remaining in the Policy Payments Account following a Bond payment date shall promptly be remitted to the Bond Insurer. G. The Bond Insurer shall, to the extent it makes any payment of principal or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy. H. The City agrees to pay or reimburse the Bond Insurer any and all charges, fees, costs and expenses which the Bond Insurer may reasonably pay or incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in respect of this Ordinance, (ii) the pursuit of any remedies under this Ordinance or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, this Ordinance whether or not executed or completed, (iv) the violation by the City of any law, rule or regulation, or any judgment, order or decree applicable to it or (v) any litigation or other dispute in connection with this Ordinance or the transactions contemplated thereby, other than amounts resulting from the failure of the Bond Insurer to honor its obligations under the Bond Insurance Policy. The Bond Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of this Ordinance. Payments required to be made to the Bond Insurer shall be payable solely from the Trust Estate and shall be paid (i) prior to an event of default, to the extent not paid from the Interest and Sinldng Fund, after required deposits to the Reserve Fund (i.e. Fourth in Section 5.4) and (ii) after an event of default, with respect to amounts other than principal and interest on the Bonds, on the same priority as payments for expenses in enforcing this Ordinance. The obligations to the Bond Insurer shall survive discharge or termination of this Ordinance. J. The Bond Insurer shall be entitled to pay principal or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the City (as such terms are defined in the Bond Insurance Policy) and any amounts due on the Bonds as a result of acceleration of the maturity thereof in accordance with this Ordinance, whether or not the Bond Insurer has received a Notice (as defined in the Bond Insurance Policy) of Nonpayment or a claim upon the Bond Insurance Policy. K. The notice address of the Bond Insurer is: Financial Security Assurance Inc., 350 Park Avenue, New York, New York 10022-6022, Attention: Managing Director —Surveillance -Re: Policy No. 21221-N; Telephone: (212) 826-0100; Telecopier: (212) 339-2529. In each case in which notice or other communication refers to an Event of Default then a copy of such notice or other communication shall also be sent to the attention of General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." A-3 L. The Bond Insurer shall be provided with the following information: (i) annual audited financial statements within 120 days after the end of the City's fiscal year and the City's annual budget within 30 days after the approval thereof; (ii) notice of any draw upon the Reserve Fund within two Business Days after knowledge thereof other than (i) withdrawals of amounts in excess of the Reserve Requirement and (ii) withdrawals in connection with a refunding of Bonds; (iii) notice of any default within five Business Days after knowledge thereof; (iv) prior notice of the advance refunding or redemption of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof; (v) notice of the resignation or removal of the Paying Agent and the appointment of, and acceptance of duties by, any successor thereto; (vi) the commencement of any proceeding by or against the City commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"); (vii) the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Bonds; (viii) a full original transcript of all proceedings relating to the execution of any amendment or supplement to this Ordinance; and (ix) all reports, notices and correspondence to be delivered under the terms of this Ordinance. M. Investments purchased with funds on deposit in the Reserve Fund shall have an average aggregate weighted term to maturity not greater than ten years. 0300881.05 059610/1508 A-4 EXHIBIT B PAYING AGENT/REGISTRAR AGREEMENT SEE TAB NUMBER 6 B-1 EXHIBIT C DESCRIPTION OF ANNUAL FINANCIAL INFORMATION Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with Section 10 of this Ordinance are as specified below. 1. The City's audited financial statements for the most recently concluded fiscal year and, to the extent that such statements are not completed and available, unaudited financial statements for such fiscal year. 2. The financial information and operating data set out in Appendix A and Appendix C and paragraphs (6), (8), (10), (12) and (13) of the section entitled "FISCAL INFORMATION" of the City's Application to the Texas Water Development Board. Accounting Principles The accounting principles referred to in such section are the accounting principles described in the notes to the financial statements referred to in paragraph 1 above. 0300881.05 059620/1530 C-1 EXHIBIT D SPECIAL ESCROW DEPOSIT AGREEMENT SEE TAB NUMBER 5 D-1