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Ord. 1415 2010-03-22CERTIFICATE FOR ORDINANCE THE STATE OF TEXAS COUNTIES OF BRAZORIA AND HARRIS CITY OF PEARLAND We, the undersigned officers of the City of Pearland, Texas (the "City hereby certify as follows: 1. The City Council of the City convened in a regular meeting on March 22, 2010, at the regular meeting place thereof, within the City, and the roll was called of the duly constituted officers and members of the City Council, to wit: Tom Reid Felicia Kyle Woodrow "Woody" Owens Steve Saboe Kevin Cole Scott Sherman Mayor Mayor Pro Tern Council Member Council Member Council Member Council Member and all of such persons were present, thus constituting a quorum. Whereupon, among other business, the following was transacted at said meeting: a written ORDINANCE AUTHORIZING ISSUANCE OF CITY OF PEARLAND, TEXAS, WATER AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 201OB; PRESCRIBING THE TERMS AND CONDITIONS THEREOF; PROVIDING FOR THE PAYMENT THEREOF; AWARDING THE SALE THEREOF; AUTHORIZING DEFEASANCE, FINAL PAYMENT AND DISCHARGE OF CERTAIN OUTSTANDING BONDS, AUTHORIZING THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT TO PROVIDE FOR THE PAYMENT OF SUCH BONDS; AUTHORIZING THE ENGAGEMENT OF AN ESCROW AGENT; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE BONDS; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH BONDS AND MATTERS INCIDENT THERETO; AUTHORIZING EXECUTION AND DELIVERY OF A PAYING AGENT/REGISTRAR AGREEMENT; CONTAINING OTHER MATTERS RELATED THERETO; AND DECLARING AN EMERGENCY (the "Ordinance was duly introduced for the consideration of the City Council and read in full. It was then duly moved and seconded that the Ordinance be adopted on first reading; arid, after due discussion, such motion, carrying with it the adoption of the Ordinance, prevailed and carried by the following vote: AYES:5 NAYS:0 ABSTENTIONS:O K HOU:3002985.5 2. That utrue, full and correct copy of the Ordinance adopted at the meeting described iu the above and foregoing paragraph iy attached |o and follows this certificate; that the Ordinance has been duly recorded in the C ity Council's minutes of such nzecdog; that the above and foregoing paragraph is u true, full and correct excerpt from the City Council's ooiuu(ea of such cueCtio� pertaining to the adoption of the Ordinance; that the persons named in the above and foregoing paragraph urcib�du|yobosco, qualified and and members of the City Council as indicated therein; that each of the officers and oucn)bera of the City Council was duly and au[UcimuUy notified officially and personally, in advance, of the date, hour place and subject of the aforesaid onccbng, and that the Ordinance vvnu/d be introduced and considered for adoption at such meeting, and each of such officers and rncruhers cuusco|od, in advance, to the holding of such meeting for such purpose; that such meeting was open to the public as required by |uvv; and that public notice of the date, hour, place and subject of such nuccduA was �ivcn as required by the Open Meetings Law, Chapter 55|, Texas Government Code. SIGNED AND SEALED this March 22,2Ol0. W 1 r.40, r,"WAW e W CIT2 PEARLAND, TEXAS Mayor CITY OF PEARLAND, TEXAS V=1 4 CITY OF PEARLAND, TEXAS WATER AND SEWER SYSTEM REVENUE REFUNDING BONDS SERIES 2010E ORDINANCE NO. 1415 HOU:3002985.5 TABLE OF CONTENTS Page ARTICLE I FINDINGS AND DETERMINATIONS I Section 1.1. Findings and Determinations I ARTICLE 11 DEFINITIONS AND INTERPRETATIONS ..............................2 Section2.1. Definitions 2 Section2.2. Interpretations 6 ARTICLE III TERMS OF THE SERIES 2010B BONDS ..............................6 Section 3.1. Name, Amount, Purpose, Authorization ..............................6 Section 3.2. Numbers, Date and Denomination 6 Section 3.3. Interest Payment Dates, Interest Rates and Maturities ..............................7 Section 3.4. Redemption Prior to Maturity 7 Section 3.5. Manner of Payment, Characteristics, Execution and Authentication ..................8 Section 3.6. Approval by Attorney General; Registration by Comptroller .............................8 Section3.7. Authentication 9 Section 3.8. Special Record Date 9 Section3.9. Ownership 9 Section 3.10. Book-Entry Only System 9 Section 3.11. Payments and Notices to Cede Co 10 Section 3.12. Successor Securities Depository; Transfer Outside Book-Entry Only System............................................................................................................... 10 Section 3.13. Registration, Transfer, and Exchange I I Section 3.14. Cancellation of Series 2010B Bonds I I Section 3.15. Mutilated, Lost, or Stolen Series 2010B Bonds .............................12 ARTICLE IV FORM OF SERIES 2010B BONDS AND CERTIFICATES .............................13 Section4.1. Forms 13 Section 4.2. Legal Opinion, CUSIP Numbers 13 ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR THE BONDS .........................13 Section 5. Pledge and Source of Payment 13 Section5.2. Rates and Charges 13 Section5.3. Special Funds 14 Section5.4. Flow of Funds 14 Section 5.5. Interest and Sinking Fund 15 Section5.6. Reserve Fund 15 Section 5.7. Deficiencies in Funds 16 Section 5.8. Investment of Funds; Transfer of Investment Income .............................17 Section 5.9. Security for Uninvested Funds 17 ARTICLE VI ADDITIONAL BONDS 17 Section 6.1. Additional Bonds 17 Section 6.2. Subordinate Lien Obligations 19 Section 6.3. Special Project Bonds 19 ARTICLE VII COVENANTS AND PROVISIONS RELATING TO BONDS ...........................19 Section 7.1. Punctual Payment of Bonds 19 I HOU:3002985.5 Section 7.2. Power 10 Own and Operate S Power l9 Section 7.3. Maintenance o{ System 19 Section 7.4. Sale or Encumbrance oF System 2U Section7.5. Insurance 2O Section 7.6. Accounts, Records and Audits 2U Section 7.7. Competition -------------------------------.--.7U Successor ---------------------..24 Section 7.8. Pledge and Encumbrance o[ Net Revenues 2l Section 7.9. Covenants with Respect k) Certain Assumed Water District Bonds 2l Section 7.l[i Registered (lnnzeru` and Remedies -----------------.—.2l 25 Section7.11. l]cfeuuaocc 22 Section7.12. Legal Holidays 22 Section 7.13. Unavailability n[ Authorized Publication 23 Section 7.14. No Recourse Against C' Officials 23 Section 9.6. Escrow Agreement .------------------------------3O Section 9.7. ARTICLE VIII CONCERNING THE PAYING AGENT/REGISTRAR 23 Section 8.[ Acceptance ----------------------------------..T] Section 8.2. Fiduciary Account 23 Section8.3. Bonds Presented 24 Section 8.4. Series 2Al0B Bonds Not Timely Presented 74 Section 8.5. May Own Series 2OlOB Bonds 24 Section 8.6. Successor ---------------------..24 ARTICLE IX PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS (]F SERIES 2VlOB Bonds 25 Section g.). Sale o[ Series 2OlAB Bonds: Insurance 25 Section 9.2. Approval, Registration and Delivery ---------------------..25 Section 9.3. Offering Documents; Ratings -------------------------.26 Section 9.4. Application o[ Proceeds of Series 2Ol0B Bonds 26 Section 9.5. Ius Exemption --------------------------------..27 Section 9.6. Escrow Agreement .------------------------------3O Section 9.7. Redemption Prior to Maturity of Refunded Bonds. I0 maximize the City's present value savings, k» restructure the annual debt service requirements o{ the City im order to create more level annual debt service zcquizemcoiu and to ouioionizc the City's onoLu of refunding, the City hereby authorizes and directs that the Refunded Obligations be called for redemption prior to routucih/ (or, if applicable, cxorovvcd to their respective maturities) in the uo)ouu|u at the dates and at the redemption prices set forth io Exhibit l attached hereto, and the Mayor ix hereby authorized and directed t0 take all necessary and appropriate action to give or cause tohc given u notice of redemption and/or 8 notice ofdcfeuuuocek/ the holders or paying agent/ registrars, ua appropriate, O[such bonds, and, i[ required, to publish such notices, all in the manner required by the documents authorizing the issuance of suchRefunded Bonds 3O 11 ARTICLE X CONTINUING DISCLOSURE UNDERTAKING .............................31 Section 10.1. Annual Reports 31 Section 10.2. Material Event Notices 31 Section 10.3. Limitations, Disclaimers, and Amendments .............................32 Section10.4. Definitions 33 ARTICLE XI MISCELLANEOUS 33 Section11. 1. Related Matters 33 Section 11.2. Severability 34 Section11.3. Open Meeting 34 Section 11.4. Governing Law 34 Section11.5. Repealer 34 Section11.6. Emergency 34 Section11.7. Effective Date 34 iii HOU:3002985.5 CITY OF PEARLAND ORDINANCE NO. 1415 ORDINANCE AUTHORIZING ISSUANCE OF CITY OF PEARLAND, TEXAS, WATER AND SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 201013; PRESCRIBING THE TERMS AND CONDITIONS THEREOF; PROVIDING FOR THE PAYMENT THEREOF; AWARDING THE SALE THEREOF; AUTHORIZING DEFEASANCE, FINAL PAYMENT AND DISCHARGE OF CERTAIN OUTSTANDING BONDS, AUTHORIZING THE EXECUTION AND DELIVERY OF AN ESCROW AGREEMENT TO PROVIDE FOR THE PAYMENT OF SUCH BONDS; AUTHORIZING THE ENGAGEMENT OF AN ESCROW AGENT; AUTHORIZING THE PREPARATION AND DISTRIBUTION OF AN OFFICIAL STATEMENT TO BE USED IN CONNECTION WITH THE SALE OF THE BONDS; AUTHORIZING THE PURCHASE OF BOND INSURANCE; MAKING OTHER PROVISIONS REGARDING SUCH BONDS AND MATTERS INCIDENT THERETO; AUTHORIZING EXECUTION AND DELIVERY OF A PAYING AGENT /REGISTRAR AGREEMENT; CONTAINING OTHER MATTERS RELATED THERETO; AND DECLARING AN EMERGENCY BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: ARTICLE I FINDINGS AND DETERMINATIONS that: Section 1.1. Findings and Determinations It is hereby officially found and determined (a) The City of Pearland, Texas (the "City acting through its City Council, is authorized by Section 3.07 of its Home Rule Charter and the Constitution and laws of the State of Texas, particularly Chapter 1207 of the Texas Government Code, as amended, to issue bonds for the purpose of refunding of certain of the City's outstanding obligations as further described in Exhibit I hereto (the "Refunded Bonds (b) The City desires to refund the Refunded Bonds in advance of their maturities which will benefit the City by providing the City a net present value savings and restructuring the annual debt service requirements of the City thereby creating more level annual debt service requirements. (c) The City is authorized by Chapter 1207, Texas Government Code, as amended, to accomplish such refunding by depositing directly with any place of payment for the Refunded Bonds proceeds from the sale of the refunding bonds authorized herein, together with any other legally available funds, which may be invested in direct noncallable obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, which shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide 140U;3002985.5 for the scheduled payment of the Refunded Bonds, and such deposit shall constitute the making of firm banking and financial arrangements for the discharge and final payment of the Refunded Bonds. (d) The City desires to enter into an escrow agreement (the "Escrow Agreement") with Bank of New York Mellon Trust Company, N.A., Dallas, Texas, as escrow agent, as authorized in Chapter 1207, Texas Government Code, as amended, pursuant to which a portion of the proceeds of the refunding bonds herein authorized, and other legally available funds of the City, if any, will be deposited, invested and applied in a manner independently certified and verified to be sufficient to provide for the full and timely payment of all principal of, premium, if any, and interest on the Refunded Bonds. (e) The City desires to authorize the purchase of certain direct obligations of the United States of America with a portion of the proceeds of the refunding bonds herein authorized for deposit into such Escrow Fund (as defined herein). (f) Upon the issuance of the refunding bonds herein authorized and the creation of the escrow referred to above, the Refunded Bonds shall no longer be regarded as being outstanding, except for the purpose of being paid pursuant to such Escrow Agreement and the pledges, liens, trusts and all other covenants, provisions, terms and conditions of the ordinances and resolutions authorizing the issuance of the Refunded Bonds shall be, with respect to the Refunded Bonds, discharged, terminated and defeased. (g) The conditions precedent to the issuance of additional bonds which are contained in the ordinances authorizing the issuance of the Previously Issued Bonds and the Series 2010B Bonds (both hereinafter defined) have been met, and the City is authorized to issue the revenue bonds and make the pledges and covenants set forth herein. (h) The City Council is of the opinion and hereby affirmatively finds that it is in the best interest of the City to issue bonds in the amounts and for the purposes herein stated. ARTICLE 11 DEFINITIONS AND INTERPRETATIONS Section 2.1. Definitions. In this Ordinance, the following terms shall have the following meanings, unless the context clearly indicates otherwise: "Act" shall mean Chapter 1207, Texas Government Code, as amended. "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 2010B Bonds (and the issuance of the City's Water and Sewer System Revenue Bonds, Series 2010A which are being issued concurrently with the Series 2010B Bonds), the Average Annual Principal and N HOU:3002985.5 Interest Requirements are hereby determined to be $7,514,633.00 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 Insurer" shall mean Assured Guaranty Municipal Corporation. "Bonds" shall mean any or all of the Previously Issued Bonds, the Series 2010B 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. "Business Day" shall mean any day other than (1) a Saturday or a Sunday, (2) a legal holiday or the equivalent on which banking institutions generally are authorized or required to close in New York, New York or Houston, Texas or any other city in which is located the principal corporate trust office of the Paying Agent/Registrar or (3) a day on which the New York Stock Exchange is closed in whole or in part. "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. "City Council" shall mean the governing body of the City. "Code" shall mean the Internal Revenue Code of 1986, as amended. "DTC" shall mean The Depository Trust Company of New York, New York, or any successor securities depository. "DTC Participant" shall mean brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securities to facilitate the clearance and settlement of securities transactions among DTC Participants. "Escrow Agent" shall mean Bank of New York Mellon Trust Company, N.A., Dallas, Texas, and its successors in that capacity. "Escrow Agreement" shall mean the agreement between the City and the Escrow Agent relating to the escrow of funds and securities to pay the Refunded Bonds. "Escrow Fund" shall mean the fund created in Section 3.1 of the Escrow Agreement to be administered by the Escrow Agent pursuant to the provisions of the Escrow Agreement. "Fiscal Year" shall mean the City's fiscal year, which currently runs from October I 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 and the Reserve Fund (each hereinafter defined in Article V hereof); and any other revenues hereafter pledged to the payment 3 HOU:3002985.5 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. when used in connection with any Series 2010B Bond, shall mean September I or March I of each year as applicable commencing September 1, 2010. "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 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 title 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 specified percentage or proportion in aggregate principal amount of all Bonds or the Bonds of such class or series then Outstanding. 4 HOU:3002985.5 "Paying AgentlRegistrar" shall mean Wells Fargo Bank, N.A., Houston, Texas, and its successors in that capacity. "Previously Issued Bonds" shall mean the Outstanding City of Pearland, Texas Water and Sewer System Adjustable Rate Revenue Bonds, Series 1996B, City of Pearland, Texas, Water and Sewer System Adjustable Rate Revenue Bonds, Series 1999, City of Pearland, Texas, Water and Sewer System Revenue Bonds, Series 2001, City of Pearland, Texas, Water and Sewer System Revenue Bonds, Series 2003, the City of Pearland, Texas, Water and Sewer System Revenue and Refunding Bonds, Series 2006, the City of Pearland, Texas, Water and Sewer System Revenue Bonds, Series 2007 and the City of Pearland, Texas, Water and Sewer System Revenue Bonds, Series 2008, and the City of Pearland, Texas, Water and Sewer System Revenue Bonds, Series 2009. "Purchaser" shall mean the underwriting syndicate comprised of First Southwest Company, Wells Fargo Brokerage Services, LLC and BOSC, Inc. "Record Date" shall mean, with respect to any Interest Payment Date, the fifteenth day of the month, whether or not a Business Day, next preceding each Interest Payment Date. "Refunded Bonds" shall mean those bonds described in Exhibit I attached hereto, which are being refunded and defeased with the proceeds of the Series 2010E Bonds and other legally available funds of the City, if any. "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 2010B Bonds. "Report" shall mean the report of Grant Thornton LLP, certified public accountants verifying the accuracy of certain mathematical computations relating to the Series 2010B Bonds and the advance refunding of the Refunded Bonds. "Series 2010E Bonds" shall mean the City of Pearland, Texas, Water and Sewer System Revenue Refunding Bonds, Series 2010B, authorized by 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. 5 HOU:3002985.5 "Surety Policy" shall mean and include a surety bond, bond insurance policy or other credit agreement, as authorized by Section 1502.064, Texas Government Code, provided that the issuer of any Surety Policy shall be rated in the highest rating category at the time of issuance of such Surety Policy by A.M. Best Company, Standard Poor's Ratings Group, or Moody's Investors Service. A Surety Policy shall insure all Bonds and Additional Bonds on a pro rata basis. A Surety Policy may include a letter of credit or other agreement or instrument, including any related reimbursement or financial guaranty agreement, whereby the issuer is obligated to provide funds up to and including the maximum amount and under the conditions specified in such agreement or instrument. "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. Section 2.2. Interpretations. All terms defined herein and all pronouns used in this Ordinance shall be deemed to apply equally to singular and plural and to all genders. The titles and headings of the articles and sections of this Ordinance 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 2010B BONDS Section 3.1. Name, Amount, Purpose, Authorization. (a) The City of Pearland, Texas Water and Sewer System Revenue Refunding Bonds, Series 2010B shall be issued in fully registered form, without coupons, in the aggregate principal amount of EIGHT MILLION NINE HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS ($8,970,000) for the purpose of advance refunding the Refunded Bonds payment of expenses of issuance of the Series 2010B Bonds, all under and pursuant to the authority of the Act and all other applicable law. (b) It is hereby found and determined that the refunding of the Refunded Bonds and the issuance of the Bonds will benefit the City by reducing total net present value debt service, and that such benefit is sufficient consideration for the issuance of the Bonds and the issuance of the Bonds is in the best interests of the City. Section 3.2. Numbers, Date and Denomination. The Series 2010B Bonds shall be initially issued bearing the numbers, in the principal amounts and bearing interest at the rates set forth in Section 3.3 hereof. The Series 2010B Bonds shall be dated as of April 1, 2010, and shall be issued in denominations of $5,000 of principal amount or any integral multiple thereof. 6 HOU:3002985.5 Section 3.3. Interest Payment Dates, Interest Rates and Maturities. The Series 2010B Bonds shall bear interest from the later of the April 1, 2010, 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 September I and March I of each year, commencing September 1, 2010, until maturity or prior redemption. The Series 2010B 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 this Ordinance: Bond Maturity Principal Interest Number (09/01) Amount Rate R-1 2011 $75,000 2.000 R-2 2012 330,000 1.750 R-3 2013 340,000 1.750 R-4 2014 350,000 2.000 R-5 2015 355,000 2.000 R-6 2016 370,000 2.500 R-7 2017 385,000 3.000 R-8 2018 405,000 3.125 R-9 2019 425,000 3.250 R-10 2020 445,000 3.500 R-11 2021 1,750,000 4.000 R-12 2022 1,830,000 4.000 R -13 2023 1,910,000 4.000 Section 3.4. Redemption Prior to Maturity. (a) The City reserves the right, at its option, to redeem prior to maturity Series 2010B Bonds maturing on or after September 1, 2020, in whole or in part, in principal installments of $5,000 or any integral multiple thereof, on September 1, 2019, or any date thereafter, at a price equal to the principal amount of the Series 2010B Bonds or portions thereof called for redemption plus accrued interest to the date of redemption. (b) Series 2010B Bonds may be redeemed only in integral multiples of $5,000 of principal amount. If a Series 2010B Bond subject to redemption is in a denomination larger than $5,000, a portion of such Series 2010B Bond may be redeemed, but only in integral multiples of $5,000. In selecting portions of Series 2010B Bonds for redemption, the Registrar shall treat each Series 2010B Bond as representing that number of Series 2010B Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Series 2010B Bond by $5,000. Upon surrender of any Series 2010B Bond for redemption in part, the Registrar, in accordance with Section 3.11 hereof, shall authenticate and deliver in exchange therefor a Series 2010B Bond or Bonds of like maturity and interest rate in an aggregate principal amount equal to the unredeemed portion of the Series 2010B Bond so surrendered. N HOU3002985.5 (c) Not less than thirty (30) days prior to a redemption date for the Series 2010B Bonds, a notice of redemption will be sent by U.S. mail, first class postage prepaid, in the name of the City to each Owner of a Series 2010B Bond to be redeemed in whole or in part at the address of such Owner appearing on the Register at the close of business on the Business Day next preceding the date of mailing. Such notices shall state the redemption date, the redemption price, the place at which Series 2010B Bonds are to be surrendered for payment and, if less than all Series 2010B Bonds outstanding are to be redeemed, the numbers of Series 2010B Bonds or portions thereof to be redeemed. Any notice of redemption so mailed as provided in this Section will be conclusively presumed to have been duly given, whether or not the Owner receives such notice. By the date fixed for redemption, due provision shall be made with the Registrar for payment of the redemption price of the Series 2010B Bonds or portions thereof to be redeemed. When Series 2010E Bonds have been called for redemption in whole or in part and notice of redemption has been given as herein provided, the Series 201.0E Bonds or portions thereof so redeemed shall no longer be regarded to be outstanding, except for the purpose of receiving payment solely from the funds so provided for redemption, and interest which would otherwise accrue or compound after the redemption date on any Series 2010B Bond or portion thereof called for redemption shall terminate on the date fixed for redemption. Section 3.5. Manner of Payment, Characteristics, Execution and Authentication. The Paying Agent/Registrar shall be the paying agent for the Series 2010B Bonds. The Series 2010B Bonds shall be payable, shall have the characteristics, shall be signed and executed, shall be sealed, and shall be authenticated, all as provided Form of Bond included as Exhibit A to this Ordinance. The Series 2010B Bonds initially delivered shall also have attached or affixed to each such Series 2010B Bond the registration certificate of the Comptroller of Public Accounts of the State of Texas. The Series 2010B Bonds shall be signed on behalf of the City by the Mayor and countersigned by the City Secretary by their manual, lithographed, or facsimile signatures thereon. Such facsimile signature on the Series 2010B Bonds shall have the same effect as if each of the Series 2010E Bonds had been signed manually and in person by each of said officials. If any officer of the City whose manual or facsimile signature shall appear on the Series 2010B Bonds, as provided in the Form of Bond included as Exhibit A hereto, shall cease to be such officer before the authentication of the Series 2010B Bonds or before the delivery of the Series 2010B Bonds, such manual or facsimile signature shall nevertheless be valid and sufficient for all purposes as if such officer had remained in such office. The approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, may be printed on the Series 2010B Bonds over the certification of the City Secretary, which may be executed in facsimile. CUSIP numbers also may be printed on the Series 2010B Bonds, but errors or omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Bonds. Section 3.6. Approval by Attorney General; Registration by Comptroller. The Initial Series 2010B Bond shall be delivered to the Attorney General of the State of Texas for examination and approval and shall be registered by the Comptroller of Public Accounts of the M HOU:3002985.5 State of Texas. The manually executed registration certificate of such Comptroller substantially in the form provided in Exhibit A of this Ordinance shall be affixed or attached to the Initial Series 2010B Bonds. Section 3.7. Authentication. Except for the Series 2010B Bonds to be initially issued, which need not be authenticated, only such Series 2010B Bonds as shall bear thereon a certificate of authentication substantially in the form provided in Exhibit A of this Ordinance, manually executed by an authorized representative of the Paying Agent/Registrar, shall be entitled to the benefits of this Ordinance or shall be valid or obligatory for any purpose. Such duly executed certificate of authentication shall be conclusive evidence that the Series 2010B Bond so authenticated was delivered by the Paying Agent/Registrar hereunder. Section 3.8. Special Record Date. If interest on any Series 2010B Bond is not paid on any Interest Payment Date and continues unpaid for 30 days thereafter, the Paying Agent/Registrar shall establish a new record date for the payment of such interest, to be known as a "Special Record Date." The Paying Agent/Registrar shall establish a Special Record Date when funds to make such interest payment are received from or on behalf of the City. Such Special Record Date shall be fifteen (15) days prior to the date fixed for payment of such past due interest, and notice of the date of payment and the Special Record Date shall be sent by United States mail, first class, postage prepaid, not later than five (5) days prior to the Special Record Date, to each Registered Owner of an affected Series 2010B Bond as of the close of business on the day prior to the mailing of such notice. Section 3.9. Ownership. Subject to the further provisions of this Section, the City, the Paying Agent/Registrar, and any other person may treat the person in whose name any Series 2010B Bond is registered on the Register as the absolute Owner of such Series 2010B Bond for the purpose of making and receiving payment of the principal of or interest on such Series 2010B Bond, and for all other purposes, whether or not such Series 2010B 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 2010B Bond in accordance with this Section 3.9 shall be valid and effectual and shall discharge the liability of the City and the Paying Agent/Registrar upon such Series 2010B Bond to the extent of the sums paid. Section 3.10. Book-Entry Only System. The definitive Series 2010B Bonds shall be initially issued in the form of a separate single fully registered Series 2010B Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Series 2010B Bond shall be registered in the name of Cede Co., as nominee of DTC, and except as provided in Section 3.12 hereof, all of the Outstanding Bonds shall be registered in the name of Cede Co., as nominee of DTC. Upon delivery by DTC to the Paying Agent/Registrar of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede Co., and subject to the provisions in this Ordinance with respect to interest checks being mailed to the Owner at the close of business on the Record Date, the word "Cede Co." in this Ordinance shall refer to such new nominee of DTC. With respect to Series 20 1 OB Bonds registered in the name of Cede Co., as nominee of DTC, the City and the Paying Agent/Registrar shall have no responsibility or obligation to any M HOU:3002985.5 DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest in the Series 2010B Bonds. Without limiting the immediately preceding sentence, the City and the Paying Agent/Registrar shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Cede Co. or any DTC Participant with respect to any ownership interest in the Series 2010B Bonds, (b) the delivery to any DTC Participant or any other person, other than a Registered Owner of a Series 2010B Bond, as shown on the Register, of any notice with respect to the Series 2010B Bonds, including any notice of redemption or (c) the payment to any DTC Participant or any other person, other than a Registered Owner of a Series 2010B Bond as shown in the Register, of any amount with respect to principal of Series 2010B Bonds, premium, if any, or interest on the Series 2010B Bonds. Except as provided in Section 3.11 of this Ordinance, the City and the Paying Agent/Registrar shall be entitled to treat and consider the person in whose name each Series 2010B Bond is registered in the Register as the absolute owner of such Series 2010B Bond for the purpose of payment of principal of, premium, if any, and interest on Series 2010B Bonds, for the purpose of giving notices of redemption and other matters with respect to such Series 2010B Bond, for the purpose of registering transfer with respect to such Series 2010B Bond, and for all other purposes whatsoever. The Paying Agent/Registrar shall pay all principal of Series 2010B Bonds, premium, if any, and interest on the Series 2010B Bonds only to or upon the order of the respective owners, as shown in the Register as provided in this Ordinance, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to payment of principal of, premium, if any, and interest on the Series 2010B Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Series 2010B Bond evidencing the obligation of the City to make payments of amounts due pursuant to this Ordinance. Section 3.11. Payments and Notices to Cede Co. Notwithstanding any other provision of this Ordinance to the contrary, as long as any Series 2010E Bonds are registered in the name of Cede Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on the Series 2010B Bonds, and all notices with respect to such Series 2010B Bonds shall be made and given, respectively, in the manner provided in the representation letter of the City to DTC. Section 3.12. Successor Securities Depository; Transfer Outside Book-Entry Only System. In the event that the City or the Paying Agent/Registrar determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the City to DTC, and that it is in the best interest of the beneficial owners of the Series 2010B Bonds that they be able to obtain certificated Series 2010B Bonds, the City or the Paying Agent/Registrar shall (a) appoint a successor securities depos'itory, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC of the appointment of such successor securities depository and transfer one or more separate Series 2010B Bonds to such successor securities depository or (b) notify DTC of the availability through DTC of Series 2010B Bonds and transfer one or more separate Series 2010B Bonds to DTC Participants having Series 2010B Bonds credited to their DTC accounts. In such event, the Series 2010B Bonds shall no longer be restricted to being registered in the Register in the name of Cede Co., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names a Registered Owner of a Series 2010B 10 HOU:3002985.5 Bond transferring or exchanging Series 2010B Bonds shall designate, in accordance with the zn provisions of this Ordinance. Section 3.13. Registration, Transfer, and Exchange. The Paying Agent/Registrar shall keep the Register at its principal corporate trust office and, subject to such reasonable regulations as it may prescribe, the Paying Agent/Registrar shall provide for the registration and transfer of Series 2010B Bonds in accordance with the terms of this Ordinance. Each Series 2010B Bond shall be transferable only upon the 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 In authorized representative in form satisfactory to the Paying Agent/Registrar. Upon due presentation of any Series 2010B Bond in proper form for transfer, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor, within three (3) Business Days after such presentation, a new Series 2010B Bond or Series 2010B Bonds, registered in the name of the transferee or transferees, in the same maturity and aggregate principal amount and bearing interest at the same rate as the Series 2010B Bond or Series 2010B Bonds so presented. All Series 2010E Bonds shall be exchangeable upon presentation and surrender thereof at the principal corporate trust office of the Paying Agent/Registrar for a Series 2010B Bond or Series 2010B Bonds of the same maturity in any authorized denomination and interest rate, in an aggregate amount equal to the unpaid principal amount of the Series 2010B Bond or Series 2010B Bonds presented for exchange. The Paying Agent/Registrar shall be and is hereby authorized to authenticate and deliver exchange Series 2010B Bonds in accordance with the provisions of this Section 3.11. Each Series 2010E Bond delivered in accordance with this Section 3.11 shall be entitled to the benefits and security of this Ordinance to the same extent as the Series 2010B Bond or Series 2010B Bonds in lieu of which such Series 2010B Bond is delivered. The City or the Paying Agent/Registrar may require the Owner of any Series 2010B 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 2010B Bond. Any fee or charge of the Paying Agent/Registrar for such transfer or exchange shall be paid by the City. The Paying Agent/Registrar shall not be required to transfer or exchange any Series 2010B Bond called for redemption in whole or in part during the forty-five (45) day period immediately prior to the date fixed for redemption; provided, however, that this restriction shall not apply to the transfer or exchange by the Registered Owner of the unredeemed portion of a Series 2010B Bond called for redemption in part. Section 3.14. Cancellation of Series 2010B Bonds. All Series 2010B Bonds paid or redeemed in accordance with this Ordinance, and all Series 2010B Bonds in lieu of which exchange Series 2010B Bonds or replacement Series 2010B 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 furnish the City with appropriate certificates of destruction of such Series 2010B Bonds. 11 HOU:3002985.5 Section 3.15. Mutilated, Lost, or Stolen Series 2010B Bonds. Upon the presentation and surrender to the Paying Agent/Registrar of a mutilated Series 2010E Bond, the Paying Agent/Registrar shall authenticate and deliver in exchange therefor a replacement Bond of like maturity, interest rate, and principal amount, bearing a number not contemporaneously outstanding. The City or the Paying Agent/Registrar may require the Owner of such Series 2010B 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 2010B Bond is lost, apparently destroyed, or wrongfully taken, the City, pursuant to the applicable laws of the State of Texas, and in the absence of notice or knowledge that such Series 2010B Bond has been acquired by a bona fide purchaser, shall execute and the Paying Agent/Registrar shall authenticate and deliver, a replacement Series 2010B 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 2010B Bond; (b) furnished such security or indemnity as may be required by the Paying Agent/Registrar and the City to save them harmless; (c) paid all expenses and charges in connection therewith, including, but not limited to, printing costs, legal fees, fees of the Paying Agent/Registrar, and any tax or other governmental charge that may be imposed; and (d) met any other reasonable requirements of the City and the Paying Agent/Registrar. If, after the delivery of such replacement Series 2010B Bond, a bona fide purchaser of the original Bond in lieu of which such replacement Bond was issued presents for payment such original Series 2010B Bond, the City and the Paying Agent/Registrar shall be entitled to recover such replacement Series 2010B 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 mutilated, lost, apparently destroyed, or wrongfully taken Series 2010B Bond has become or is about to become due and payable, the City in its discretion may, instead of issuing a replacement Series 2010E Bond, authorize the Paying Agent/Registrar to pay such Series 2010B Bond. Each replacement Series 2010E Bond delivered in accordance with this Section 3.13 shall be entitled to the benefits and security of this Ordinance to the same extent as the Series 2010B Bond or Series 2010B Bonds in lieu of which such replacement Series 2010B Bond is delivered. [IN HOU:3002985.5 ARTICLE IV FORM OF SERIES 2010B BONDS AND CERTIFICATES Section 4.1. Forms. The form of the Series 2010B Bonds, including the form of the Paying Agent/Registrar's Authentication Certificate, the form of Assignment, the form of the Comptroller's Registration Certificate and the form of the Statement of Insurance, if any, which shall be attached or affixed to the Initial Series 20 1 OB Bonds, shall be, respectively, as described in Exhibit A to this Ordinance, with such additions, deletions, and variations as may be necessary or desirable and not prohibited by this Ordinance. Section 4.2. Legal Opinion; CUSIP Numbers. The approving legal opinion of Andrews Kurth LLP, Houston, Texas, Bond Counsel, may be printed on the Series 2010B Bonds over the certification of the City Secretary, which may be executed in facsimile. CUSfP numbers also may be printed on the Series 2010B Bonds, but errors or omissions in the printing of either the opinion or the numbers shall have no effect on the validity of the Bonds. ARTICLE V SECURITY AND SOURCE OF PAYMENT FOR THE BONDS Section 5. 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 and pledge of 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 are hereby 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 Charges. 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, including all amounts owed by the City to a provider of a Surety Policy, if any, as and when the same become due. For the purpose of complying with its obligation to fix, charge and collect rates and 13 HOU:3002985.5 charges, as herein provided, the City shall be entitled to rely on the certificate described in Section 6.1 of this Ordinance, as therein provided, in determining the amount of interest anticipated to be paid in respect of Bonds bearing interest at a variable rate. 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 (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 Funds 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 reimburse the provider of a Surety Bond any amounts advanced under such Surety Bond; (d) Fourth to pay interest to any provider of a Surety Bond any amounts advanced under such Surety Bond; (e) Fifth to make all deposits into the Reserve Fund required by any ordinance authorizing the issuance of Bonds; 14 HOU:3002985.5 (f) Sixth, 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 Seventh, 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, after 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 (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 Sinking 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, prior redemption or tender, 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 each 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 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 one-sixtieth (1/60th) of the Average Annual Principal and Interest 15 HOU:3002985.5 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 Fund may be transferred to the Revenue Fund; but if and whenever the balance in the Reserve Fund is reduced below such amount, monthly deposits into such Fund shall be resumed and continued in amounts at least equal to one-twelfth (1/12th) of the Average Annual Principal and Interest Requirements on the Bonds until the Reserve Fund has been restored to such amount. 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. The requirements of the immediately preceding paragraph of this Section notwithstanding, the City may provide a Surety Policy or Policies issued in amounts equal to all or part of the Average Annual Principal and Interest Requirements on the Bonds in lieu of depositing cash into the Reserve Fund; provided, however, that no such Surety Policy may be so substituted unless (i) the ordinance authorizing the substitution of the Surety Policy for all or part of the Average Annual Principal and Interest Requirements on the Bonds contains a finding that such substitution is cost effective and (ii) the City obtains an opinion of nationally recognized bond counsel that such substitution is permitted by applicable Texas law then in effect. If a Surety Policy or Policies are issued in accordance with the preceding sentence, such Surety Policy or Policies shall be drawn upon and reimbursed on a pro rata basis. In the event a Surety Policy issued to satisfy all or a part of the City's obligation with respect to the Reserve Fund causes the amount then on deposit in the Reserve Fund to exceed the Average Annual Principal and Interest Requirements on all Bonds, the City may transfer such excess amount to any fund or funds established for the payment of or security for Bonds or any Subordinate Lien Obligations (including any escrow established for the final payment of any such obligations pursuant to Chapter 1207, Texas Government Code); provided, however, that no funds constituting bond proceeds shall be transferred for the benefit of the Subordinate Lien Obligations. 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 Special 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. 16 HOU:3002985.5 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) that the money required to be expended from any Special 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 Special Fund from which such investment was made. 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: 17 HOU:' 1002985.5 (a) All Additional Bonds shall mature only on September 1 and interest thereon shall be payable only on March 1 and September l; (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: (i) Net Revenues are certified by the Director of Finance of the City to have been equal to at least 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 (ii) 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 (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 sixty (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 l; 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 50% (20% as long as the City's Water and Sewer System Adjustable Rate Revenue Bonds, Series 1999 shall remain outstanding) 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 18 HOU:3002985.5 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(f) 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. Section 6.3. Special 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; Ratemaking 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 necessary 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, 19 HOU:3002985.5 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. 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 any 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. 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 z' 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. 9E HOU:3002985.5 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 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 system revenues shall provide that all such pledges of and liens on water or sewer system 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 system 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 system 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 system revenues which did not terminate upon the annexation and dissolution by the City of such water district. Section 7.10. Registered Owners' Rights and Remedies. This Ordinance shall constitute a contract between the City and the Owners of the Series 2010B Bonds from time to time Outstanding and this Ordinance shall be and remain irrepealable until the Series 2010B 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 2010B 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 2010B 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 2010B 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 21 HOU:3002985.5 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. Section 7.11. Defeasance The City may defease the provisions of this Ordinance and discharge its obligations to the Registered Owners of any or all of the Series 2010B Bonds to pay the principal of and interest thereon in any manner now or hereafter permitted by law, including by depositing with the Paying Agent/Registrar or with the State Treasurer of the State of Texas either: (a) cash in an amount equal to the principal amount of such Series 2010B Bonds plus interest thereon to the date of maturity or redemption; or (b) pursuant to an escrow or trust agreement, cash and/or (i) direct noncallable obligations of United States of America, including obligations that are unconditionally guaranteed by the United States of America; (ii) noncallable obligations of an agency or instrumentality of the United States, including obligations that are unconditionally guaranteed or insured by the agency or instrumentality and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent; or (iii) noncallable obligations of a state or an agency or a county, municipality, or other political subdivision of a state that have been refunded and that, on the date the governing body of the issuer adopts or approves the proceedings authorizing the issuance of refunding bonds, are rated as to investment quality by a nationally recognized investment rating firm not less than AAA or its equivalent, which, in the case of (i), (ii) or (iii), may be in book -entry form, and the principal of and interest on which will, when due or redeemable at the option of the holder, without further investment or reinvestment of either the principal amount thereof or the interest earnings thereon, provide money in an amount which, together with other moneys, if any, held in such escrow at the same time and available for such purpose, shall be sufficient to provide for the timely payment of the principal of and interest thereon to the date of maturity or earlier redemption; provided, however, that if any of the Series 2010B 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 2010B 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. Section 7.12. Legal Holidays In any case where the date of maturity of interest on or principal of the Series 2010B Bonds or the date fixed for redemption of any Series 2010B Bonds shall be in the City a legal holiday or a day on which the Paying Agent/Registrar for the Series 2010B 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 22 HOU:3002985.5 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 2010B 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 2010B Bonds or for any claim based thereon or on this Ordinance against any official of the City or any person executing any Series 2010B 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 (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 AGENUREGISTRAR Section 8.1. Acceptance. Wells Fargo Bank, N.A., Houston, Texas, is hereby appointed as the initial Paying Agent/Registrar for the Series 2010B 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. The registration of and payment of the principal of, premium, if any, and interest on the Series 20 1 OB 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 and affix the City's seal thereto. 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 23 HOU:3002985.5 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 2010B Bonds properly and timely presented to the Paying Agent/Registrar for payment shall be paid without the necessity of further instructions from the City. Such Series 2010E Bonds shall be canceled as provided herein. Section 8.4. Series 2010B 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 2010B Bonds which have not been presented for payment prior to the date specified in such certificate. Such certificate shall: (a) Specify the Series 2010B 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 2010B 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. Funds held by the Paying Agent/Registrar that represent principal of and interest on the Series 2010B 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 2010B Bonds by virtue of actions taken in compliance with this Section. Section 8.5. Paying Agent/Registrar May Own Series 2010B Bonds. The Paying Agent/Registrar in its individual or any other capacity, may become the Owner or pledgee of Series 2010B Bonds with the same rights it would have if it were not the Paying Agent/Registrar. Section 8.6. Successor Paying Agents/Registrars. The City covenants that at all times while any Series 2010B 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 2010B 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. 24 HOU:3002985.5 The City reserves the right to change the Paying Agent/Registrar for the Series 2010B 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 2010B 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. ARTICLE IX PROVISIONS CONCERNING SALE AND APPLICATION OF PROCEEDS OF SERIES 2010B Bonds Section 9.1. Sale of Series 2010B Bonds; Insurance The sale of the Series 2010B Bonds to the Purchaser at a price of $9,046,272.65 (representing the principal amount of the Series 2010B Bonds, plus an original issue premium on the Series 2010B Bonds of $132,335.15 and less an underwriting discount of $56,062.50), plus accrued interest to the date of delivery of the Series 2010B Bonds, in accordance with the terms of the Bond Purchase Agreement presented to and hereby approved by the City Council, in substantially the form attached hereto as Exhibit C which price and terms are hereby found and determined to be the most advantageous reasonably obtainable by the City. The Mayor, Mayor Pro -Tem and all other officials, agents and representatives of the City are hereby authorized to do any and all things necessary or desirable to provide for the issuance and delivery of the Bonds. The City hereby acknowledges that the sale of the Series 2010B Bonds is contingent upon the issuance of a policy of municipal bond insurance from the Bond Insurer insuring the timely payment of principal of and interest on the Series 2010E Bonds. The terms and conditions of such policy, as set out in Exhibit F hereto, are incorporated herein for all purposes for so long as such policy remains in effect. The appropriate officials and representatives of the City are hereby authorized and directed to execute such documents and certificates, including any credit agreements related thereto, and to do any and all things necessary or desirable to obtain such policy, and the printing on the Series 2010B Bonds of an appropriate legend or statement regarding such insurance, as provided by the Bond Insurer, is hereby approved. Section 9.2. Approval, Registration and Delivery The Mayor and the City Secretary are hereby authorized to have control and custody of the Series 2010B 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 2010B Bonds) as may be necessary to accomplish the delivery of the Series 2010B Bonds and to assure the investigation, examination, and approval thereof by the Attorney General of Texas and the registration of the initial Series 2010E Bonds by the Comptroller of Public Accounts of the State of Texas. Upon registration of the Series 2010B 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 2010B Bond 25 HOU:3002985.5 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 2010B Bonds is subject to the unqualified approving opinion as to the legality of the Series 2010B Bonds of the Attorney General of Texas and of Andrews Kurth LLP, Houston, Texas, Bond Counsel. Section 9.3. Offering Documents Ratings. The City hereby approves the form and contents of the Preliminary Official Statement and the final Official Statement, dated as of the date hereof, relating to the Series 2010E Bonds, and any addenda, supplement or amendment thereto, and ratifies and approves the distribution of such Preliminary Official Statement and Official Statement in the offer and sale of the Series 2010B Bonds and in the reoffering of the Series 2010B Bonds by the Purchaser, with such changes therein or additions thereto as the officials executing same may deem advisable, such determination to be conclusively evidenced by their execution thereof. The Mayor is hereby authorized and directed to execute, and the City Secretary is hereby authorized and directed to attest, the final Official Statement. It is further hereby officially found, determined and declared that the statements and representations contained in the Preliminary Official Statement and final Official Statement are true and correct in all material respects, to the best knowledge and belief of the City Council, and that, as of the date thereof, the Preliminary Official Statement was an official statement of the City with respect to the Series 2010B Bonds that was deemed "final" by an authorized official of the City except for the omission of no more than the information permitted by subsection (b)(1) of Rule 15c2-12 of the Securities and Exchange Commission. Copies of the Preliminary Official Statement and the Official Statement are attached hereto as Exhibits F and Exhibit G, respectively. Further, the City Council hereby ratifies, authorizes and approves the actions of the Mayor, the City's financial advisor and other consultants in seeking a rating on the Series 2010B Bonds from Moody's Investors Service, Inc. and Standard Poor's Ratings Services and such actions are hereby ratified and confirmed. Section 9.4. Application of Proceeds of Series 2010B Bonds. (a) Proceeds from the sale of the Series 2010B Bonds shall, promptly upon receipt by the City, be applied as follows: (a) A portion of the proceeds shall be applied to pay expenses arising in connection with the issuance of the Bonds and the refunding of the Refunded Bonds; I (b) The remaining proceeds shall be applied to (i) establish the Escrow Fund to refund the Refunded Bonds, as more fully provided below, and (ii) to the extent not otherwise paid, to pay all expenses arising in connection with the issuance of the Bonds, the establishment of the Escrow Fund and the refunding of the Refunded Bonds; and (c) Any proceeds from the sale of the Bonds remaining after making all the foregoing deposits and payments shall be deposited into the Debt Service Fund and used to pay debt service on the Bonds. (d) From the existing debt service funds for the Refunded Bonds there shall be transferred to the Escrow Fund the amount of $95,000 and to the Interest and Sinking Fund $0.00. 26 HOU:3002985.5 Section 9.5. Tax Exemption. The City intends that the interest on the 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 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 Bonds (including all property, the acquisition, construction or improvement of which is to be financed directly or indirectly with the proceeds of the 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 the interest on the Bonds to be and remain excludable from the gross income, as defined in Section 61 of the Code, of the owners of the 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 shall not use, permit the use of or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner which, if made or omitted, respectively, would cause the interest on any Bond to become includable in the gross income, as defined in Section 61 of the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the City shall have received a written opinion of counsel nationally recognized in the field of municipal bond law to the effect that failure to comply with such covenant will not adversely affect the exemption from federal income tax of the interest on any Bond, the City shall comply with each of the specific covenants in this Section. (b) Except as permitted by Section 141 of the Code and the regulations and rulings thereunder, the City shall, at all times prior to the last stated maturity of the Bonds, (i) exclusively own, operate, and possess all property the acquisition, construction, or improvement of which is to be financed directly or indirectly with Gross Proceeds of such series of the Bonds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations and not use or permit the use of such Gross Proceeds or any property acquired, constructed, or improved with such Gross Proceeds in any activity carried on by any person or entity other than a state or local government, unless such use is solely as a member of the general public, or (ii) not directly or indirectly impose or accept any charge or other payment for use of Gross Proceeds of such series of the Bonds or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with such Gross Proceeds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations other than taxes of general application and interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes. M HOU:3002985.5 (c) Except to the extent permitted by Section 141 of the Code and the regulations and rulings thereunder, the City shall not use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, Gross Proceeds are considered to be "loaned" to a person or entity if (1) property acquired, constructed or improved with Gross Proceeds (including property financed with Gross Proceeds of the Refunded Obligations or notes or bonds refunded by the Refunded Obligations is sold or leased to such person or entity in a transaction which creates a debt for federal income tax purposes, (2) capacity in or service from such property is committed to such person or entity under a take-or-pay, output, or similar contract or arrangement, or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or such property are otherwise transferred in a transaction which is the economic equivalent of a loan. (d) Except to the extent permitted by Section 148 of the Code and the regulations and rulings thereunder, the City shall not, at any time prior to the earlier of the final stated maturity or final payment of the Refunded Obligations, directly or indirectly invest Gross Proceeds of such Bonds in any Investment (or use such Gross Proceeds to replace money so invested), if as a result of such investment the Yield of all Investments allocated to such Gross Proceeds whether then held or previously disposed of, exceeds the Yield on the Refunded Obligations. (e) Based on all of the facts and estimates now known or reasonably expected to be in existence on the date the Bonds are delivered, the City reasonably expects that the proceeds of the Bonds and the Refunded Obligations (to the extent any of such proceeds remain unexpended) will not be used in a manner that would cause the Bonds or the Refunded Obligations or any portion thereof to be "arbitrage bonds" within the meaning of Section 148 of the Code (f) At all times while the Bonds are outstanding, the City will identify and properly account for all amounts constituting gross proceeds of the Bonds in accordance with the Regulations. The City will monitor the yield on the investments of the proceeds of the 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 Bonds. To the extent necessary to prevent the 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 Bonds to be less than the yield that is materially higher than the yield on the Bonds; (g) The City will not take any action or knowingly omit to take any action, if taken or omitted, would cause the Bonds to be treated as "federally guaranteed" obligations for purposes of Section 149(b) of the Code; (h) The City represents that not more than fifty percent (50%) of the procee ds of any new money portion of the Bonds or any new money issue refunded by, the Refunded Obligations was invested in nonpurpose investments (as defined in Section 148(f)(b)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the City reasonably 18 HOU:3002985.5 expected at the time each issue of the Refunded Obligations was issued that at least eighty -five percent (85 of the spendable proceeds of the Bonds or the Refunded Obligations would be used to carry out the governmental purpose of such Bonds within the corresponding three -year period beginning on the respective dates of the Bonds or the Refunded Obligations. (i) The City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the gross proceeds of the Bonds, 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 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 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 the 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 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, including interest thereon and penalty. 0) The City will not indirectly pay any amount otherwise payable to the federal government pursuant to the foregoing requirements to any person other than the federal government by entering into any investment arrangement with respect to the gross proceeds of the Bonds that might result in a reduction in the amount required to be paid to the federal government because such arrangement results in 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 issue not been relevant to either party. (k) 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 Bonds on such form and in such place as the Secretary may prescribe. (1) The City will not issue or use the Bonds as part of an "abusive arbitrage device" (as defined in Section 1.148 10(a) of the Regulations). Without Limiting the foregoing, the Bonds are not and will not be a part of a transaction or series of transactions that attempts to circumvent the provisions of Section 148 of the Code and the Regulations, by (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. 29 HOU:3002985.5 (m) Proper officers of the City charged with the responsibility for issuing the Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the Issue Date and stating whether there are facts, estimates or circumstances that would materially change the City's expectations. On or after the Issue Date, the City will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates. (n) The covenants and representations made or required by this Section are for the benefit of the Bond holders and any subsequent Bond holder, and may be relied upon by the Bond holder and any subsequent 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 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 9.5 shall survive the defeasance and discharge of the Bonds for as long as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. Section 9.6. Escrow Agreement The discharge and defeasance of the Refunded Bonds shall be effectuated pursuant to the terms and provisions of the Escrow Agreement to be entered into by and between the City and the Escrow .Agent, which shall be substantially in the form attached hereto as Exhibit D the terms and provisions of which are hereby approved, subject to such insertions, additions and modifications as shall be necessary (a) to carry out the program designed for the City by its financial advisor, which shall be certified as to mathematical accuracy by Grant Thornton LLP, whose Report shall be attached to the Escrow Agreement, (b) to comply with all applicable laws and regulations relating to the refunding of the Refunded Bonds (c) to minimize the City's cost of refunding and (d) to carry out the other intents and purposes of this Ordinance, and the Mayor is hereby authorized to execute and deliver such Escrow 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 9.7. Redemption Prior to Maturity of Refunded Bonds To maximize the City's present value savings, to restructure the annual debt service requirements of the City in order to create more level annual debt service requirements and to minimize the City's costs of refunding, the City hereby authorizes and directs that the Refunded Obligations be called for redemption prior to maturity (or, if applicable, escrowed to their respective maturities) in the amounts, at the dates and at the redemption prices set forth in Exhibit I attached hereto, and the Mayor is hereby authorized and directed to take all necessary and appropriate action to give or cause to be given a notice of redemption and/or a notice of defeasance to the holders or paying agent/ registrars, as appropriate, of such bonds, and, if required, to publish such notices, all in the manner required by the documents authorizing the issuance of such Refunded Bonds. 30 HQU.3002985.5 Section 9.8. Purchase of Escrowed Securities. To assure the purchase of the Escrowed Securities referred to in the Escrow Agreement, the Mayor or other authorized officer of the City is hereby authorized to subscribe for, agree to purchase and purchase such obligations of the United States of America, in such amounts and maturities and bearing interest at such rates as may be provided for in the Report to be attached to the Escrow Agreement, and to execute any and all subscriptions, purchase agreements, commitments, letters of authorization and other documents necessary to effectuate the foregoing, and any actions heretofore taken by such officials for such purpose are hereby ratified and approved. ARTICLE X CONTINUING DISCLOSURE UNDERTAKING Section 10.1. Annual Reports. The City shall provide annually to the Municipal Securities Rulemaking Board (the "MSRB"), within six months after the end of each fiscal year ending in or after 2010, financial information and operating data with respect to the City of the general type described in Exhibit Q hereto. Any financial statements so to be provided shall be (1) prepared in accordance with the accounting principles described in Exhibit Q 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 unaudited financial statements for the applicable fiscal year by the required time, and audited financial statements when and if audited financial statements become available. If the City changes its fiscal year, it will notify the MSRB 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 documents (i) available to the public on the MSRB's internet web site or (ii) filed with the SEC. Section 10.2. Material Event Notices. The City shall notify the MSRB in a timely manner, of any of the following events with respect to the Series 2010B 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 2010E Bonds; 31 HOU:3002985.5 G. Modifications to rights of holders of the Series 2010B Bonds; H. Series 2010E Bond calls; 1. Defeasances; J. Release, substitution, or sale of property securing repayment of the Series 2010B Bonds; and K. Rating changes. The District shall also notify the MSRB in an electronic format prescribed by the MSRB, in a timely manner, of any failure by the District to provide financial information or operating data in accordance with this Section by the time required by this 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 2010B 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 2010B 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 2010B Bonds, 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 2010B Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE CITY BE LIABLE TO THE OWNER OR BENEFICIAL OWNER OF ANY SERIES 2010B 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. 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. 32 HOU:3002985.5 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 2010E Bonds in the primary offering of the Series 2010B 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 2010B 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 2010B 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 2010B Bonds in the primary offering of the Series 2010B 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. "Rule" means SEC Rule 15c2-12, as amended from time to time. "SEC" means the United States Securities and Exchange Commission. ARTICLE XI MISCELLANEOUS Section 11.1. 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 2010B 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 33 HOU:3002985,5 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. Section 11.2. 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 11.3. 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 11.4. Governing Law. This Ordinance shall be construed in accordance with and governed by the laws of the State of Texas. Section 11.5. Repealer. All ordinances, or parts thereof inconsistent herewith, are hereby repealed to the extent of such inconsistency. Section 11.6. Emergency. It is hereby officially found and determined that this Ordinance relates to an immediate public emergency affecting life, health, property and public peace, and that such emergency exists, the specific emergency being that the proceeds from the sale of the Series 2010E Bonds are required as soon as possible for necessary and urgently needed improvements, and that this Ordinance be passed and approved on the date of its introduction. Section 11.7. Effective Date. This Ordinance shall be in force and effect from and after its passage on the date shown below. 34 HOU:3002985.5 PASSED AND APPROVED on first reading pursuant to Section 3.10 of the City Charter this March 22, 201 Mayor, City of Pearland, Texas ATTEST: 4P II e apd, -xas 6 T Secr ry, Cit e To z� Exhibit A Form of Bond Exhibit B Paying Agent/Registrar Agreement Exhibit C Bond Purchase Agreement Exhibit D Escrow Agreement Exhibit E Terms and Provisions of Insurance Policy Exhibit F Preliminary Official Statement Exhibit G Official Statement Exhibit H Description of Annual Financial Information Exhibit I Refunded Bonds S-1 HOU:3002985.2 EXHIBIT A FORM OF BOND United States of America State of Texas NUMBER I R- REGISTERED DENOMINATION REGISTERED CITY OF PEARLAND, TEXAS WATER AND SEWER SYSTEM REVENUE BONDS 2 INTEREST RATE: REGISTERED OWNER: PRINCIPAL AMOUNT: 3 THE CITY OF PEARLAND, TEXAS (the "City a municipal corporation duly incorporated under the laws of the State of Texas, for value received hereby promises to pay, but solely from certain Net Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date specified above, upon presentation and surrender of this Series 2010B Bond at the designated payment office of Wells Fargo Bank, N.A. in Houston, Texas (the "Paying Agent/Registrar the principal amount identified above, 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, and to pay, solely from such Net Revenues, interest thereon at the rate described below, calculated on the basis of a 360 day year, composed of twelve 30 -day months, from the later of the Dated Date identified above Initial Bond shall be numbered T -1. 2 Omitted from Initial Bond. 3 The first sentence of the Initial Bond shall read as follows: "THE CITY OF PEARLAND, TEXAS (the "City a municipal corporation duly incorporated under the laws of the State of Texas, for value received hereby promises to pay, but solely from certain Net Revenues as hereinafter provided, to the Registered Owner identified above or registered assigns, on the Maturity Date specified below, upon presentation and surrender of this Series 2010B Bond at the designated payment office of Wells Fargo Bank, N.A. in Houston, Texas (the "Paying Agent/Registrar the principal amount set forth in the following schedule: [Insert information regarding years of maturity, principal amounts and interest rates from Section 3.3 of the Ordinance], 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, and to pay, solely from such Net Revenues, interest thereon at the rate described above, calculated on the basis of a 360 -day year, composed of twelve 30 -day months, from the later of the Dated Date identified above or the most recent interest payment date to which interest has been paid or duly provided for." A- I SERIES 2010B DATED DATE: 2 MATURITY DATE: 2 CUSIP: April 1, 2010 September 1, 14OU:3002985.5 or the most recent interest payment date to which interest has been paid or duly provided for. Interest on this Series 2010B Bond is payable by check sent by United States mail, first class, postage prepaid, payable on September 1 and March 1, beginning on September 1, 2010, mailed to the Registered Owner as shown on the books of registration kept by the Paying Agent/Registrar as of the fifteenth calendar day of the month next preceding each interest payment date. Any accrued interest payable at maturity or earlier redemption shall be paid upon presentation and surrender of this Series 2010B Bond at the principal corporate trust office of the Paying Agent/Registrar. THIS SERIES 2010B Bond IS ONE OF A DULY AUTHORIZED SERIES OF BONDS (the "Series 2010B Bonds aggregating $8,970,000, issued for the purpose of refunding the Refunded Bonds and payment of costs of issuance of the Series 2010B Bonds, all under and pursuant to Chapter 1207, Texas Government Code, as amended, and an ordinance adopted by the City on March 22, 2010 (the "Ordinance and other applicable law. Capitalized terms used herein without definition are defined in the Ordinance. THIS SERIES 2010B Bond AND THE SERIES OF WHICH IT IS A PART are special obligations of the City that are payable from and are equally and ratably secured by a first lien on and pledge of 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 and pledged to the payment of the Outstanding Bonds, as described in the Ordinance, the Series 2010B Bonds, and all Additional Bonds issued on a parity therewith, in the Interest and Sinking Fund and the Reserve Fund maintained for the payment of all such Bonds, all as more fully described and provided for in the Ordinance. THIS SERIES 2010B BOND AND THE SERIES OF WHICH IT IS A PART ARE PAYABLE SOLELY FROM SUCH NET REVENUES AND NEITHER THE STATE, NOR ANY POLITICAL SUBDIVISION OR AGENCY OF THE STATE, SHALL BE OBLIGATED TO PAY THE SAME OR THE INTEREST THEREON AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE, THE CITY, OR ANY OTHER POLITICAL CORPORATION, SUBDIVISION OR AGENCY THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE SERIES 2010B BONDS. THE OWNER HEREOF SHALL NEVER HAVE THE RIGHT TO DEMAND PAYMENT OF THIS SERIES 2010B BOND OUT OF ANY FUNDS RAISED OR TO BE RAISED BY AD VALOREM 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 2010B 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 2010B Bonds; the nature and extent and manner of enforcement of the lien and pledge securing the payment of the Series 2010B 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, FEW HOU:3002985.5 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 provisions thereof. Capitalized terms used herein, unless otherwise defined, have the same meanings assigned in the Ordinance. THE CITY RESERVES THE RIGHT, at its option, to redeem the Series 2010B Bonds maturing on September 1, 2020, and thereafter prior to their scheduled maturities, in whole or in part, in integral multiples of $5,000 on September 1, 2019, or any date thereafter at par plus accrued interest on the principal amounts called for redemption to the date fixed for redemption. NOT LESS THAN THIRTY (30) DAYS prior to a redemption date, a notice of redemption will be sent by U.S. mail, first class postage prepaid, in the name of the City to each registered owner of a Series 2010B Bond to be redeemed in whole or in part at the address of the registered owner appearing on the registration books of the Paying Agent/Registrar at the close of business on the business day next preceding the date of mailing. When Series 2010B Bonds or portions thereof have been called for redemption and due provision has been made to redeem the same, the amounts so redeemed shall be payable solely from the funds provided for redemption, and interest which would otherwise accrue on the Series 2010B Bonds or portions thereof called for redemption shall terminate on the date fixed for redemption. `THIS SERIES 2010B Bond shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is authenticated by the Paying Agent/Registrar by due execution of the authentication certificate endorsed hereon. THIS SERIES 2010B BOND IS TRANSFERABLE only upon presentation and surrender at the designated payment 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, subject to the terms and conditions of the Ordinance. THIS SERIES 2010B BOND IS EXCHANGEABLE at the corporate trust office of the Paying Agent/Registrar for bonds in the principal amount of $5,000 or any integral multiple thereof, subject to the terms and conditions of the Ordinance. THE PAYING AGENT/REGISTRAR IS NOT REQUIRED to accept for transfer or exchange any Series 2010B Bond called for redemption in whole or in part during the 45 day period immediately prior to the date fixed for redemption. THE REGISTERED OWNER of this Series 2010B Bond, by acceptance hereof, acknowledges and agrees to be bound by all the terms and conditions of the Ordinance. 4 In the Initial Bond, this paragraph shall read as follows: "THIS SERIES 2010B Bond shall not be valid or obligatory for any purpose or be entitled to any benefit under the Ordinance unless this Bond is registered by the Comptroller of Public Accounts of the State of Texas by registration certificate attached or affixed hereto." A -3 HOU:3002985.5 THE CITY has covenanted in the Ordinance that it will at all times provide a legally qualified Paying Agent/Registrar for the Series 2010B Bonds and will cause notice of any change of Paying Agent/Registrar to be mailed to each Registered Owner. THE CITY HAS RESERVED THE RIGHT TO ISSUE ADDITIONAL PARITY BONDS, subject to the restrictions contained in the Ordinance, which may be equally and ratably payable from, and secured by a first lien on and pledge of, the Net Revenues in the same manner and to the same extent as the Outstanding Bonds, which includes this Series 2010B Bond and the series of which it is a part. IT IS HEREBY DECLARED AND REPRESENTED that this Series 2010B Bond has been duly and validly issued and delivered; that all acts, conditions, and things required or proper to be performed, to exist, and to be done precedent to or in the issuance and delivery of this Series 2010B Bond have been performed, have existed, and have been done in accordance with law; that the Series 2010E Bonds do not exceed any statutory limitation; and that provision has been made for the payment of the principal of and interest on this Series 2010B Bond and all of the Series 2010B Bonds by the creation of the aforesaid lien on and pledge of the Net Revenues. IN WITNESS WHEREOF, the City has caused its corporate seal to be impressed or placed in facsimile hereon and has caused this Series 2010B Bond to be executed by the Mayor and countersigned by the City Secretary by manual, lithographed, or printed facsimile signatures. CITY OF PEARLAND, TEXAS Mayor (SEAL) COUNTERSIGNED City Secretary A-4 HOU:3002985.5 [FORM OF COMPTROLLER'S REGISTRATION CERTIFICATE] The following form of Comptroller's Registration Certificate shall be attached or affixed I to each of the Series 2010B 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 of the State of Texas A-5 HOU:3002985.5 [FORM OF AUTHENTICATION CERTIFICATE] The following form of Authentication Certificate shall appear on each of the Series 2010E Bonds. AUTHENTICATION CERTIFICATE Registration Date: This bond is one of the Series 2010B Bonds described in and delivered pursuant to the within-mentioned Ordinance; and, except for the Series 2010B 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. WELLS FARGO BANK, N.A. Bv: Authorized Signature:_ Date of Authentication: A-6 HOU:3002985.5 [FORM OF ASSIGNMENT] The following form of assignment shall appear on each of the Series 2010B 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. 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. STATEMENT OF INSURANCE Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.) ("AGM"), New York, New York, has delivered its municipal bond insurance policy (the "Policy") with respect to the scheduled payments due of principal of and interest on this Bond to Wells Fargo Bank, N.A., Houston, Texas, 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 AGM or the Paying Agent. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of AGM as more fully set forth in the Policy.. M HOU:3002985.5 PAYING AGENTIREGISTRAR AGREEMENT See Tab HOU:3002985.5 EXHIBIT C BOND PURCHASE AGREEMENT See Tab HOU:3002985.5 W4 so 1113 1 a 1 ESCROW AGREEMENT HOU:3002985.5 lwq TERMS AND CONDITIONS OF MUNICIPAL BOND INSURANCE POLICY' See Tab 13 HOU:3002985.5 Ass RE Gt 1A.RNINITY' M, U C PA L March 24, 2010 1/IA E-MAIL Mr. Bill Eisen City of Pearland, Texas (Brazoria, Fort Bend and Harris Counties) 3519 Liberty Drive Pearland, Texas 77581 Re: Not to Exceed $8,460,000 aggregate principal amount of City of Pearland, Texas (Brazoria, Fort Bend and Harris Counties) Water and Sewer System Revenue Refunding Bonds, Series 2010B Dear Mr. Eisen: Attached please find Assured Guaranty Municipal Corp.'s (formerly known as Financial Security Assurance Inc.) ('AGM") commitment letter in respect of the above-referenced issue. Please return one fully executed copy of each to Ms. Erika Paredes-Reboucas of our office prior to any reference to AGM as insurer of the issue being made in marketing efforts in respect of the issue. Please note that a blacklined copy of each draft of the financing documents, opinions, preliminary and final official statements and bond proof should be delivered to AGM for review and comment. Attached as a link to this e-mail is AGM's website, where the logo, statement of insurance, disclosure language, specimen policy, procedures for premium payment, form of opinion and form of disclosure, no default and tax certificate may be accessed and downloaded as needed. AGM will require, prior to closing, four hard copies of the final official statement. Upon acceptance and satisfaction of the conditions of the Commitment. the following must occur in order for AGM to complete its review of applicable disclosure and financing documents in advance of the closing date, and timely issue its insurance policy: The financing schedule and a distribution list should be forwarded to the attention of the Closing Coordinator listed below. A copy of (i) the preliminary official statement and the final official statement, each of which shall include the disclosure provided by AGM and the specimen policy and any other references to AGM, and (ii) the Bonds, together with the legend to be affixed to such Bonds, must be delivered to the Closing Coordinator by fax or e-mail in order that AGM may confirm its accuracy. Once determined, the final debt service schedule for the Bonds should be delivered to the credit analyst responsible for the transaction, by fax and/or e-mail in order that AGM may confirm the premium to be paid for the insurance policy. AGM will deliver to Bond Counsel at the pre-closing, assuming the requirements of the Commitment have been met, an opinion of counsel as to the validity of the insurance policy, a disclosure, no default and tax certificate and the executed original insurance policy. Prior to the closing, AGM will obtain rating letters from the rating agencies indicated in the official statement. Note that any questions with regard to rating agency fees should be directed to the respective rating agency. Please include the following people on the Distribution List for this transaction: Michael Cooper, Counsel Telephone: Telecopier: E-Mail: Jim Doyle, Director Telephone: Telecopier: E-Mail: (212) 893-7389 (212) 857-0337 MCooper@assuredguaranty.com (212) 339-3462 (212) 857-0354 JDoyle@assuredguaranty.com Erika Paredes-Reboucas, Closing Coordinator Telephone: (212) 893-2706 Telecopier: (212) 857-0349 E-Mail: EParedes-reboucas@assuredguaranty.com ASSUred 31 lusq ,era m. 1 2 1; 0 tmrr Fax, ?,ill 521-1 3 11 Mr. Bill Eisen City of Pearland, Texas (Brazoria, Fort Bond and Harris Counties) 9M As a post-closing condition, AGM shall receive one original and two copies of the final closing transcript of proceedings. Such closing transcript may be in the form of either hard copies or three CD-ROMs. AGM looks forward to working with you on this transaction. Very truly yours, Michael Cooper Counsel ec Rick Witte, Esq.; Andrews Kurth L.L.P. Mr. Pete Stare; First Southwest Company Tom Sage, Esq.; Vinson Elkins L.L.P. Mr. Frank 11debrando; RBC Capital Markets ASSURED GLIARANTY axum|C/PAt ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE NC hereby commits to issue its Municipal Bond Insurance Policy (the "Policy") relating to whole maturities of the debt obligations described in Exhibit A attached hereto (the "Bonds"), subject to the terms and conditions set forth in this Commitment or added hereto (the "Commitment"). For the avoidance of doubt, each of the Exhibits attached hereto is an integrated part of this Commitment. To keep this Commitment in effect after the Expiration Date set forth in Exhibit A attached hereto, a request for renewal must be submitted to AGM prior to such Expiration Date, AGM reserves the right to refuse wholly or in part to grant a THE MUNICIPAL BOND INSURANCE POLICY SHALL BE ISSUED IF THE FOLLOWING CONDITIONS ARE SATISFIED: I The transaction documents to be executed and delivered in connection with the issuance and sale of the Bonds shall not contain any untrue or misleading statement ofamaterial fact and shall not fail N state a material fact necessary in order to make the information contained therein not misleading, 2. No event shall occur which would permit any underwriter or purchaser of the 8onda, otherwise reguired, not to be required to underwrite or purchase the Bonds on the date scheduled for the issuance and delivery thereof ("Closing Date"), 3. On the date hereof and on the Closing DaAe, there shall have been no nm8edv| adverse change in or affecting the Issuer and/or the Obligor, as applicable, or the Bonds (including, without limitation, the security for the Bonds or the proposed debt men/ioo schedule of the Bonds), any disclosure document relating to the Bonds (the ^Offina| Statement"), the financing documents 0n be executed and delivered with respect to the Gundm. the legal opinions to be executed and delivered in connection with the issuance and sale of the Bonds, or any other information submitted to AGM with respect hu the referenced transaction, or the Bonds, from that previously delivered or otherwise communicated to AGM. 4- The Bondy shall contain no reference to AGM, the Policy or the insurance evidenced thereby except as may be approved byAGM. BOND PROOFS SHALL HAVE BEEN APPROVED BY AGM PRIOR TOPRINTING- The Bonds shall bear u Statement uf Insurance in the form provided byAGM. 5, AGM shall be provided with: (a) Executed copies of all financing documents, the Official Statement and the various legal opinions delivered in connection with the issuance and sale of the Bonds (which shall be dated the Closing Date and which, except for the opinions d counsel relating tothe adequacy of disclosure, shall beaddressed to AGM or accompanied bya letter of such counsel permitting AGM to rely on such opinion as if such opinion were addressed to AGM), including, without limitation, the approving opinion of bond counsel. Each of the foregoing shall bain form and substance acceptable toAGM, Copies oy all drafts mfsuch documents prepared subsequent to the doka of the Commitment blacklined, to reflect all revisions from oreviously reviewed drafts) shall be furnished tmAGM for review and approval. Final drafts uf such documents shall bo provided to AGM atleast three (3) business days prior to the issuance of the Policy, unless AGM shall agree to some shorter period. (b) Evidence of wire transfer in federal funds of an amount equal to the insurance prem|mn, unless alternative arrangements for the payment of such amount acceptable to AGM have been made prior to the delivery date of the Bonds. (c) Standard Pour's Rating Service and Mnody'e Investors 8wmiue Inc. will separately present hiUo for their respective fees relating to the Bonds. Payment nfsuch bU|m by the Issuer should be meVo directly to such rating agency. Payment of the rating fee ia not m condition 0m release of the Policy hyAGM. 6. Promptly after the closing of the Bonds, AGM shall receive three completed sets of executed documents (one original and either (i) two photocopies (each unbound) or(ii) two compact diocm), 7. The Official Statement shall contain the language provided by AGM and only such other references to AGM or otherwise as AGM shall supply mapprove, AGM SHALL BE PROVIDED WITH FOUR PRINTED COPIES OF THE OFFICIAL STATEMENT. MUNICIPAL BOND INSURANCE COMMITMENT TERM SHEET Issuer: City u[Peadand. Texas (Bwazoria. Fort Bend and Harris Counties) Name of Insured Bonds: Water and Sewer System Revenue Refunding Bonds, Series 201 OB Principal Amount of Insured Bonds: Not to Exceed $8,460,000 Date ufCommitment: March 24 Expiration Date: Friday, May 28.281O~ Premium: .40%oi total debt service om the Insured Bonds Additional Conditions: 1.The amortization schedule for, and final maturity date of, the Insured Bonds shall be acceptable to AGM. The Insured Bonds shall be issued with fixed rates tmmaturity. 2. The Issuer shall have obtained from AGM the Debt Service Reserve Insurance Policy pursuant 8nthe terms oy Exhibit Dhereto. 3. The Ordinance emVhnhzin0 the issuance o[ and setting forth the bannu for, the Insured Bonds ((he ~Ordinane") shall bw satisfactory in form and substance toAGM, 4. See also attached Exhibits B-E. Capitalized terms used in this Commitment and not otherwise defined shall have the meanings assigned to them in the Ordinance. ASSURED GUARANTY MUNICIPAL C0RP, (formerly known aa Financial Security Assurance Inc,) Authorized Officer *To maintain the Commitment in effect until the Expiration Date, AGK# must re86ive a duplicate of this Exhibit A executed by an authorized officer of the Issuer by the earlier of the date on which the Official Statement containing disclosure language regarding AGM is circulated and ten days from the date of this Commitment. The undersigned, anauthorized officer of the Issuer, agrees that if the Bonds are insured byupolicy of municipal bond inauronco, such insurance shall be provided by AGM in accordance with the 1onnm of this Commitment; (ii) the Issuer has made its own independent investigation and decision aohr whether ko insure the payment when due of the principal of and interest on the Bonds and whether the Policy is appropriate or proper for it based upon its own judgment and upon advice from such legal and financial advisers aeit has deemed necessary; (iii) AGM has not made, and therefore the Issuer is not relying ow, any recommendation from AGM that the |mmu*r insure the Bonds nrobtain the Policy; it being understood and agreed that communications from AGM (whether written or oral) referring to, containing information about or negotiating the 0mnns and conditions ofthe PoUoy, any related insurance document or the documentation governing the Bonds do not constitute a recommendation to insure the Bonds or obtain the Policy; (iv) the Issuer acknowledges that AGM has not made any repreaanhaUon, warranty or undertahing, and has not given any unsunenma or guameniy, in each caoe, expressed or imp!ied, concerning its future financial strength or the rating of AGM's financial strength by the rating agencies; (v) the Issuer acknowledges that the ratings of AGM reflect only the views of the rating agencies and an explanation of the significance of such ratings maybe obtained only from the rating agencies; (vi) the Issuer understands that such L\LEGALUNUN|S\ST/TES[7X\1 17788_G.doo ratings may not continue for any given time period and instead may changeover time, including without limitation being placed under review for possible dnvmngmad*, revised downward, withdrawn entirely bythe relevant rating agency if, in the judgment of such rating agency, circumstances so warrant, ur withdrawn entirely byAGM in its sole discretion; (vii) the Issuer acknowledges that AGM undertakes no responsibility to bring to its aUeoUon, and shall have no Uobi||+y for, the placement of rating under review for possible downgrade or the dmwmwsn1 revision or withdrawal of any rating obtained, and that any such 'e*|aw for possible downgnade, downward revision or withdrawal may have an adverse effect on the Bonds; and (viii) the Issuer acknowledges that AGM pays rating agencies to rate AGM's financial mmangtb, but that such payment is not in exchange for any specific rating or for a rating within any particular nonga' Notwithstanding anything W the contrary set forth herein, the provisions set forth under subparagraphs (ii) through (viii) above shall survive the expiration or termination of this Commitment, Authorized Office EXHIBIT B Page I of 1 1. Each of the Ordinance, Bonds and other transaction documents (mllectively.the "Related Documents") is legal, valid and binding obligation nf the parties thereto, has been duly authorized, executed and delivered by the Issuer and is enforceable against the Issuer in accordance with its terms. 2. There is no litigation or other proceeding pending or. to the best of counsel's bnoWed0a, threatened in any court, agency or other administrative body (either State or Federal) that could have a material adverse effect on (o) the financial condition of the Issuer, (b) the ability ofthe Issuer to perform its obligations under the Related Omoumonta. (o) the security for the Bonds, (d) the transactions contemplated by the Re|oVai Documents or (e) the ability of the Issuer to maintain and operate the System. 3. Nothing has come to the attention of disclosure counsel which would cause counsel to believe that, aaof the dosing date. the final Official Statement (excluding information provided by AGM) contains any untrue statement ofm material fact or omits hn state any material fact required tohe stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 4. The Bonds are payable from and secured by a valid lien on and pledge of the Net Revenues, in the manner and 8o the extent provided in the Ordinance. The issuer |n duly authorized bo pledge such Net Revenues, and no further action on the part of the Issuer or any other party is required to perfect the same or the interest of the 8o^duxnens therein, L:\LEGAL'WU 117768—G.dou EXHIBIT Page 1 of 6 ORDINANCE REQUIREMENTS The Ordinance shall incorporate the following requirements either in one section marticle entitled "Provisions Relating to Bond Insurance" (or the |ike). the 12rovisions of which section or article shall be stated in the,Ordinaqcg�tiq Myern. n2Lwithstandinct an3dhing 12 the c2ntra!y set forth in the Ordinance, or individually in the appropriate sections: (a) "Insurance Policy" shall be defined as follows: "the insurance policy issued by the Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due". "Insurer" shall he defined as follows: "Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.), a New York stock insurance company, or any successor thereto or assignee theneof'. (b) The prior written consent of the Insurer yhe|| be a condition precedent to the deposit of any credit instrument provided in lieu cfa cash deposit into the Debt Service Reserve Account for the Insured Bonds. Notwithstanding anything to the contrary set forth in the [Jpdinmmoe, amounts on dopuy|1 in the Debt Service Reserve Account shall be applied solely to the payment of debt service due on Outstanding Bonds. (o) The Insurer shall be deemed to be the sole holder of the Insured Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the hn|dane of the Insured Bonds are entitled 8o take pursuant to the section or mpbde of the Ordinance pertaining to defaults and remedies and (i|) the duties and obliga of the Trustee. Mandamus |o available asa remedy tn the Insurer in such capacity. (d) The maturity of Bonds insured by the Insurer shall not be accelerated without the consent of the Insurer. In the event the maturity of the Bonds is accelerated, the Insurer may elect, in its mole d|sorerion, to pay accelerated principal and interest mcumed, on such principal 0o the do$a of acceleration (to the extent unpaid by the Issuer) and the Trustee ahmU he required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acce date as provided above, the Insurer's obligations under the Insurance Policy with respect oo such Bonds shall bo fully discharged. (a) The Insurer ia hereby deemed e third party beneficiary to the Ordinance. <0 Any Insured Bonds purchased by or on behalf ofthe Issuer shall be immediately cancelled unless the Insurer consents otherwise. (y) Any amendment, supplement, modificat ko, or waiver of, the Ordinance or any other imnsodino document, including any underlying security agreement (each a "Related Dooun`ent"), that requires the consent of 8undnwnenm or adversely affects the rights and interests of the Insurer shall be subject to the prior written consent uf the Insurer. (h) Unless the Insurer otherw directs, upon the occ and continuance of an Event of Default or an event which with notice or lapse of time would constitute an Event of Default, amounts on deposit in the Construction Fund shall not be disbursed, but shall instead be applied to the payment of debt service or redemption price of the Bonds. N The rights granted to the Insurer under the Ordinance or any othe Related Docume to request, consent toor direct any action are rights granted to the Insurer in consideration of its issuance of the Insurance Policy, Any exercise by the Insurer of such rights io merely anexercise of the Insurer's contractual hghtsand shalt not ba cuna0nad or deemed 8u be hshan for the bmnefit, or on behalf, of the Bondholders and such action dues not evidence any position of the Insurer, affinnative or negative, as to whether the consent of the Bondowners or any other person \m required in addition tu the consent of the Insurer. 0> Only (1) omah. (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 L:\LEGALVNUN 17768_GAoo EXHIBIT C Page 2 of 6 byabank or trust company am custodian, under which the owner of the investment is the real party ininterest 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 used to effect defeasance of the Bonds unless the Insurer otherwise approves, To accomplish defeasance, the Issuer shall cause mbe delivered (i)areport of an independent firm of nationally recognized certified public accountants or such other accountant as mhm| be acceptable to the Insurer ("Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ("Verification"), (4) on Escrow Deposit Agreement (which shall be acceptable in form and substance bothe Insurer), (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding' under the Ordinance and (iv) a certificate of discharge of the Trustee with respect to the Bonds; each Verification and dofeumanuo opinion ahsU be acceptable in form and nubstanoe, and uddr*eood, to the Issuer, Trustee and Insurer, The |nmmer shall be provided with final drafts of the above-referenced documentation not less than five business days prior to the funding of the escrow. Bonds shall be deemed "Outstanding" under the Ordinance unless and until they are in fact paid and retired or the above criteria are met. (k) Amounts paid by the Insurer under the Insurance Policy shall not be deemed paid for purposes of the Ordinance and the Bonds relating $osuch payments shall remain Outstanding and continue Uzbe due and owing until paid by the Issuer in accordance with the Ordinance. The Ordinance shall not be discharged unless all amounts due or to become due to the Insurer have been paid in full or duly provided for, p> Each uf the Issuer and Trustee covenant and agree to take such action (inumdinA.aw applicable, filing ofUCC financing statements and continuations thmreo asionecessary from time to time tnpreserve the priority uf the pledge of the Trust Estate under applicable law. hm Claims Upon the Insurance Policy and Payments byand to the Insurer. If, onthe third Business Day prior to the related scheduled interest payment date m principal payment date (~Payment Date") there in not ondeposit with the Trustee, after making all transfers and deposits required under the Ordinance, moneys sufficient to pay the principal of and interest on the Bonds due on such Payment Date, the Trustee aba|| give notice W the Insurer and 0o its designated agent (if any) (the "Insurer's F|eou| Agent") by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such Business Day. |f, on the second Business Day prior to the related Payment Date. them oum1nuem to be o deficiency in the amount available to pay the principal of and interest on the Bonds due on such Payment Date, the Trustee shall make e claim under the Insurance Policy and give notice to the Insurer and the |nuune(a Fiscal Agent (if any) by telephone of the amount of such deficienoy, 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 Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time, on such second Business Day hy filling in the form of Notice of Claim and Certificate delivered with the Insurance Policy, The Trustee shall designate any portion of payment cd principal on Bonds paid by the Insurer, whether byvirtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal ommuoi of Bonds registered to the then current Bondholder, whethozDTC or its nominee or o0hemwiuo, and shall issue e replacement Bond to the Insurer, registered in the name of Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.), in o phooipe| amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Trustee's failure to so designate any payment or issue any replacement Bond mhoU have no effect on the amount nfprincipal or interest payable by the Issuer on any Bond or the subrogation rights of the Insurer. The Trustee shall keep ecomplete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (defined below) and the allocation uf such funds to payment of interest on and principal u[ 17760_G.doo any Bond, The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Trustee, Upon payment ofaclaim under the Insurance Policy, the Trustee shall establish m separate special purpose trust account for the benefit of Bondholders referred to herein as the "Policy Payments Account" and over which the Trustee shall have exclusive control and sole right of withdrawal. The Trustee shall receive any amount paid under the 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 mode. Such amounts shall be disbursed by the Trustee 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 uemioo with other funds available to make such payments. Notwithstanding anything herein to the ounVnry' the Issuer agrees to pay to the Insurer m sum equal to the total of all amounts paid by the Insurer under the Insurance Policy (the 'Insurer Advances'); and (ii) interest on such Insurer Advances from the date paid by the Insurer until payment thereof in full, payable to the Insurer at the Late Payment Rate per annum (co/leodvely. the 'Insurer Reimbursement Amounte^). "Late Payment Rate' means the lesser of (a) the greater of (i) the per annum rate of interest, publicly announced from time kz time byJP&4ongen Chase Bank a1 its principal office |n The City of New York, aa its prime o/base |oudmg rate (any change in such rate mf interest iube effective mn the date such change is announced by JPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the Bonds and (b) the maximum rate permissible under applicable usury nr similar laws limiting interest rates, The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. The Issuer hereby covenants and agrees that the Insurer Reimbursement Amounts are secured by a lien on and pledge of the Trust Estate and payable from such Trust Estate ona parity with debt service due on Outstanding Bonds. Funds held iothe Policy Payments Account shall not be invested by the Trustee and may not be applied to satisfy any costs, expenses m liabilities of the Trustee- Anyfunds remaining in the Policy Payments Account following a Bond payment date shall promptly be remitted to the Insurer. (o) The Insurer shall, to the extent it makes any payment of principal ofminterest on the Bonds, become mubnogabad to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy. Each obligation of the Issuer to the Insurer under the Related Documents shall survive discharge or termination cf such Related Documents. (0) The Issuer shall pay m reimburse the Insurer any and all charges, fees, costs and expenses that the Insurer may reasonably pay m incur in connection with (i) the administration, enforcement, defense or preservation of any rights cv security in any Related Document; (ii) the pursuit ofany remedies under the Ordinance orany other Related Document or otherwise afforded by law or equity, (Hi) any amendment, waiver ur other action with respect to, or related to, the Ordinance or any other Related Document whether or not executed or completed or (iv) any litigation o/ other dispute in connection with the Ordinance or any other Related Document or the transactions contemplated dhoreby, other than costs resulting from the failure of the Insurer to honor its obligations under the Insurance Policy, The Insurer reserves the right to charge a reasonable fee eoecondition 0o executing any amendmeot, waiver or unmaan1 proposed in respect of the Ordinance or any other Related Document, (p) After payment of reasonable expenses of the Trustee, the application of funds realized upon default shall be applied to the payment of expenses of the Issuer or rebate only after the payment uf past due and current debt service on the Bonds and amounts required to restore the Debt Service Reserve Account to the Debt Service Reserve Requirement, (q) The 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 Issuer (as such terms are defined in the Insurance Policy) and any amounts due on the Bonds as a result of acceleration of the maturity thereof in accordance with the EXHIBIT C Page 4 of 6 Ordinance, whether mnot the Insurer has received a Notice of Nonpayment (as such terms are defined inthe Insurance Policy) orm claim upon the Insurance Policy. yj The notice address mf the Insurer is: Assured Guaranty Municipal Corp. (formerly known am Financial Security Assurance Inc.), 11 West 52nd Stmaet, New York, Now York 10019. Attention: Managing Director Surveillance, Re: Policy No. Telephone: (213) 826-0180; Tm}ecup|ar: (212) 339'3558' 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 mUantkzn of the General Counsel and shall be marked to indicate "URGENT MATERIAL ENCL0SED.~ (s) The Insurer shall be provided with the following information by the Issuer mTrustee, as the case may be: 0) Annual audited financial statements within 150 days after the end of the Issuer's fiscal year (together with a certification of the Issuer that it is not aware of any default or Event o( Default under the Ondinance).and the Issuer's annual budget within 30 days after the approval thereof together with such other information, data or reports as the Insurer shall reasonably request from time hztime; (U) Notice of any draw upon the Debt Service Reserve Account within two Business Days after knowledge thereof; (|V) Notice of any default known to the Trustee or Issuer within five Business Days after knowledge thereof, (iv) Prior oo5ow of the advance refunding or redemption of any of the Insured Bonds, including the principal amount, maturities and CUS|P numbers thereof: (v) Notice of the resignation or nenmwa| of the Trustee and Band Registrar and the appointment of, and acceptance of duties by, any successor thereto: (vi) Notice of the commencement of any proceeding by or against the Issuer commenced under the United S1uiea Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"),- (vii) Notice of 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 ofany amendment, supplement, ur waiver to the Related Documents; (|x) All reports, notices and correspondence to be delivered to Bondholders under the terms of the Related Documents; and (x) To the extent that the Issuer has oNaned into a continuing disclosure mgmanmont, covenant or undertaking with respect m the Bonds, all information furnished pursuant to such agreements shall also be provided 0o the Insurer, simultaneously with the furnishing cf such information. (0 The Insurer shall have the right to receive such additional information as it may reasonably request. (u) The Issuer will permit the Insurer to discuss the affairs, finances and accounts of the Issuer or any information the Insurer may reasonably request regarding the security for the Bonds with appropriate officers nf the Issuer L:\LEGALUMU 17768_S.doo EXHIBIT Page 5 of 6 and will use commercially reasonable efforts to enable the Insurer Whave access to the facilities, books and records of the Issuer on any business day upon reasonable prior notice. (V) The Issuer shall notify the Insurer of any failure of the Issuer to provide notices, certificates and other information under the transaction documents. (w) Notwithstanding satisfaction of the other conditions to the issuance of Additional Bonds set forth in the Ordinance, nosuch issuance may occur (1) ifmmEvent of Default (or any event which, once all notice mgrace periods have passed, would constitute an Event of Default) exists unless such default shall bu cured upon such imeoamue and (2) unless the Debt Service Reserve Account |u fully funded otthe Required Reserve Amount (including the proposed issue) upon the issuance nf such Additional Bonda, in either case unless otherwise permitted hy the Insurer, (x) In determining whether any mmendmont, ounyoni waiver ur other action 0u be taken, or any ha||ooa to take action, under the Ordinance would adversely affect the security for the Bonds or the rights of the Bondholders, the Issuer shall consider the effect of any such amendment, consent, waiver, action vr inaction as|f there were nu Insurance Policy, (y) No contract shall be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the Bonds may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer. (r> So long as any Bonds insured by AGM remain outstanding or any amounts are owed to AGM by the Issuer, the Issuer shall not enter into any swap or any other interest rate exchange agreement, cap, collar, floor, ceiling, or other agreement or instrument involving reciprocal payment obligations between the Issuer and a counterparty based on interest rates applied to a notional amount of principal entered into by or on behalf of the Issuer and payable from or secured im whole o/|n part by the Not Revenues, without the prior written consent ofAGM. (aa) So long as any |nmomd Bonds insured by the Insurer remain outstanding a/ any amounts are owed hmthe Insurer by the Issuer, without the prior whdoo m*nue,d of the Insurer, the Issuer shall not imavn or incur indebtedness payable from or secured in whole or in part bythe Net Revenues that permits or requires the holder to tender such indebtedness for purchase prior to the stated maturity thereof without the prior written consent of the Insurer. (bb) Notwithstanding any provision to the contrary in the Ordinance, the Issuer shall use actual amortization omall Bonds then Outstanding tu determine Debt Service for purposes of the Ordinance, disregarding any provision in the Ordinance allowing for assumed, hypothehoa|or deemed amortization. (nn) The subsidy payments received by the Issuer as e consequence of any Outstanding Bonds being Recovery Zone Economic Development Bonds or Build America Bonds under the American Recovery and Reinvestment Act of 2009, or other program providing for debt service subsidies with respect to Bonds ('Federal Subsidy") shall not conohk4o an offset to debt service for purposes of the Ordinance (including for purposes of determining "Debt Service Requirements' as such term is used /n the [>,dinanom). The Issuer's obligation N pay principal and interest on the Insured Bonds is not net of the Federal Subsidy am that if such Federal Subsidy is auependod, reduced or terminated, the Issuer shall remain obligated for the full amount ofprincipal and interest on the Insured Bonds. L:1E8ALVMmW|S\STAJES\T)O117768_G,doo INSURANCE POLICY RelatedBunds: Water and Sewer System Revenue Refunding Bonds, Series 2010B Premium: 3.50% of the Policy Limit Policy Limit: The lesser cf $88V.0O0wr maximum annual debt service on the Related Bonds AGM hereby commits to issue its Municipal Bond Debt Service Reserve Insurance Policy (the "Reserve Policy"), in the form transmitted herew relating to the above-described Related Bonds, subject to the terms and conditions contained herein or added hereto, All terms used herein and not otherwise defined shall have the meanings ascribed to them in the document setting forth the security for and authorizing the issuance of the Related Bonds (the "Ordinance"), The Reserve Policy shall only be available for draws on the Related Bonds. The Reserve Policy shall expire on the earlier of the date no Related Bonds are outstanding and the stated final maturity date of the Re Bonds, THE RESERVE POLICY SHALL BE ISSUED UPON SATISFACTION OF THE FOLLOWING CONDITIONS. 1 AGM shall have received confirmation that the Reserve Policy Insurance Premium has been deposited to the account of AGM: 2. AGM shall insure the Related Bonds pursuant to the terms of this Commitment; 3. The Ordinance shall include the prov set forth in Exhibit E-1 attached hereto, 4� AGC shall have received fully-executed copies ofthe Insurance Agreement substantially in the honn included in this Commitment mm Exhibit E'2; 4. AGC sha be an addressee of an opinion of bond counsel to the effec tha (i) the Insurance Agreement in the form attached to this Commitment as Exhibit E-2 has been duly authorized, executed and delivered by the Issuer and such agreement is |oga[, vu|W and binding obligation of the |suma/ enforceable against the Issuer in accordance with its terms, and (|i) the Reserve Policy nonntku0ma e Credit Facility eligible for deposit bothe Reserve Fund au provided pursuant tu the Ordinance. 5. Any Official Statement or similar disclosure document relating hathe Related Bonds shall contain only such references to the Reserve Policy and AGM emmm shall supply orapprove. L:\LEGAL\MU 17768_G.dou The Ordinance shall incorporate the following requirements either in one section or article entitled "Provisions Relating N Reserve Policy" (or the like), theprovi$ions of which section or article shall be stated in the Ordinance to qQXern, notwithstanding anything to the_conlrary sgt forth in the OrdiniInce, or individually in the app/ophat* (m) The Issuer shall repay any draws under the Reserve Policy and pay all related reasonable expenses incurred by AGM. Interest shall accrue and be payable on such draws and expenses from the date otpayment by AGM si the Late Payment Rate. "Late Payment Rmhs means the lesser of(a)the greater of(i) the paraonum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate ('Prime Rate") (any change in such Prime Rate to be effective on the date such change is announced byJPxAu'gmn Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall bo computed on the basis of the actual number mf days elapsed over e year nf 3O0 days. |n the event JPMorgon Chase Bank ceases io announce its Prime Rate publicly, Prime Rate shall be the publicly announced prime or base lending rate of such national bank as AGM shall specify, Repayment of draws and payment ofexpenses and accrued interest thereon at the Late Payment Rote (collectively, "Policy Costs") shall commence in the first month following each dnavv, and each such monthly payment shall beinan amount od least equal hz 1/12 of the aggregate of Policy Costs related to such draw. Amounts in respect of Policy Costs paid to AGM shall be credited first to interest due, then to the expenses due and then 0o principal due. An and ho the extent that payments are made ,m AGM on account of principal due, the coverage under the Reserve Policy will be increased by a like amount, subject to the terms of the Rmuume All cash and investments in the debt service reserve fund established for the Bonds (the "Reserve Fmndl shall be transferred to the debt service fund for payment of debt service on Bonds before any drawing may be made on the Reserve Policy or any other credit facility cnodkaV to the Reserve Fund in lieu of cash ('Credit Facility"), Payment of any Policy Costs shall be made prior ho replenishment of any such cash amounts. Draws on all Credit Facilities (including the Reserve Policy) on which there is available coverage shall be made on a pro- rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the Raaenm Fund. Payment ofPolicy Costs and reimbursement of amounts with respect to other Credit Fad|1bom uhuH be made on a pro-rata basis prior to replenishment of any cash drawn from the Reserve Fund. For the avoidance of doubt. ^avo/kabb* coverage' means the coverage then available for disbursement pursuant to the 0amsm of the applicable alternative credit instrument without msgund to the |oUa| or financial ability or willingness of the provider of such instrument to honor a claim or draw thereon or the failure of such provider 0o honor any such claim ordraw. (b) N the Issuer shall fail to pay any Policy Costs N accordance with the requirements of Paragraph 5(a) hereof, AGM shall bo entitled iu exercise any and all legal and equitable remedies available 0o K. including those provided under the Ordinance other than (i) acceleration of the maturity of the Bonds nr(U)remedies which would adversely affect owners of the Bonds. (n) The Ordinance ahmU not be discharged until all Policy Costs owing to AGM shall have been paid in full. The Issuer's obligation to pay such amounts shall expressly survive payment in full of the Bonds. (d) The additional bonds test and the rate covenant iu the Ordinance shall expressly provide for at least one times coverage of the Policy Costs then due and owing. (o) The Ordinance shall require the Trustee to ascertain the necessity for a claim upon the Reserve Policy in accordance with the provisions of paragraph (o) hereof and to provide nmbmm to AGM in accordance with the terms of the Reserve Policy at least five business days prior to each date upon which interest or principal is due on the Bonds. Where deposits are required to be made by the Issuer with the Trustee to the debt service fund for the Bonds more often than semi-annually, the Trustee shall be instructed to give notice to AGM of any failure of the Issuer W make timely payment \n full of such deposits within two business days nf the date due. EXHIBIT E-2 Page 1of 3 INSURANCE AGREEMENT INSURANCE AGREEMENT, dated amofL l (the ^Agnaemant').by and between I (the lmmuer">and Assured Guaranty Municipal Corp, (formerly known am Financial Security Assurance |noJ (the "Insurer"), In consideration of the issuance by the Insurer of its Municipal Bond Debt Service Reserve Insurance Policy No. (the "Reserve Pol|cy") with respect to the Issuer's (the ^Bonds") issued under the dated ______(the "Authorizing Document") and the {mauor'm payment to the !noumx of the insurance premium for the Reserve Policy, the Insurer and the Issuer hereby covenant and agree as follows: Upon any payment hythe Insurer under t Reserve Policy, t Insurer shall furnish to the Issuer written instructions as to the manner in which payment of amounts owed to the Insurer as a result of such payment under the Reserve Policy shall bemade. T Issuer shall pay the Insurer the principal amount of any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer and shall pay interest thereon from the date nf payment by the Insurer atthe Late Payment Rate. "Late Payment Rate" means the lesser of (a) the greater uf(i) the per annum rate of interest, publicly announced from time to time by JPMmgan Chase Bank at its phnnipal offium in the City o[ New York, as its prima or base lending rate ("Prime Raia^) (any change in such Prime Rate to be effective no the date such change is announced by JPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event JPMnrgan Chase Bank ceases to announce its Prime Rate, No Prime Rate shall be the prime or base lending rate ofsuch national hunk as the Insurer shall designate. If the interest provisions of this Section 2 shall result in an effective rate of interest which, for any period, exceeds the limit of the usury or any other laws applicable to the indebtedness created herein, then all sums in excess of those lawfully collectible as interest for the period in question ahaU, without further agreement or notice between or by any party hereto. be applied as additional interest for any later periods of time when amounts are outstanding hereunder to the extent that interest otherwise du* hereunder for such periods plus such additional intapmoi wou not exceed the limit of the usury or such other laws, and any excess shall be applied upon principal immediately upon receipt uf such moneys by the Insurer, with the same force and effect an if the Issuer had specifically designated such extra sums to be so applied and the Insurer had agreed to accept such extra payment(s) as additional interest for such later periods. In no event shall any agreed-to or actual exaction as consideration for the indebtedness created herein exceed the ||miba imposed or provided by the law applicable 0r this transaction for the use or detention of money or for forbearance in seeking its collection. 3. Repayment of draws and payment of expe and the interest accrued thereon at the Late Payment Rate <oollectively. "Policy 0sts'>shall commence <n the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12th of the aggregate of Policy Costs related io such draw. Amounts in respect of Policy Costs paid iu the Insurer shall bo credited first to interest due, then to the expenses due and then to principal due, 4. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve Policy will be increased by a like amount, subject to the terms of the Reserve Policy. S. All cash and investments in the Reserve Fund shalt be transferred to the debt service fund for payment of debt service on the Bonds before any drawing may be made on the Reserve Policy m on any alternative credit instrument. Payment of any Policy Costs ahmd/ be made prior 0o replenishment of any such cash amounts. Draws un all alternative credit instruments (including the Reserve Policy) on which there is available coverage shall be made on a pro rata basis (calculated EXHIBIT E-2 Page 2 of 3 by reference to coverage then available under each such alternative credit instrument) after applying available nenh and investments in the Reserve Fund. Payment of Policy Costs and reimbursement of amounts with respect to alternative credit instruments shall be made on a pro- rata basis prior to replenishment of any cash drawn from the Reserve Fund. For the avoidance nf doubt, "available coverage" means the coverage then available for disbursement pursuant tothe terms of the applicable alternative credit instrument without regard hn the legal nr financial ability or willingness cf the provider of such instrument 8»honor a claim ur draw thereon or the failure nfsuch provider Um honor any such claim ordraw. 6� If the Issuer shall fail to pay any Policy Costs in accordance with the requirements of the Authorizing Document and this Agreement, the Insurer shall be entitled to exercise any and all legal and equitable remedies availab to it, including those provided under the Author Document, other than (i) acceleration of the maturity of the Bondy or (ii) remedies which would adversely affect owners of the Bonds. 7� The Authorizing Document shall not be discharged until all Policy Costs owing to the Insurer shall have been paid |nfull. The Issuer's obligation Um pay such amounts shall expressly survive payment in Ul of the Bonds, K In order to secure the Issuer's payment obligations with respect to the Policy Costs, there is hereby granted and perfected in favor of the Insurer a security interest (subordinate only to that of the owners of the Bonds) in all revenues and collateral pledged as security for the Bonds. 9. Policy Costs due and owing shall be included in debt service requ f purposes of calculation of the additional bonds test and t rate coven in the Authorizing Documen 10, The Trustee shall ascertain the necessity for o claim upon the Reserve Policy in accordance with the prov uf paragraph 5hereof and shall prov notice ho the Insurer |n accordance with the terms ofthe R*aemo Policy at least five business days prior to each date upon which interest or principal is due on the Bonds. vYhena deposits are required to be made by the Issuer with the Trustee to the debt service fund for the Bonds more often than semi-annually, the Trustee shall give notice to the Insurer of any failure of the Issuer to make timely payment in full of such deposits within two business days of the date due. 11, The Issuer will pay mreimburse the Insurer, to the extent permitted by law, and solely from amounts pledged ur available hn pay the Bonds, any and all charges, fees, costs, losses, liabilities and expenses which the Insurer may pay or incur, |nduding, but not limited to, fees and expenses of e¢urneys, accountants, consultants and auditors and reasonable costs of inmymbgaUonn, in connection with (i) any accounts established to facilitate payments under the Reserve Policy, (ii) the mdminieVrahon, enhonmmont, defense or preserva of any rights in respect of this Agreement or any document executed in connection with the Bonds (the "Related Documents~), including defending, monitoring or participating in any litigation or proceeding (including any bankruptcy proceeding in respect of the Issuer) relating to this Agreement or any other Related Document, any party to this Agreement or any other Related Document or the transaction contemplated by the Related Documents, (fli) the foreclosure against, safe or other disposition of any collateral securing any obligations under this Agreement orany other Related Cmoumant, if any, or the pursuit ofany remedies under any other Related Document, to the extent such omytm and expenses are not recovered from such hoem)oaunm, sale m/ other disposition, (|v) any amendment, waiver or other action with respect to, or related to this Agreement, the Reserve Policy or any other Related Document whether or not executed or umnp(eted, or (v) any action taken by the Insurer to ouna e default or h*nnbnaUmm or similar event (or to mitigate the offeoL thoroo0 under any Related Document; costs and expenses uhe|| include a reasonable e||ocoUnn of compensation and overhead attributable to time of employees of the |nouxn spent in connection with the actions described in clauses (ii)-(v) above. The insurer reserves the right 10 charge a reasonable fee aaa EXHIBIT E-2 Page 3 of 3 condition to executing any amendment, waiver m consent proposed in respect of this Agreement or any other Related Document Amounts payable by the Issuer hereunder ohoU bear interest oUt Late Payment Rate from the date such amount is paid or incurred by the Insurer until the date the Insurer is paid in full. 12. The obligation nf the Issuer to pay all amounts due under this Agreement shall bean absolute and unconditional obligation of the Issuer and will be paid or performed strictly in accordance with this Agreemen irrespective of (i) any lack of validity or enforceability of or any amendment or other modifications uC or waiver with respect to the Bonds or any Related Document, or (ii) any amendment or other modification of, or waiver with respect to the Reaoma Policy; (iii) any nxchange, release or non-perfection uf any security interest in property securing the Bonds, this Agreement or any Related Documents; (iv) whether or not such Bonds are contingent or matured, disputed or undisputed, liquidated or unliquidated; (v) any amendment, modification or waiver of or any consent 8a departure from this Agreement, the Reserve Policy or all or any of the Related Documents; (vi) the existence of any claim, oekdt defense (other than the defense of payment in full), reduction, abatement or other right which the Issuer may have at any time against the Trustee or any other person or entity other than the Insurer, whether inoonneoVoowdb0hioAgnmnaont.{he transactions contemplated herein or in the Related Documents or any unrelated transactions; (vii) any statement or any other document presented under or in connection with the Reserve Policy proving in any and all respects invalid, inaccurate, insufficient, fraudulent or forged or any statement W`*min being untrue or inaccurate in any respect; or (viii) any payment by the Insurer under the Renmmo Policy against pemonreUoo of a certificate or other document which dnme not stric comply with the terms mf the Reserve Policy. 11 Notices mthe Insurer shall be sent to the following address (or such other address as the Insurer may designate invritin0): Assured Guaranty Municipal Corp. (formedyknovmmmuF|mando|Socurity Assurance Inc.), 31 West 52nd Street, New York, New York 10019 Attention: FUek Management Department Public Finance— Surveillance, Re: Policy No. 14. K any one mmore of the agreements, provisions or terms of this Agreement shall be for any reason whatsoever Meld invalid, than such agreements, provisions or terms shall be deemed severable from the remaining agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions o[ this Agreement. 15� All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them /n the Authorizing Dooumant- 16. This Agreement may be executed in counterparts, each of which alone and all of which together shall be deemed one original Agreement. 1T This Agreement and the rights and obligations of the parties of the Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have set their hands anof the date written above. Title ASSURED GUARANTY MUNICIPAL CORP (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.) in Authorize Office ISSUER: BONDS: Effective Date: Premium: Termination Date: ASSURED GUARANTY MUNICIPAL CORP. ;(FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC,) ('AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee or paying agent (the "Paying Agent`) as set forth in the documentation (the "Bond Document providing for the issuance of and securing the Bonds, for the benefit of the Owners, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. AGM will make payment as provided in this Policy to the Trustee or Paying Agent on the later of the Business Day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which AGNI shall have received Notice of Nonpayment, in a four: reasonably satisfactory to it. A Notice of Nonpayment will be deemed receivers on a given Business Day if it is received prior to 1:00 p.m. (New York time)_ on such Business Day: otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or issuer, as appropriate, who may submit an amended Notice of Nonpayment. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy, Upon such payment, AGM shall become entitled to reimbursement of the amount so paid (together with interest and expenses) pursuant to the Insurance Agreement. The amount available under this Policy for payment shall not exceed the Policy Limit. The amount available at any particular time to be paid to the Trustee or Paying Agent under the terms of this Policy shall automatically be reduced by any payment under this Policy. However, after such payment, the amount available under this Policy shall be reinstated in futl or in part, but only up to the Policy Limit, to the extent of the reimbursement of such payment (exclusive of interest and expenses) to AGM by or on behalf of the Issuer. Within three Business Days of such reimbursement. AGM shall provide the Trustee, the Paying Agent and the Issuer with notice of the reimbursement and reinstatement. Payment under this Policy shall not be available with respect to (a) any Nonpayment that occurs prior to the Effective Date or after the Termination Date of this Policy or (b) Bonds that are not outstanding under the Bond Document, if the amount payable under this Policy is also payable under another insurance policy or surety bond insuring the Bonds, payment first shall be made ender this Policy to the extent of the amount' available under this Policy up to the Policy Limit. In no event shalt AGM incur duplicate liability for the same amounts owing with respect to the Bonds that are covered under this Policy and any other insurance policy or surety bond that AGM has issued. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York are, or the Insurer's Fiscal Agent is, authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund' redemption), acceleration or other advancement of maturity unless AGM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the Page 2 of 2 Policy No. stated date for payment of interest, "Insurance Agreement" means the Insurance Agreement dated as of the effective date hereof in respect of this Policy, as the same may be amended or supplemented from time to time. "Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer that has been recovered from such Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with a final, nonappealable order of a court having competent jurisdiction. "Notice" means telephonic or telecopied notice, subsequently confirmed in a signed writing, or written notice by registered or certified mail, from the Issuer, the Trustee or the Paying Agent to AGM which notice shall specify (a) the person or entity mak;ng the claim, (b) the Policy Number, (c) the claimed amount and (d) the date such claimed amount became Due for Payment. "Owner" means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment of principal or interest thereunder, except that "Owner" shall not include the Issuer or any person or entity whose direct or indirect obfigation constitutes the underlying security for the Bonds. "Policy Limit' shall be the dollar amount of the debt service reserve fund required to be maintained for the Bonds by the Bond Document from time to time (the "Debt Service Reserve Requirement"), but in no event shall the Policy Limit exceed Sf 1. The Policy Limit shall automatically and irrevocably be reduced from time to time by the amount of each reduction in the Debt Service Reserve Requirement, as provided in the Bond Document. AGM may appoint a fiscal agent (the "Insurers Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee and the Paying Agent specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee and the Paying Agent, (a) copies of all notices required to be delivered to AGM pursuant to this Policy shall be simultaneously delivered to the Insurers Fiscal Agent and to AGM and shall not be deemed received until received by both and (b) all payments required to be made by AGM under this Policy may be made directly by AGM or by the Insurer's Fiscal Agent on behalf of AGM, The Insurer's Fiscal Agent is the agent of AGM only and the Insurer's Fiscal Agent shalt in no event be liable to any Owner for any act of the Insurer's Fiscal Agent or any failure of AGM to deposit or cause to be deposited sufficient funds to make payments due under this Policy. To the fullest extent permitted by applicable law, AGM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherNise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise to the extent that such rights and defenses may be available to AGM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy, This Policy sets forth in full the undertaking of AGM, and shall not be modified, altered or affected by any other agreement or instrument, including any modification •or amendment thereto. Except to the extent expressly modified by an endorsement hereto. (a) any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity and (b) this Policy may not be cancelled or revoked, THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. In witness whereof, ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.) has caused this Policy to be executed on its behalf by its Authorized Officer, ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE INC.) By Authorized Officer A subsidiaaof Financial Security Assurance Holdings Inc. (212) 826-0100 31 West 52 o Street, New York, N.Y. 10019 Form 501 NY (6/90) PROCEDURES FOR PREMIUM PAYMENT TO ASSURED GUARANTY MUNICIPAL CORP. (FORMERLY KNOWN AS FINANCIAL SECURITY ASSURANCE AGM's issuance of its municipal bond insurance policy at bond closing is contingent upon payment and receipt of the premium. NO POLICY MAY BE RELEASED UNTIL PAYMENT OF SUCH AMOUNT HAS BEEN CONFIRMED. Set forth below are the procedures to be followed for confirming the amount of the premium to be paid and for paying such amount: Confirmation of Amount to be Paid: Upon determination of the final debt service schedule, fax such schedule to AGM Attention: Jim Doyle, Director Phone No.: (212) 339-3462 Fax No.: (212) 857-0354 Confirm with AGM's credit analyst that you are in agreement with respect to par and premium on the transaction prior to the closing date. Payment Date: Date of Delivery of the insured bonds. Method of Payment: Wire transfer of Federal Funds. Wire Transfer Instructions: Bank: ABA#: Acct, Name: Account No.: Transaction No.: The Bank of New York 021 000018 Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.) 9900297263 117768 AGM will accept as confirmation of the premium payment a wire transfer number and the name of the sending bank, to be communicated on the closing date to Erika Paredes-Reboucas, Closing Coordinator, {29 2) 893-2706. W4 Is I 1 1 11 v 0 a PRELIMINARY OFFICIAL STATEMENT t See Tab HOU:3002985.5 EXHIBIT G OFFICIAL STATEMENT See Tab HOU:3002985.5 EXHIBIT H DESCRIPTION OF ANNUAL FINANCIAL INFORMATION The following information is referred to in Article X of this Ordinance: Annual Financial Statements and Operating Data The financial information and operating data with respect to the City to be provided annually in accordance with such Article are as specified below: 1. The financial statements of the City for the most recently concluded fiscal year. Accounting Principles The accounting principles referred to in Article X are the accounting principles described in the notes to the financial statements referred to in paragraph I above. HOU:3002985,5 EXHIBIT I REFUNDED BONDS 2 HOU:3002985.5 Redemption Redemption Name Maturities Amount Price Date City of Pearland, Texas 9/1/2012 $255,000 100% 91112011 Water and Sewer System 9/l/2013 270,000 100 9/1/2011 Revenue Bonds, Series 2001 9/1/2014 290,000 100 9/1/2011 9/l/2015 300,000 100 9/l/2011 9/1/2016 320,000 100 9/1/2011 9/l/2017 340,000 100 9/l/2011 9/1/2018 365,000 100 9/1/2011 9/l/2019 390,000 100 9/l/2011 9/l/2020 420,000 100 9/l/2011 9/l/2021 1,730,000 100 9/l/2011 9/l/2022 1,825,000 100 9/l/2011 9/1/2023 1,925,000 100 9/1/2011 2 HOU:3002985.5